PLM and Innovation - A Strategic Imperative or an Oxymoron

During the past several years, product development organizations have attempted to shift their strategic priorities from lowering product development costs and reducing cycle time (e.g. improving time-to-market), to finding ways to infuse greater innovation and differentiated features/capabilities into their products. The PLM technology vendors have likewise followed this trend by introducing products and services that support the desire for greater product innovation. But are companies really succeeding in delivering on the new "PLM Imperative" of innovation? Is top-line revenue growth accelerating for companies who purport to be following an innovation-centric PLM strategy? The evidence, while still anecdotal, suggests that very few companies are indeed succeeding in using PLM as an initiative to drive product innovation. One only has to look at the anemic top-line revenue growth rates, and the limited numbers of successful user testimonial cases to understand that innovation-centric PLM is little more than an ephemeral wisp for most companies. This begs the question, "Can PLM truly deliver on the promise of greater product innovation or is this simply a marketing slogan"? At Collaborative Visions, we believe that PLM can indeed deliver on the promise of greater product innovation, but it requires a substantially different implementation strategy and a greater focus on the innovation process rather than the productization process.

The PLM Mission: Raising the Product Development Innovation Trajectory
While there are a number of key factors and elements that must be included a part of an all encompassing, innovation-centric PLM strategy (visit www.CollaborativeVisions.com for more information), this report will focus on the fundamental mission, namely, how to raise the Product Development Innovation Trajectory as illustrated in Figure 1.

Figure 1
Product Innovation Trajectory

Within any given industry, there is a underlying pace of innovation or Baseline Innovation Trajectory that is at work. For example, the microprocessor industry follows Moore's Law which states that price/performance of microprocessors doubles every 18 months. To be competitive therefore, companies must adopt product development strategies which allows them at a minimum to keep pace with this rate of innovation. For most companies however, merely keeping pace with the Baseline Innovation Trajectory is not a strategy that will lead to higher levels of product revenue growth. Unless the company is the dominant player in a given market (e.g. Intel in microprocessors, Microsoft in PC office software), the odds are low that a company can achieve significant and durable competitive advantage by merely "keeping up with the Jones's" in the race to innovate. Winning on a consistent basis in the game of innovation requires that companies adopt a Leadership Innovation Trajectory. A trajectory which creates a sufficient degree of separation between itself and its competitors. Simply stated, the fundamental mission of an innovation-centric PLM strategy is to raise the trajectory of product innovation in order to consistently develop and deliver more highly differentiated products that get customers excited about buying.

Leadership Innovation Trajectory = C²V²
When examining the great product innovation leaders such as 3M, BMW, General Electric, IBM, Pfizer, and Sony, what sets these companies apart with respect to their consistent introduction of innovative products and services is not about which brand of PLM technology they are using, but their mastery of the Leadership Innovation Trajectory formula which involves the four fundamental imperatives of culture, creativity, visibility and velocity, or C²V² for short. While PLM technology plays a major role in helping these leaders achieve leadership, their ability to exploit the technology advantages of PLM is greatly enhanced over its competitors because they are better equipped to leverage PLM as a tool for innovation. In other words, their adherence to the Leadership Innovation Trajectory formula provides the foundation from which they are able to maximize the return on innovation with respect to PLM technologies.

Culture - Forging the Crusade to Innovate
There is little doubt that most product development executives would agree with the obvious need to raise the innovation trajectory in order to outpace its competition. However, in practice, this is often very difficult to achieve due to the enormous institutional and cultural inertia that works against the agents of change that are required. The overly bureaucratic nature of many product development processes, the lack of visionary, risk-taking leadership, and the difficulty of changing the status quo are key inhibitors in accelerating innovation. All of the best PLM technology in the world will not make a scintilla of difference if the product development organization is not galvanized and energized around the cause of innovation. Enlightened product development organizations don't think of product development as a process as much as they do a crusade. In all cases, the innovation crusade is led by an energetic and charismatic leader who has the ability to inspire. These leaders live, eat and breathe innovation and have a nearly insatiable zeal to transform this Zen-like energy to the organization. A great example of this enlightened leadership can be found at renowned innovator IDEO in Palo Alto, California led by Dave and Tom Kelley who churn out more innovation per capita than any other company in the world. While IDEO's no bureaucracy, job title-less, group think, all for one - one for all model may not scale to the level of an automotive or aerospace company, the characteristic of enlightened, energetic leadership is absolutely transferable. The ability to lead, and not just to manage is a skill that is sorely lacking in many product development organizations and is one of the primary reasons why many PLM innovation initiatives often fall well short of their targets.

A good litmus test to know whether or not a product development organization has been culturally conditioned to innovate is to walk around the engineering department an hour or two after the normal quitting time. If you do this at companies like Sony and 3M, you will still see lots of people still working. Why, because they have to? No, it's because they want to. These people don't want to quit, and often work incredibly long, Edison-like, hours, because to them, innovation is a labor of love. It's what drives them, and ultimately what drives the engine of innovation at these companies.

Creativity - Pursuing Higher Levels of Innovation
"Innovate or Die" is a common mantra espoused by companies who rightly understand that innovation is the key to building a winning product development strategy. However it is important to target the right classes of innovation (See Figure 2).

