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The amount of digital technology that goes into the products and services sold by manufacturing companies is on the rise, as embedded systems gradually replace traditional mechanical and
electromechanical systems. For example, the Mercedes S Class employs 3 separate data bus systems to manage 60 controllers and 110 motors and actuators. By 2010, software-embedded control units will represent 35% to 40% of the value of the average car, and the electronic control module market is expected to grow at a CAGR of 6-8 percent. Toyota spent $1B on software development in 2004.
This trend is as strong in other sectors. Digital technology is becoming the core of consumer electronics and appliances that are fast becoming the networked home, and RFID is positioned to improve everything from efficient stock replenishment to ensuring food safety.
Even a mature industry like chemicals is not immune. BioLab, a division of Great Lakes Chemicals that provides swimming pool chemicals, wanted to offer services to differentiate itself in a commodity market. The company installed wireless sensors to monitor water quality and automatically dispense chemicals at the locations of its largest commercial clients such as water parks and hotels. Clients eagerly signed up. They saw it as a way to improve their own customers' experiences and save on maintenance costs. BioLab also enjoyed an unexpected benefit--by having visibility to consumption, they improved their supply chain planning and reduced inventory.
Traditionally, a manufacturing company's product technology efforts focused on core capabilities like material sciences, traditional engineering or production techniques. Increasingly, new product
improvement technology is digital and silicon based, and is highly dependent on information systems. The success of manufacturing companies hinges on how the chief technology officer, chief information officer, and their respective organizations work together.
Success in incorporating digital content into products can be greater if the CTO and CIO work together. Two dimensions are involved when deciding on the level of collaboration required for digital technology immersion. First is the level of commonality between the efforts--are there common hardware components and systems, or software development efforts? Second, what level of integration with information systems needed to effectively support the product technology?
The four resulting quadrants described below should influence and shape a company's approach to resource sharing in this area.
1. Low commonality, low integration--the number of manufacturing companies in this category is shrinking. There is little need for additional collaboration beyond the traditional casual information sharing.
2. High commonality, low integration--where there are common technologies and practices but little need to integrate with information systems. Collaboration should establish and promote mechanisms to share knowledge and best practices. This is more likely to appear in electronics manufacturing--high tech, consumer, medical equipment--where both product and IT management need to understand the role of key components.
3. Low commonality, high integration--where there is a high requirement for effective integration to a company's information systems, companies must create a mechanism to share resources on specific projects. This is more likely to surface in capital assets and consumer durables where manufacturers are embedding common control and diagnostic technologies. The product systems use unique technologies, but must integrate data with the company's transactional applications.
4. High commonality, high integration--in this situation, a program management office (PMO) function is needed to extend resource sharing to a common oversight. Where there are several such programs, a common organizational function may be needed.
The framework discussed above is inherently prescriptive, based on which quadrant a manufacturing company is. In the high commonality, low integration category, companies should let the traditional CTO and engineering groups take the lead. In low commonality, high integration situations the traditional IT organization should lead. The fastest growing category is high commonality, high integration. This type requires different mechanisms for manufacturing companies.
Given this framework for deciding how to deal with the cross-organizational issues, companies should formalize their processes so that consistent and predictable performance can be delivered. If a common program management is needed, three elements should be included in the process:
1. Portfolio management--projects in process and in the pipeline should be tracked so requirements can be aligned with resources.
2. Resource management--resource allocation should be optimized for the task and the particular type of collaboration.
3. Option Values--like the BioLab example above, these collaborations are likely to yield additional business benefits beyond initial expectations. There should be a review process early in projects to identify the options the investment offers and determine how best to capture those benefits.
Manufacturing organization are experiencing substantial transformation as their markets become more elaborate and intricate, technologies more complex, and traditional approaches can no longer sustain the pace and growth. Embedding silicon-based information technology in traditional products can help manufacturers increase and protect market share, and identify new revenue opportunities. However, these organizations need to establish the necessary framework for IT governance and superior decision making that will capitalize on these opportunities.
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