Jun 172013
 

 

We spend a lot of time thinking about how organizations can improve Product Cost Management. After all, it’s our job at Hiller Associates, but we’re also very passionate about it. We’ve often wondered, why is it that there are so many people in Product Cost Management who are very intelligent and hardworking individuals, and yet the field, in most organizations, does not advance.

Why is this?

 

  • We don’t think it’s due to lack of effort.
  • We don’t think it’s due to lack of intelligence.
  • It may be due, in part, because the tools in the area are not that great, at least until recently. However, we don’t think that’s the cause either.

We have concluded that one of the biggest problems is that most Product Cost Management Experts are independent acoustic live performers.

Sing me a song!

What do we mean by that ? Well, if you go into the average product company and meet the Product Cost Management organization, it usually consists of a very small group of experts. They typically are sequestered in some back office.  They appear to be a covert operation of some large organization, such as purchasing. When you meet them, they are almost always hardworking people , who looked frazzled, but still have their noses to the grindstone.  They are busily trying to avoid product cost before launch and wringing cost out after the start of operations.

Traditional PCM experts are like solo classical musicians. They improvise solo (excel spreadsheets) or play an expensive instrument (an expert tool). They play for command performances before the nobles. In this case, the noble is whatever manager is in the most desperate trouble at the time. The PCM guys are always overworked, but their solution to this is to work harder. Just like a classical live musician, they can only be at one place at one time. Their performances are beautiful to listen to, but there is no recording, nor is there a broadcast, so that others in the world can hear the wonderful music they make. They really are a solo act.

We show this on the diagram below by showing the simple sine wave representing the music they sing. Pound for pound, person for person, no one can save more cost than these soloists, singing their song live and alone. However, as with any organizations that relies on people to scale, it can all only scale so large, and it can only scale so fast . That is why professional services companies are typically very small. The growth of the company is limited by the expert resources they can find. Think of this versus a product company, where once the product is designed, it can be replicated very quickly through the magic of manufacturing.

Product Cost Management Rock Star Hiller Associates

CLICK TO ENLARGE!

Time to Crossover to Being a Rock Star

It’s time for product cost management groups to stop being solo live classical musicians  and crossover, as they say in the music biz, to be rock stars. On the diagram to the right, look at the traditional path vs. a maximum performance path. It’s time for PCM experts to spend less time playing alone and move to being Rock Stars (and maybe the director of the band). In this arrangement, the musician continues to do a lot of what he does today. He composes and produces the music. The music itself is the technical expertise needed for product cost management, but the expert should be sharing it with the entire organization, not just a few people in solo performances. This requires that he have a *vision* for Product Cost Management. This is not a vision for how to cost model the next part or assembly, but where the organization is today and where he wants it to get to in the future.

This Amp Goes to 11

The key to success is to amplify the music made by the Product Cost Management expert. To do this, you need to find the right management champion. Management is an amplifier, because their job is to receive the good ideas that their people bring them and then boost the signal on the idea to the rest of the organization. Management also parses the signal to the right speakers in the organization that can most beautifully and powerfully and produce that signal. Think about a modern 5.1 or 7.1 home theater system, where the amp or receiver parses the signal and sends the right frequencies to the right speakers.

And, if you’re going to be a Product Cost Management rock star, you want the biggest and highest quality amp you can get. You would be pitching your vision at the VP or C-level. Remember the movie Spinal Tap? You want the amp that goes to 11!

The Recording Industry

Every rock star is going to both tour and record. The management amplifier lets you to play to stadiums full of people. But you also need to record it, so that your fans can hear it over and over. To generate maximum profit for the organization, the fans (engineering, purchasing, manufacturing, etc.) needs to be able to execute on your PCM vision. Many times that music will need to play when you can’t be there. You record by (1) changing the culture and (2) designing a PCM process that the organization can follow.

Money for Nothing and Your Savings for Free

The rewards to the organization when the PCM team moves from live classical performers to rock stars are very enticing. Although the results of the individual product cost manager experts will certainly be smaller, the rest of the organization now is producing results as well. Together, they will produce many more cost savings and far more the cost avoidance than the Product Cost Management expert could do alone.

The Path to Stardom

We realize that moving to the rock star model will initially be uncomfortable for some people who are experts. It’s hard for experts to let go of control, especially on a complex set of activities like Product Cost Management. There will be mistakes by the organization. There will need to be teaching. The system may be chaotic at first. That’s OK. This is the only way to get to a better state. It also means that the individual product cost expert will have to spend LESS time actually producing results on his own. His time needs to be used developing vision, casting vision, teaching, strategizing, and leading the organization. He doesn’t have to compose that vision and record it alone. His executive sponsor can help get him some great song writers and producers, both internal to the organization and through external consulting partners. And the executive champion will also fund these resources.

