Shipulski On Design

2009 is a tough year, especially for CEOs.

CEOs have a strong desire to do what it takes to deliver shareholder value, but that’s coupled with a deep concern that tough decisions may dismantle the company in the process.

Here is the state-of-affairs:

Sales are down and money is tight.  There is severe pressure to cut costs including those that are linked to sales – marketing budgets, sales budgets, travel – and things that directly impact customers – technical service, product manuals, translations, and warranty.

Pricing pressure is staggering.  Customers are exerting their buying power – since so few are buying they want to name their price (and can).  Suppliers, especially the big ones, are using their muscle to raise prices.

Capacity utilization is ultra-low, so the bounce-back of new equipment sales is a long way off.

Everyone wants to expand into new markets to increase sales, but this is a particularly daunting task with competitors hunkering down to retain market share, cuts in sales and marketing budgets, and hobbled product development engines.

There is a desire to improve factory efficiency to cut costs (rather than to increase throughput like in 2008), but no one wants to spend money to make money – payback must be measured in milliseconds.

So what’s a CEO to do? 

Focus on product.  Selling into new markets requires new products; even with full marketing and sales budgets, new products are required.  But, hobbled product development engines aren’t going to get it done – they can’t even do what they used to, never mind do more with high levels of innovation.  Here are some steps that can get things on track.

First, some investment must be made to understand the new markets.  They’re called new markets because they’re new – previous experience is not valid and new experience must be created.  So get some experience by watching customers use the leading products and talking directly with them about what they like and what they don’t.  A list of new functions and features is the desired outcome, along with a sale price and target cost.

The new features, functions, and cost target are the input to the product development engine.  The existing product with the strongest overlap with the new features and functions is used as the platform for the new design.  To make a splash, functionality and cost must be improved at the same time (remember, customers are naming their price).  Hopefully the engineering team has the chops to do the new work.  If not, some investment must be made to bolster their capability in the new areas.  Don’t skimp here or the new product will come out wrong (if at all) falling short of functionality and cost goals.

There is another deliverable from the product development engine.  The engine must create A/B performance data from which data-driven sales tools are created.  The best product in the new market is chosen as the baseline product (A) and tested to define the performance specification (maybe 20% better than the baseline product).  The new product (B) is tested under the same test protocol and its performance is plotted relative to the performance specification (20% better than the baseline product [product A]).  If the product development engine does its job, the new produce will have a competitive advantage over the best product in the market, with more function and less cost.

Some investment is needed to develop (and translate?) the data-driven sales tools and some spending is needed to get the sales force (and their new tools) in front of customers.  Don’t forget the sales tracking systems.

Improving the product development engine is vital.  Designing higher functioning products with low cost signatures is not natural for engineers, so care must be taken when defining the challenge.  And the morale of the engineering teams is likely low due to the recent cost cutting.  They may not be in the right frame of mind to accept their challenge, so a thoughtful delivery makes a difference.  A modest training plan to develop their capability goes a long way to putting them in the right frame of mind.

There is no free lunch here, and little new thinking.  Solid blocking-and-tackling is needed from marketing, sales, engineering, and manufacturing along with improved capability in engineering.  Even in a recession, this approach can grow sales in new markets, especially when coupled with strong focus.

Next time you see your CEO, give a smile, a hand shake, and a thank you.