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A guide for turning products into profits discusses how firms should focus their energies on developing families of products simultaneously that share common components and technology
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Marc H. Meyer is Associate Professor of Management at Northeastern University's College of Business Administration, Research Director of the College's Center for Technology Management, and has been a Visiting Associate Professor at the MIT Sloan School of Management. Dr. Meyer is also a co-founder of three software companies and consults actively to leading manufacturers in high-tech industries.Excerpt. © Reprinted by permission. All rights reserved.:
Chapter 1: The Power of Product Platforms
Product-making enterprises -- the ones that survive, that is -- are evolutionary entities. Their product portfolios change through periodic enhancements to basic product and manufacturing technologies. Some of the changes are true breakthroughs, while others are merely incremental. The appropriate changes lead to market success; those that are not appropriate lead to failure.
The long-term success of an enterprise depends on a stream of new products -- some replacing older ones, others pioneering new markets. As the world economy becomes more integrated, many new products have to be global products, satisfying worldwide customer needs and regulatory requirements. The stream of new global products, exploiting advances in both product technologies and technologies used to manufacture, distribute, and provide support, is what provides the fuel for corporate growth and renewal.
FOCUSING ON SINGLE PRODUCTS
Regardless of the importance creating streams of new products, traditional methods for managing this vital business function usually fail to deliver in the long run. That is because companies typically design new products one product at a time. The single product must compete for resources against other projects in the corporation's portfolio. Every product team must justify its own existence repeatedly throughout the process of development and commercialization. Approval gates swing open and shut as single development projects move forward. Budget, break-even, and cycle-time measures are all typically calculated on the basis of single products.
The end result of this single-product focus is a failure to embrace commonality, compatibility, standardization, or modularization among different products and product lines. For a given company, the evidence for lack of commonality is found in the products themselves and their component parts. One will observe that the products use different materials for the same purposes; different switches when one kind of switch would do; a technology developed in-house at great expense to serve a single product; components with the same technical specifications but different sizes (so they cannot be interchanged); and on and on. That is where a product portfolio can easily end up when it is developed and managed one product at a time.
Now ask yourself: Would it not be better to build an entire family of products that leverage a common market understanding, common product technologies, and a common set of highly automated production processes? Rather than have separate development teams each working on single products, wouldn't it be better to have them join forces in building a common platform or a design from which a host of derivative products could be effectively and efficiently created? In short, might not the entire product portfolio of a business segment be tackled en masse?
To see that this alternative to a single-product mentality is not so far-fetched, but rather highly feasible and operationally viable, let us reach back to the experience of Black & Decker. Most readers probably own a Black & Decker power tool. There is a very good reason for this. Black & Decker drove most of its competitors out of the consumer segments of the power tools business by developing effective product platforms for its major product families.
RENEWING THE PRODUCT PORTFOLIO AT BLACK & DECKER
In the early 1970s Black & Decker's consumer power tool product portfolio was broad and deep, consisting of eighteen power tool groups. Eight groups contributed 73 percent of sales and 91 percent of units sold: drills, jigsaws, shrub and hedge trimmers, power hammers, circular saws, grinders and polishers, finishing sanders, and edgers -- 122 different models in all.
As with most established companies, Black & Decker's product portfolio had evolved over many years; by 1970 it was a collection of uncoordinated designs, materials, and technologies. Its power tools relied on thirty different motors, each manufactured by a different set of tooling. Sixty different motor housings were needed to accommodate variations in power and application (e.g. a drill versus a saw or sander). Besides, the company relied on 104 different armatures, the part that connects the motor to the "business end" of the tool (e.g., to the drill bit or the saw blade). Each of those armatures, in turn, required its own tooling. Dozens of different switches and buttons populated the company's parts bins and bills-of-materials.
The vast majority of Black & Decker's products had crept into the power tool portfolio one at a time, with little thought given to how economies might be achieved through shared components and manufacturing processes. The thousands of parts needed for the products required thousands of square feet of stockroom space and hundreds of people to order, shelve, and inventory them. Each unique product design required either a dedicated production line or frequent and time-consuming line changeovers. Inelegant designs translated into high labor inputs.
Despite those impediments, Black & Decker had grown into a major player in consumer power tools, perhaps because its competitors also followed the same one-at-a-time approach to product development. Its products worked as well as those of rivals and were priced competitive with those of other domestic manufacturers. Circa 1970, Black & Decker controlled about 20 percent of market share worth about $200 million annually in revenue. Despite its comfortable situation, management saw three dark clouds on the horizon:
* Offshore manufacturers were making inroads into the North American market and attacking emerging markets overseas.
* Inflation and the rising cost of labor, materials, services, and capital goods were devouring Black & Decker's margins. To maintain constant labor-cost content in its products, management calculated that about one-third of the labor cost would have to be removed from products over the next three to four years. While that would be difficult for any single product, it would be impossible for the company's entire power tool line without making use of design standardization, automation, better use of materials and floor space, and intelligent capital planning.
* Consumers and regulators would be requiring higher standards of safety -- specifically, adding a backup barrier of insulation around the power tool motors to protect the users from electrical shock if the existing insulation system failed. Regulatory mandates for double insulation had already taken hold in Europe and were expected to surface in the American market. This would create havoc for Black & Decker's production process. Its management estimated that redesigning all its power tools for double insulation one product at a time would take nearly a decade.
Black & Decker's Board and its management team understood that those threats could not be met with small measures. They also understood that their competitors faced the same problems. "If we can respond more rapidly and effectively," they reasoned, "the threats we face as an enterprise might be turned into opportunities to dominate our industry."
