How to Solve It?
Profitability is secured through the management of business fundamentals.
So what are they?
Treacy and Wiersema present a model in their book ‘The Discipline of Market Leaders.’ The authors identify three value disciplines – or axes – that serve as measurable and manageable fundamentals: Operational Excellence, Customer Intimacy and Product Leadership. Based on these axes, the executive challenge becomes how to reduce costs (operational excellence), increase market share (customer intimacy) and increase price premiums (product leadership) at the same time?
This model is rational, practical and I like it. Systems associated with each axis can connect your teams and the KPI output can populate your management dashboard. But how?
Why am I Sharing This?
I’ve always been interested in the bigger picture. How do things work? How does everything stick together? How can we improve?
After reading illustrated how-to books as a child, I completed engineering and business degrees in Sweden and the US. My professional career began in engineering at Scania. After that I moved into regional management at Eaton Corporation and the product divisions of ESAB, and then joined Sidel Group as President and CEO in 2008.
Now I’m a Board Member at Modular Management, world leader in modular product architecture, and at Starcounter, the in-memory database specialist. You’re welcome to link in, but I’m not here to reminisce about my career. Instead, here are a few ideas about how executives can bridge strategy and results. And connect organizations without drowning in complexity and Microsoft Office documents.
Connect Systems to Value Axes
Customer intimacy means products and services that suit individual customer’s needs. Every customer is unique and wants an individual solution. Fast. Do this well and you can build long-term customer satisfaction and loyalty. Market share is the driving KPI, and sales (CSO) and marketing (CMO) often share responsibility.
System: CRM and CPQ
Product leadership means first-to-market with new and innovative products. Do it well and you get a price premium. Sales of new products are key performance indicators and your innovation teams drive this, with R&D and product management (CTO) at the forefront.
System: PLM and CAD.
And as CEO, you get the lot.
The authors of ‘The Discipline of Market Leaders’ suggested that companies should focus on one axis to increase competitiveness and become market leader. But how can a CEO succeed with responsibility for all three axes by focusing on just one? Instead, let’s look at a solution for the Executive Dilemma.
One size doesn’t fit all, which is exactly why disaggregation into a modular architecture is important.
Modularity is defined as ‘the degree to which a system is made up of relatively independent but interlocking components or parts.’ A modular product architecture is the foundation for tailoring your hardware, software and services to the needs of your customers.
Products can be built up of modules. Each module has a technical function, as well as specific parameters in terms of company strategy and customer needs.
For example, product X is built up of 20 separate modules and each module is available in five different variants. If the modules have standardized interfaces, each variant can be combined differently to create completely different products, which can then be configured by individual customers. The result? 95 trillion product configurations quickly produced with fewer parts and lower overall costs.
Since one size doesn’t fit all, make sure that you can disaggregate your products into modules that each combine these three key variables: strategy, function and customer needs.
Each module should have a clear, documented purpose, not just functional/technical, so the full interdependencies between modules is clear. Modular design means each module is available in different variants to be easily combined and connected though standardized interfaces. Customers can configure customized solutions and you can deliver fast without drowning in complexity.
Once you’ve disaggregated products into modules, you have a modular product architecture and its accompanying, documented information model. Modularity, configuration and digitalization then combine to solve the three-axis executive challenge.
With a modular product architecture, each customer knows what is and isn’t possible to configure. And you know too. The bill of materials (BOM) is such that customers get what they want, fast. Your organization knows what you’re selling, making, delivering, servicing and reselling. You sell what you have, not what you don’t, and you focus your product development on those modules that really make a difference. Your support systems are connected, thanks to the universal information model connected by nodes, and your organization is able to share the same information in real time.
- Make sure everything you do is anchored in solid strategy. Building a modular architecture does not start with standardization, it starts with understanding your customers’ needs.
- Adopting a modular architecture is by its nature transformative and requires persistence. Build faith and momentum by going after low-hanging fruit and make sure you deliver short-term gains throughout the program, even if some of those steps might not be directly critical for the end result.
1. Don’t underinvest in your R&D. That can be a tempting way to optimize short-term results, but rebuilding a depleted technology pipeline is very tough. Avoid ending up there.
2. Don’t underinvest in your people. And when you drive a transformation, make leading the change a visible path career booster for your high-potential talents.
The Executive Dilemma is how to optimize operational excellence, customer intimacy and product leadership
You can solve this dilemma if you disaggregate products and services into modules and then reaggregate. A modular product architecture, with accompanying information management tools, enables you to connect your products, customers and organization.
Customers want innovative products fast. Customers want to customize. Producers want to make customers happy and a modular product architecture, based on my experience, makes this possible. Modular design enables you to manage all three value axes at the same time. And your products and services can be customized on line, en masse.
Thanks for reading and don’t hesitate to get in touch.
"One size doesn’t fit all, which is exactly why disaggregation into a product architecture is important."
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