The Power of Product Platforms PDF

# The Power of Product Platforms: Building Value and Cost Leadership ## Preface When a company's products are robust - highly functional, elegant in their design, fairly priced, and a pleasure to use - the corporation itself will be equally robust. It will grow in the good times, weather the bad t...

# The Power of Product Platforms: Building Value and Cost Leadership ## Preface When a company's products are robust - highly functional, elegant in their design, fairly priced, and a pleasure to use - the corporation itself will be equally robust. It will grow in the good times, weather the bad times, and make the difficult transition from one generation of technology to the next. This book is about creating and managing extraordinary products. While many companies have great difficulty mastering this activity, we have been fortunate to work with firms in a range of industries that have successfully developed new products and integrated manufacturing processes with new product designs. Those experiences, which have complemented our academic research, have been the source of our insights. As authors, we wish to share this information with all those responsible for the vitality of the enterprise: the chief executive, his or her management team, and the Board. We believe this book will be highly useful for both large corporations and those of smaller size, including entrepreneurs, all of whom depend on the excellence of their new products for growth. For many companies, the road to growth, admiration, and customer loyalty has been built on excellence in new product development. Only a handful, however, have been able to sustain that excellence through eras of changing technology and leadership. Moreover, a company's products are robust - highly functional, elegant in their design, fairly priced, and a pleasure to use - the corporation itself will be equally robust. It will grow in the good times, weather the bad times, and make the difficult transition from one generation of technology to the next. This book is about creating and managing extraordinary products. While many companies have great difficulty mastering this activity, we have been fortunate to work with firms in a range of industries that have successfully developed new products and integrated manufacturing processes with new product designs. Those experiences, which have complemented our academic research, have been the source of our insights. As authors, we wish to share this information with all those responsible for the vitality of the enterprise: the chief executive, his or her management team, and the Board. We believe this book will be highly useful for both large corporations and those of smaller size, including entrepreneurs, all of whom depend on the excellence of their new products for growth. For many companies, the road to growth, admiration, and customer loyalty has been built on excellence in new product development. Only a handful, however, have been able to sustain that excellence through eras of changing technology and leadership. ## The Power of Product Platforms ### Renewing the Product Portfolio: 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 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. ### 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. ### Getting Started 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.” ### 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. ### Renewing the Product Portfolio: Hewlett Packard The market for home and office computer peripherals—laser printers, ink jet printers, scanners, and various storage devices—has paralleled the burgeoning sales of personal computers. In the early 1980s the low-end printer market was dominated by products made by several Asian companies. Over the course of that decade, however, Hewlett Packard developed an ink jet product design, associated component technologies, and manufacturing processes to establish an expanding beachhead in that market. HP has constantly improved the cost, quality, and speed of its ink jet printers so that they now dominate the low-end market. Its product family renewal has been systematic and vigorous. According to Dave Packard, HP’s interest in ink jet printing technology began with a chance discovery in its Palo Alto laboratory, where researchers noted how jets of fluid could, in the presence of electrical stimulation, be used for marking purposes. They reasoned that if those jets could be controlled, they might provide an alternative to the noisy, serial dot matrix printers so popular in the PC printing market. Compared to dot matrix printers, ink jet technology held out the possibility of a much quieter, higher-quality, and more cost effective method of printing. ### The Deskjet "500", "600", and "800" Platforms The "500" platform, the "600", and the "800," respectively. Those lines begin at the start of R&D for a particular product platform and continue to the end of commercial sales of products based on that platform. Note that “600” platform and the “800” platform were developed in parallel with refinements to the original “500” platform, and that the R&D for the “800” was started before that for the "600". ### The Beachhead Strategy: Horizontal Leverage and Vertical Scaling The power of platforms becomes all the more significant when horizontal leverage is combined with upward vertical scaling. One might call this the “beachhead strategy” ### Compaq Computers Compaq Computer Corporation provides a noteworthy example of the beachhead strategy. Compaq entered the personal computer business in 1982 with a line of portable computers and quickly established a strong foothold in that niche, surpassing $300 million in annual sales within two short years. From that base, the company introduced a stream of new products for other market segments and at many levels of price and performance, beginning with a line of desktop PCs, the Compaq Deskpro series. Sales grew apace. By 1988 annual revenues had reached $2 billion, and by year-end 1995 Compaq could boast sales nearing $15 billion, with earnings of almost $800 million.3 Yet, despite its sales