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Firms
that pursue product platform strategies—by leveraging a
common set of development, production and support
resources—have been able to outmaneuver competitors by
cost-effectively delivering a greater variety of
distinctive products. Having succeeded in outsourcing
manufacturing, these firms are now also working to
outsource the design of new platform-based products.
Unfortunately, design outsourcing often
fails to generate desired cost savings and can even tear
profitable platforms apart. Of the nearly 100 outsourced
design projects we have studied at Fortune 1,000
companies, approximately one-third worked seamlessly,
owing to modular designs, effective management or both.
The other two-thirds struggled or failed, for three main
reasons:
1.
MISALIGNED OBJECTIVES. The goals of a company and its
design service providers—even the aims of teams within
that organization—often don’t match. For example, we
worked with two teams at a company that was planning a
new line of computing hardware products. The “platform
team,” which was developing a new product platform,
focused on delivering advanced functionality and growing
long-term revenue. At the same time, a separate
“derivative team” planned to reuse part of the new
platform to create a derivative product that would
generate short-term revenue. The problem was that each
team relied on a different external service provider for
the detailed design and manufacturing of their
respective products, and each provider focused on
maximizing its own profitability. Because of
inconsistent objectives, the two internal and two
external teams had trouble working together, and the
design schedule for both products slipped. Ultimately,
the plan to achieve efficiency through a shared platform
was abandoned.
Before development begins, executives
from internal and external teams involved in
platform-based design projects must carefully align the
teams’ incentives. Still, disagreements often arise, so
it’s wise to use contingent contracts that anticipate
uncertainty and provide a framework for renegotiation.
2.
UNANTICIPATED RIVALRY. Executing platform projects with
multiple partners often forces fierce rivals to
collaborate. One company we worked with planned to adapt
more than 20 subassemblies from an existing platform for
the design of a new product. However, the company’s
design and manufacturing partner pushed to revamp those
subassemblies because, it argued, they would not work in
the new design. Although the argument had some merit,
the provider was motivated primarily by a desire not to
collaborate with, or purchase from, the subassemblies’
supplier—a major competitor. The platform owner
eventually conceded and never realized its anticipated
cost savings.
Firms outsourcing platform-product
designs must anticipate that rivals will be reluctant to
source from one another. To head off problems, the lead
firm must not only create incentives for short-term
collaboration, but also award future business based on
demonstrated cooperation.
3. POOR
VERSION CONTROL. Firms always face the challenge of
managing product-specification changes, but those that
outsource design confront a particularly difficult
problem. Consider the company that had a partner design
a casing to use in a family of consumer computing
products. The company wanted a consistent look on the
retail shelf, plus the ability to rebalance inventory
and share tooling across products. Although detailed
schematics were shared in that way, two different
suppliers manufactured the casings. Unfortunately, the
designs got out of sync once they left the hands of the
original design partner. One manufacturing partner made
several, supposedly minor changes to satisfy
electromagnetic emissions regulations, and another used
an outdated version. The problems did not surface until
much time and money had been invested in precision
tooling. In addition to the marketing blemish of having
mismatched designs, the company lost sales when
unexpectedly strong demand for one of the products
outstripped the available casing capacity. The two
manufacturing partners simply could not share their
inventory or their production capabilities.
To outsource design and then just assume
that the specifics will take care of themselves is a
recipe for disaster. Brand owners must retain enough
program management capability to enforce processes,
communicate with all parties and keep track of critical
details.
Jason Amaral is the managing director of Emeraldwise, an
operations-strategy consulting firm in Woodside,
California.
Geoffrey Parker is an associate professor at Tulane
University’s A.B. Freeman School of Business in New
Orleans. |
