While countless companies across industries have realized tremendous payback on their investments in Product Lifecycle Management (PLM) software, they often don’t reap the full value for years after the first phases of go-live. Part of the challenge is simply deciding what and how to measure, especially since PLM is often a multi-year, multi-phase initiative that strives to improve a set of key processes and programs over the long haul.
Companies want to begin reaping at least some value quickly. In order to do so, however, they need to determine what specific measurable outcomes can be linked to the PLM initiative and tracked from beginning to end to calculate both near- and longer term value. By considering the different types of value that PLM software can deliver, organizations can more quickly and effectively calculate a return on their investment.
This first of a two posts on measuring PLM value focuses on what to measure, covering steps 1-3 from the five-step PLM value model below. This five-step model is a proven way to define, measure, and ensure value throughout the life of a long-term PLM initiative:
- Create a holistic—or Total Value—model to structure the expected business values
- Detail the value model by developing a Program Value Scorecard with measurable KPIs
- Detail the program scorecard for each project or phase
- Continuously measure value during the execution and after each rollout
- Rework the value model before a new project/phase starts
Step 1: The Total Value Model
To help ensure the realization of full potential value, the Total Value Model helps program leaders identify four types of business value:
- Strategic Value – At the highest level, companies should look to measure improvements in the most business critical aspects of growth and profitability, such as those associated with new products, new markets, market expansion, and compliance, that can be addressed with the PLM program. Even if the program is focused mostly on specific process improvements, it is important and helpful to tie it directly to the company’s ultimate business drivers that can be the biggest source of total long-term value.
- Direct Process Value – PLM initiatives are often focused on improving specific business processes, such as detailed development, change and configuration management, or verification and validation. Measurable improvements in specific processes often provide the core of the value model for PLM; it is important to take a broad and deep look at the specific value that can be provided in this area, including all areas identified as stakeholder priorities as well as other process improvements that might contribute to competitive advantage.
- Indirect or Extended Process Value – Successful PLM programs often provide value to a range of organizations across the company beyond the primary focus of program activities. For example, the engineering group may not identify regulatory compliance as a priority and the PLM program may not directly impact it. However, improvements to the change management process may in turn ensure regulatory reviews, delivering indirect value to those in charge of compliance. In developing a Total Value Model it is important to include process improvements that are indirectly caused by the PLM initiative.
- Infrastructure and Tactical Value – Finally, companies can often realize value with PLM programs on the IT side by retiring costly applications, reducing the number of systems, improving application and system management or maintenance, or lowering TCO by replacing homegrown applications or by lowering system operating expenses. These improvements may not add as much to the top or bottom line as some of the other types of value, but they are often important drivers of a PLM initiative and should absolutely be included in the total value model.
Step 2: The Program Value Scorecard
Once the Total Value Model is agreed, it is useful to create a scorecard that provides specific indicators and metrics for each value objective. For example, an electronics and high-tech company might focus on these metrics for its scorecard:
- Reduce product cost by reducing purchased materials costs – metric: average cost of most common parts
- Improve ability to fulfill demand by increasing qualified suppliers of components – metric: number of qualified suppliers
- Integrate mechanical, electrical, and embedded software design processes – metric: number of participants in cross-functional design reviews
- Improve design reuse of component parts – metric: percentage of new parts created per new part request
- Ensure compliance with environmental regulatory standards in different markets – metric: percentage of compliant end items
- Improve design efficiency using standard work practices – metric: total number of PLM-supported processes
- Decrease the number of late-stage (i.e., production ramp-up) engineering changes – metric: percentage of Engineering Change Notices (ECNs) during ramp-up phase compared to all ECNs
Infrastructure and Tactical:
- Reduce dependence on customizations – metric: number of customization
- Consolidate product information – metric: number of software applications storing info
Step 3: The Project Value Scorecard by Phase or Project
Organizations can re-use objectives and metrics from the overall scorecard for additional project phases or new projects, but may also want to add new objectives. For example, the objectives at the program level may focus on satisfying budget, requirements, timetables, etc. But the company may also want to measure adoption to prove the value after go-live of a phase. An example could be “user acceptance of system over long term.” Or the organization could measure usage across users, such as “X% of users using the system at go-live versus after X months.”
These three steps is a sure way to plan for, structure, and detail expected value from a PLM initiative. That said, the fact remains that it’s still challenging to manage to and measure the value. We’ll cover steps 4-5 of the framework in a follow-on post about how to measure the value of PLM.