growth and abundance of product variety, Compaq’s 1995 R&D spending was about 2 percent of sales. ## A Process for Defining Platform Strategy Having presented various approaches to platform strategy, we can now suggest action steps that managers can take to define their own strategy from a product family and platform perspective. ### Step 1: Segment Markets The first step is to identify major market segments and the price-performance tiers within them to construct a market segmentation grid of individual market niches similar to those shown earlier in this chapter. Again, major market segments (customer groups) are arrayed horizontally, while price-performance tiers follow the vertical axis. It is important to look forward in time, incorporating emerging segments as well as existing ones. A definition of “the business” that is too narrow will limit the commerical potential of new platform initiatives. ### Step 2: Identify Growth Areas The next step is to identify the growth opportunities in these segments and individual niches. Accomplishing this requires that managers gather five types of data for each market niche: (1) the current sales volume, (2) your own participation rate or market share in the niche, (3) the five-year expected growth rate (anything less than a five-year view into the future is insufficient for planning new platform developments and their derivative products), (4) the leading competitors in each respective niche, and (5) the driving customer needs in each niche. Together, these data should present a clear picture as to where opportunities exist in your markets. ### Step 3: Define Current Platforms The third step is to define your major product platforms and where they “play” on the market segment grid. Defining a product platform for a particular business is not always easy. Different product lines may be based on a single product platform; or a single product lines may use numerous platforms. In such cases, platform definition is aided by the use of high-level block diagrams that show the common subsystems and interfaces for a range of derivative products. Once the major subsystems are identified, the extent to which subsystems and manufacturing processes are shared between different platforms within the overall product portfolio should become clearer. ### Step 4: Analyze Competing Products The fourth step is to understand how your existing product platforms and their respective derivative products stack up against those of competitors. Within each market niche, you must index the functionality, cost, and quality of competing products relative to your own. The goal here is to identify the major performance and cost drivers that can make your products significantly superior or inferior to those of competitors. In the next chapter we shall address how to perform competitive product benchmarking at a rich level of detail. ### Step 5: Consider Future Platform Initiatives What bold new initiatives could your company pursue in terms of its product platforms? Would a new platform make the company competitive in the lower price-performance tiers of its market segments, as in the Swatch and Hon examples? Or do opportunities exist for applying the concepts of horizontal and vertical scaling? ### Putting "Skin Into The Game" We come back to the mindset of new product strategy. Many corporations need to recapture the entrepreneurial essence of their early years: to be fast-moving, to achieve competitive excellence in technology, and to leverage common assets across individiual products. The mindset that we propose for new product strategy has a simple guiding principle: to obsolete your own products with better ones through continuous product platform renewal. While this may threaten some employees, customers and distributors generally prefer dealing with strong innovators who will be introducing better products tomorrow. ### The Power Tower: An Integrative Model for Managing Innovation Effectively managing the evolution of a product family requires that management consider in collective fashion three essential elements of the enterprise: (1) the market applications of technology, i.e., derivative products made for various customer groups; (2) the company’s product platforms; and (3) the common technical and organizational building blocks that are the basis of product platforms. ### The Black & Decker Power Tower Having described the market applications, platforms, and common building blocks that make up the "power tower,” we can see its practical application through the Black & Decker case described in Chapter 1. ## Managing Product Platforms The Black & Decker case in the previous chapter demonstrates the cost efficiencies, technological leverage, and market power that can be achieved when companies redirect their thinking and resources from single products to families of products built upon robust product platforms. Many companies have accomplished this at one time or another, but few have revitalized those families over time. ### The Hewlett Packard Inkjet Printer Family The market for home and office computer peripherals—laser printers, ink jet printers, scanners, and various storage devices—has paralleled the burgeoning sales of personal computers. In the early 1980s the low-end printer market was dominated by products made by several Asian companies. Over the course of that decade, however, Hewlett Packard developed an ink jet product design, associated component technologies, and manufacturing processes to establish an expanding beachhead in that market. HP has constantly improved the cost, quality, and speed of its ink jet printers so that they now dominate the low-end market. Its product family renewal has been systematic and vigorous. ### The Deskjet "500", "600", and "800" Platforms The “500” platform, the “600", and the “800,” respectively. Those lines begin at the start of R&D for a particular product platform and continue to the end of commercial sales of products based on that platform. Note that “600” platform and the “800” platform were developed in parallel with refinements to the original “500” platform, and that the R&D for the “800” was