Therefore, it is critical to find the right management sponsor who understands the benefits of moving from a solo live performance model to the recorded rock star model. The management sponsor needs to have the authority to reduce the individual PCM demands on the expert. The expert must produce less individually so the organization can produce more as a whole.

Product Cost Management – Behind the Music…

Sadly, looking back at my time as a CEO and then the Chief Product Officer at a company that made Product Cost Management software , and in my current roll as a strategic consultant, I have never seen this rock star transition be driven by the musician (the Product Cost Management expert). Every time I’ve seen organization move the needle on Product Cost Management, the impetus for that change was an executive sponsor who had a vision for a better world. The executive sponsor (typically in engineering, purchasing, or a product owner) was poking his nose into the world of product cost, sometimes knowing very little about it. Paradoxically and sadly, often the existing Product Cost Management organization, instead of being grateful for the help and wanting to get made into a rock star, was resistant or even resentful of the help. That’s too bad, because rock stars make a lot more money than classical musicians, and often have far better job security. (People are going to pay to see Aerosmith until they die.)

So, my advice to you is that if you want to become critical to your management, be noticed in the organization, see your organization produce far better results, and get rewarded for doing it, it’s time to stop playing acoustic solos live.

It’s time for you to become a rock star.

 

  6 Responses to “Crossing Over from Classical Product Cost Management to being a PCM Rock Star”

  1. Moderator re-posting linkedin comment:
    http://www.linkedin.com/groupAnswers?viewQuestionAndAnswers=&discussionID=250511991&gid=128312&commentID=145364830&trk=view_disc&ut=0Y7EdfclJtR5M1

    Kevin J. Dutcher SAYS:

    Yup, cost is important. So s weight in my world. And performance.

    I need to meet all of these.

    One of the issues you are bringing up is the chance of meeting cost, if over budget on day 3 of the program, is very low. I think we ll knew this, but haven’t acted on it.

    Lots of cost unknowns hat early, but there’s lots of tools also.

    I would prefer to treat cost the same as all the other attributes, but recognize more so the diminishing size of the lever to affect it over time.

    Kevin

  2. Kevin,

    You are spot on when you say: “I would prefer to treat cost the same as all the other attributes, but recognize more so the diminishing size of the lever to affect it over time.”

    Sadly, I would guess many in your organization don’t realize (or agree?) with that? And, you’re 100% right: cost, weight, performance. These are all product attributes. They just have to be balance to create max value for the customer. I have found that many engineers somehow do not mentally think of product cost as a product attribute in the way they do performance, weight, quality, etc.

    Regarding tools: There are lots of tools for Product Cost Management. No single tool is comprehensive to meeting the whole need. Too many companies make the following mistakes:

    1. They try to hang their hat on buying ONE tool, thinking it will do everything.
    2. They *assume* if we buy it [the tool], process and culture will come.

    In fact, most of the clients I have worked with over the last 4 years had multiple product cost management tools (spend hundreds of thousands to millions per year on licenses)… and they were struggling horribly to move the needle on product cost.

    Sometimes, the diagnosis of the problems would involve buying some additional tools or making some homegrown software to cover gaps. However, most of the time the work focuses on figuring out how to probably use what they already have. You have to work with an executive who appreciates this, though. Companies have a natural tendency to value tools, and headcount over fixing culture and process.

    It’s like saying you want to lose weight. The person decides to buy the P90x DVDs and new running shoes and a bunch of Shakeology packets. That’s “comforting.” That is real. I can SEE what I paid for. But, you still are eating 4,000 calories a day, frying all food in bacon grease, and not actually exercising. I.E. you have not changed your process or culture. The problem will not get better… hmmmmm… how surprising!

    Eric

  3. Hahahahaha! Yes, indeed. And please do not think I am disparaging bacon. I hold it in high esteem.

  4. Moderator re-posting linkedin comment:

    http://www.linkedin.com/groupItem?view=&gid=4897955&type=member&item=250787673&commentID=150607862&report%2Esuccess=8ULbKyXO6NDvmoK7o030UNOYGZKrvdhBhypZ_w8EpQrrQI-BBjkmxwkEOwBjLE28YyDIxcyEO7_TA_giuRN#commentID_150607862

    Franck Ramaroson •SAYS

    What a subtle analogy! I really like it. Using the same framework, I would suggest that PCM experts are first composers and they love playing their music alone sometimes. However, they are not necessarily confortable in being in front of an audience even a limited one. For the amplifier to work, our musicians need to convince the amplifier that they will use amplification appropriately. In business terms, the management needs to ensure that what is communicated is understandable so that they can “sponsor” it. In other words, our PCM experts, in addition to be hard worker and professionals have to be communicators to a certain extent.

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