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It is high risk to let outsiders take charge of designing your firm’s new platform-based products
Firms that pursue product platform strategies — by leveraging a common set of development, production and support resources — have been able to outmanoeuver 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 1000 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:
Misaligned objectives: the goals of a company and its design service providers — even the aims of teams within that organisation — 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 re-use 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 maximising 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.
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 sub-assemblies from an existing platform for the design of a new product. However, the company’s design and manufacturing partner pushed to revamp those sub-assemblies because, it argued, they would not work in the new design. Although the argument had merit, the provider was motivated by a desire not to collaborate with, or purchase from, the sub-assemblies’ supplier — a major competitor.
The platform owner eventually conceded and never realised 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 co-operation.
Poor version control: firms always face the challenge of managing product-specification changes, but those that outsource design confront a particularly difficult problem.
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 programme management capability to enforce processes, communicate with all parties and keep track of critical details. — Jason Amaral is the managing director of Emeraldwise and Geoffrey Parker is an associate professor at Tulane University’s AB Freeman School of Business in New Orleans © (2008) The New York Times
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