Is Design for Excellence Ready for New Business Models?
To quote the venerable Bob Dylan: “The Times They Are a-Changin'”. In the world of business, this seems especially true when it comes to business models. As innovative new business models from Silicon Valley and entrepreneurial hot spots around the world continue to percolate into more traditional “box moving” industries, the impact of these business models on the methodologies used to design products remains largely unexamined. What do the shifting demands imposed by these business models imply for the way we think about developing products?
Speaking of venerable, Design for Excellence (DfX) remains one of the preeminent methodologies in product design to optimize quality and reduce cost. This methodology originated and has thrived in the traditional manufacturing environments where volume, cost, and quality are essential considerations.
DfX for examining product value chains
Many organizations have invested heavily in the DfX methodology so that they can systematically examine the whole of their product value chains to identify areas to improve return on investment and margins. In general, the larger the functional scope included in this analysis, the greater the opportunities for standardization.
When conducted correctly, DfX often yields better results than were thought possible. However, the nature of these value chains is starting to shift substantially with the introduction of new business models.
XaaS business models and DfX
Take, for example, “as-a-service” (XaaS) business models. In these business models, customers typically pay a periodic fee for access to technology managed by the vendor. This approach has taken the software world by storm, with many leading firms such as Microsoft, Google, and Salesforce.com heavily or wholly adopting these business models.
While traditional “box moving” companies have been slower to adopt XaaS, there is increasing demand from customers. Part of this reluctance can be explained by the greater inherent difficulties in providing access to a technology via a physical object. After all, software has the advantage of being practically ethereal (if you don’t count the huge server farms and endless lengths of fiber optic cables).
Perhaps a more fundamental challenge is the shift in thinking required for XaaS. This involves shifting mental models from maximizing margins to maximizing use and retention, from thinking from the perspective of the product to focusing on the customer relationship, from launching new features to continuously delivering new value, and a host of other changes.
Reexamining business models with DfX
This means that some of the fundamental assumptions underpinning the way products are traditionally developed needs to be reexamined in the context of new business models like XaaS. DfX can bring these to the foreground by asking questions like:
- If use and retention are more important than first time margins, should Bill of Material cost reduction be more in balance with the retention value?
- If the customer relationship comes to the fore, should product design principles be rethought to better foster engagement and be given more importance on the feature versus value tradeoff?
- If new value needs to be delivered continuously, should there be a greater focus on modularity and upgradability?
- If products are sold as a service, should we look differently at design lifetimes?
- If services increasingly become part of propositions, should we do more DfX on services, their logistics, and costs?
- If an “as a Service” business model is selected should we look at the physical product as the “channel” rather than the proposition and allow it to host more services over time (e.g. more software adaptations)?
- If operational costs of an “as a Service” business become substantial, where will these costs reside and be managed in response to changing customer usage?
What is clear is that to answer these questions DfX will continue to evolve, just as business models are doing.
Innovation Management Consultant
Philips Innovation Services
ThIs article is also published on LinkedIn.