Figure 2
Classes of Innovation

Most product development programs and dollars are overly weighted towards small, incremental innovations (Linear Innovation). Numerous studies on the leading corporate innovators (e.g. Sony, 3M, and Nokia) have shown that these companies take greater risks and target more of their product development resources towards higher degrees of innovation. There are four classes of product innovation that vary based the degree of organizational agility and innovation creativity:

Linear Innovation is the ability to develop and introduce standard products or product family additions that meet or exceed the industry average cycle-time and incorporate innovations that follow the industry's standard technology curve (e.g. the Baseline Innovation Trajectory) This is a "keeping up with the Jones's" strategy and generally does not produce durable returns, nor does it require an innovation-centric PLM strategy.

Customer Driven Innovation dynamically recombines, modifies, or tailors parts and assemblies into new or custom products based on customer demands (example: personal computers, bicycles, athletic shoes). This is the fastest growing class of innovation enhanced by the use of web portal technologies to assist customers in specifying and designing their own products. Under this scenario, the PLM system essentially becomes the Order Management system.

Category Killer Innovation is the ability to maintain or extend brand leadership in an existing well defined commodity product category (e.g. HP in printers, Nokia in cell phones). Leadership here requires staying ahead of the competition by offering greater price performance.

Paradigm-Shifting Innovation is the ability to develop and introduce breakthrough products that appeal to entirely new user markets or dramatically expand existing market opportunities (examples: Chrysler Mini-Van, Sony PlayStation)

When the product portfolios of leaders versus challengers are mapped against these four classes of innovation the results are as follows:

• Leaders have 50% or more of its product development programs targeted at non-linear classes of innovation (e.g. Customer Driven, Category Killer and Paradigm Shifting).
• Challengers have 80% or more of its product development programs targeted at linear innovation
• It takes on average 3000 raw ideas to lead to one product success in the Customer Driven, Category Killer and Paradigm Shifting categories
• Leading innovators generate twice the number of raw ideas, three times the number of new products and enjoy a product success rate that is twice as high as challengers

All of the PLM technology in the world simply will not matter if companies are not targeting its use to achieve higher classes of innovation.

Visibility - Sharing and Leveraging Corporate Innovation Capital
The innovation know-how of a company is embodied by the skills and knowledge of its people and by the accumulated knowledge and ideation data that led to the creation of product designs. Collectively, this rich reservoir of information forms the basis of a company's Innovation Capital assets. While companies have spent years and millions of dollars building asset management systems for financial and capital equipment assets, few have treated their Innovation Capital assets with the same strategic zeal. Of the major corporate assets that exist in a product oriented company, none is more important than their accumulated wisdom and know-how. Yet these knowledge assets are so dispersed among many systems and organization boundaries that it becomes very difficult for companies to access and leverage the many potential breakthrough ideas that are embodied in their own reservoir of Innovation Capital. Some industries however, particularly in the pharmaceutical area, treat their Innovation Capital as a real strategic weapon and have system philosophies which reflect this thinking. Pfizer scientists and technicians for example, routinely mine data from older clinical trials and laboratory tests within their Innovation Capital Asset Management systems, and apply this historical knowledge to create new breakthrough drugs.

To harness and leverage the collective Innovation Capital of the corporation, companies must:

1. Capture the knowledge and ideation data that led to the creation of a product design, not just the physical design description. For every CAD model created, there are:

• 1 to 5 analysis/calculation programs employed
• 5 to 10 collaborative engagements
• 10 to 15 governing engineering principles involved
• 15 to 20 related constraints and design goals
• 20 to 25 manufacturing related considerations
• 50 to 100 ideas considered

This data must be captured and made universally accessible. The vision of PLM must be extended beyond simply managing CAD data files.

2. Provide seamless mechanisms for tapping the knowledge and ideas of people within a domain expertise community regardless of organizational boundaries including:

• Domain experts
• Interest communities
• Supplier relationships
• Customer relationships

Sony for example has an internal web-based "Innovation Community" organized by domain areas (e.g. optics, graphics, audio, etc.) where knowledge workers actively post and comment on ideas and design problems across organizational boundaries.

Velocity - Rapidly Transforming Innovative Ideas into Winning Products
The innovation processes (not to be confused with the product development processes) inside most companies are often a major inhibitor to raising the Product Innovation Trajectory. Many companies still rely heavily on autocratic, front-ended, product committees (sometimes referred to as the innovation prevention committees) for the vast majority of its innovation wisdom. In most cases when these committees produce a product specification, it is usually cast in stone. Downstream engineers and designers are discouraged from deviating from the spec, even in cases where the product can be improved. This is a huge inhibitor to innovation since real product innovation occurs in often unpredictable ways and at unpredictable times throughout the entire product lifecycle. As much as 30% to 40% of the winning innovative ideas are often uncovered during the physical design process.

Leading innovators have a far different approach with respect to their innovation processes. While there are still product committees inside these companies, the product specs they produce are cast in "wet cement" which allows downstream innovators to incorporate new innovations mid-stream, during the physical design process. The velocity that is most important to leading innovators is not raw, end-to-end throughput speed (e.g. design to first customer ship cycle time), it is the speed and agility of making course corrections to incorporate new ideas at any point across the product development lifecycle.

Bottom Line:
PLM technologies and process re-engineering efforts alone are insufficient in order to raise the Product Innovation Trajectory and drive top-line revenue growth. However, using PLM as an initiative to enhance and accelerate innovation is a realizable goal provided that users recognize the importance of addressing the underlying Innovation Imperatives (Culture, Creativity, Visibility and Velocity) as a foundational requirement, and direct the mission accordingly.