The Double Insulation Program
The need to adopt double insulation turned out to be the catalyst for renewal of the entire Black & Decker power tool portfolio. Management started the Double Insulation Program with a clear mission: (1) redesign all consumer power tools at the same time; (2) redesign manufacturing simultaneously so that all the new products could be manufactured at substantial cost advantage; and (3) offer double insulated products at no increase in price to the consumer. The implication of this mission was that current consumer power tool lines would have to be abandoned!
Management established five powerful objectives for its power tool renewal:
* Develop a clear, distinctive "family" look across all products so that the customer could pick up any given product and, without reading the label, know that it was a "Black & Decker."
* Simplify product offerings, replacing customized gadgetry with standardized parts, interfaces, couplings, and connections.
* Dramatically reduce per unit manufacturing costs through automation and the use of new materials. While a number of other power tool companies had already introduced double insulated products, they had done so at a 20 percent premium in material and labor costs. Black & Decker would aim to introduce double insulation at less than the single insulation costs of its current product line.
* Use design to improve power tool performance and make it possible to add new features (such as more power or variable speeds) with minimal costs.
* Make global products -- i.e., products that would meet worldwide customer needs and regulatory requirements.
The most important decision made by the company's senior managers was made at the beginning of the effort: The resources of the company would be concentrated on the Double Insulation Program until the transition was complete. Only a token force would be left to carry out development efforts on existing power tool designs. That was clearly a high-risk, "bet-the-company" decision. The best talent and the weight of capital investment would be shifted to the new program. One retired Black & Decker executive remarked, "We bet the company, but if we hadn't, there wouldn't have been a company by the end of the decade."
Development of new products was placed temporarily on hold while a focused "hit team" sought to create a new common product platform for all the company's major power tool groups. They began to search the industrial world for the best product components and new advances in both materials and manufacturing processes.
Since manufacturing was to be the key enabler of a radical new product platform design, the traditional company barrier between engineering and manufacturing would have to be bridged. Black & Decker established that link by placing advanced manufacturing engineers in residence at headquarters where they would work elbow to elbow with the product design group. The manufacturing engineers were directly involved from the start in tooling machine development, process development, value and cost product design engineering, purchasing decisions, and packaging. A "war room" was created where people from many functions could meet to hammer out new product designs over the three-year duration of the project.
The basic structure of the company was also changed to prevent higher level organizational politics from interfering with the renewal effort. Instead of having one general manager of the consumer power tools business with two vice presidents for engineering and manufacturing respectively, a new "vice president of operations" position was created to combine product development, manufacturing engineering, and manufacturing operations under one vice president.
Perhaps as important as anything, management and Board members committed themselves to a long-term planning horizon. They allocated $17.1 million (in 1971 dollars) -- a substantial investment for the company at that time -- and break-even was not anticipated until nearly seven years after the program's launch. Capital expenditures, largely for new plant and equipment, were $6 million. Tooling, i.e., setting up the production facilities, was another $6.5 million. Manufacturing technology engineering and development engineering were each to receive $1.7 million. Inventory and other miscellaneous expenditures were budgeted at $1.2 million.
Building a Common Product Platform
Black & Decker had the good fortune to possess an unbridled fascination with the details of creating better product function and price for the consumer power tools user. The Double Insulation initiative supported that fascination with resources and direction. Its goal was to create a product platform to support a new generation of power tools. A product platform is a set of common components, modules, or parts from which a stream of derivative products can be efficiently created and launched. The most common part across all power tools is the motor. Key product parts, such as the motor in a power tool, represent a major subsystem of the product platform. Figure 1-1 illustrates the before and after design of the universal motor field assembly, one of the key subsystems of Black & Decker's universal motor.
To appreciate just how inelegant product designs were in Black & Decker's power tools prior to the Double Insulation Program, note the various wires. These wires were the connections between the motor field and the power supply. We refer to connections such as these as the interfaces between subsystems in a product platform. Across its major product groups, the company manufactured thirty different motors. They were not simply variations of a single design, but specific architectures developed for different power requirements within and across the power tool groups. Each motor had a unique manufacturing process, and those processes were only semiautomated. For example, technicians manually attached the wires between the motor fields and the power supply.
To solve that problem, a team went to work designing a universal motor, one that could serve a broad range of products: drills, sanders, saws, grinders, and so forth. The team was guided by the principles of standardization and modularization. The principle of scalability was also important. Their goal was to create a single basic motor design that could be adapted to produce a broad range of power to serve infrequent household users, frequent household users, and even professional tradesmen.
The result of their work is shown in the "after" part of Figure 1-1. Note the simpler interface architecture of the redesigned motor -- "plug-in" connections that could be inserted automatically into the power tool housing. Manual wiring of the motor to the power supply was eliminated. The motor design was fixed in its axial diameter, allowing variation only in length. Such standardization offered several important advantages. First, designers could create a common housing for the motor. The fixed diameter of the entire motor assembly also allowed engineers to create a standardized housing diameter for all power tools in the product family. The housing of the power tool would be the same for a drill, a sander, a jigsaw, or a grinder.
Another advantage of the new motor design was that power could be increased by simply adding length. By increasing the length of the motor from .8" to 1.75", as shown in Figure 1-2, stacking and wrapping more copper and steel around the laminations, a range of 60 watts to 650 watts could be achieved.
The standardization and modularization achieved in redesign of the basic motor platform made it possible for Black & Decker engineers to make important breakthroughs in manufacturing automation. The team designed a single process wherein variations (in length...
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