started before that for the "600". ### The Beachhead Strategy: Horizontal Leverage and Vertical Scaling The power of platforms becomes all the more significant when horizontal leverage is combined with upward vertical scaling. One might call this the “beachhead strategy” ### Hon Furniture Company We need not confine ourselves to high technology to find companies that have used a “beachhead” along the bottom of the platform-market grid to invade other tiers and segments. The office furniture industry, dominated by Steelcase, Herman Miller, Haworth, Westinghouse, and Knoll, provides a “low-tech” example. ### Making Money in the High End: EMC It would be naïve to think that establishing a beachhead in low price-performance tiers is the only path to success. Companies that have focused on upper market tiers have likewise enjoyed success with platform-based strategies. ### Retaking the Low Ground Many companies leave the low-cost, low-performance niches of their markets uncovered. If the “sweet spot” for your own business is not yet in the lower tiers, be forewarned that someday some new entrant will figure out how to operate profitably in that region. That is precisely what happened in the traditional office furniture market, which Hon invaded with low-cost, low-performance products for the Spartan-minded office user. It has happened time and time again through industrial history, whether it was Volkswagen introducing the Beetle to fill the uncovered low market need or later, Honda and Toyota. Brother did the same thing in electronics, while IBM and other manufacturers were focusing on higher-end niches. It was also Timex’s early claim to fame, followed later by Casio. What threatens mid-range to high-cost tier producers, of course, is that these low-end manufacturers just might scale up their platforms to invade higher tier markets. ### A Process for Defining Platform Strategy: Step 1: Segment Markets The first step is to identify major market segments and the price-performance tiers within them to construct a market segmentation grid of individual market niches similar to those shown earlier in this chapter. Again, major market segments (customer groups) are arrayed horizontally, while price-performance tiers follow the vertical axis. It is important to look forward in time, incorporating emerging segments as well as existing ones. A definition of “the business” that is too narrow will limit the commercial potential of new platform initiatives. ### Step 2: Identify Growth Areas The next step is to identify the growth opportunities in these segments and individual niches. Accomplishing this requires that managers gather five types of data for each market niche: (1) the current sales volume, (2) your own participation rate or market share in the niche, (3) the five-year expected growth rate (anything less than a five-year view into the future is insufficient for planning new platform developments and their derivative products), (4) the leading competitors in each respective niche, and (5) the driving customer needs in each niche. Together, these data should present a clear picture as to where opportunities exist in your markets. ### Step 3: Define Current Platforms The third step is to define your major product platforms and where they “play” on the market segment grid. Defining a product platform for a particular business is not always easy. Different product lines may be based on a single product platform; or a single product lines may use numerous platforms. In such cases, platform definition is aided by the use of high-level block diagrams that show the common subsystems and interfaces for a range of derivative products. Once the major subsystems are identified, the extent to which subsystems and manufacturing processes are shared between different platforms within the overall product portfolio should become clearer. ### Step 4: Analyze Competing Products The fourth step is to understand how your existing product platforms and their respective derivative products stack up against those of competitors. Within each market niche, you must index the functionality, cost, and quality of competing products relative to your own. The goal here is to identify the major performance and cost drivers that can make your products significantly superior or inferior to those of competitors. In the next chapter we shall address how to perform competitive product benchmarking at a rich level of detail. ### Step 5: Consider Future Platform Initiatives What bold new initiatives could your company pursue in terms of its product platforms? Would a new platform make the company competitive in the lower price-performance tiers of its market segments, as in the Swatch and Hon examples? Or do opportunities exist for applying the concepts of horizontal and vertical scaling? ### Putting “Skin Into The Game" We come back to the mindset of new product strategy. Many corporations need to recapture the entrepreneurial essence of their early years: to be fast-moving, to achieve competitive excellence in technology, and to leverage common assets across individual products. The mindset that we propose for new product strategy has a simple guiding principle: to obsolete your own products with better ones through continuous product platform renewal. While this may threaten some employees, customers and distributors generally prefer dealing with strong innovators who will be introducing better products tomorrow. ### The Power Tower: An Integrative Model for Managing Innovation Effectively managing the evolution of a product family requires that management consider in collective fashion three essential elements of the enterprise: (1) the market applications of technology, i.e., derivative products made for various customer groups; (2) the company’s product platforms; and (3) the common technical and organizational building blocks that are the basis of product platforms. ### The Black & Decker Power Tower Having described the market applications, platforms, and common building blocks that make up the “power tower,” we can see its practical application through the Black & Decker case described in Chapter 1.