Hello Product Cost Management Aficionados!
I just read a great post by Jim Brown over at Tech Clarity called “Software Intensive Product Survey says More Software in Products means More Problems.” It heralds another of Jim’s excellent research reports. This one discusses the role of software in products. As we all know, electronics (and now software) are making up an increasingly large amount of product cost… and an even larger amount of R&D costs. I was interested, so I read the full report called Developing Software-Intensive Products: Addressing the Innovation-Complexity Conundrum.
Software Costs More in R&D Costs
What I found really interesting was Figure 5 in Jim’s report which shows the “Negative Business Impacts of Developing Software Intensive Products”. And, of course what jumped out at me was, you guessed it, COST. The report shows that 48% of companies integrating more software in products, found that software INCREASES overall Product Development (R&D) costs. How prevalent is software becoming? According to page 4 of the report:
“Some people say 60% of innovation in a car is software and others say 90%,. I am not sure which is true, but it is a high percentage.” — Andre Radon, VP IT Competence Center Engineering Applications, Continental
This made my head bob up and down while laughing. I was working in product development Ford Motor Company in the late 1990’s and did a rotation in Explorer Calibration. Ford calls the writing of software “strategy” and the specification of the numbers in the data tables that the software uses “Calibration.” I am not sure why we didn’t just call it “logic/code” and “data.” At the time, the Calibrators were setting around 13,000! data points to control the engine computer. I wonder if it’s double that or more now? The thing that I remember regarding product software at Ford (both in Calibration and my other assignments) was the question:
“Can we calibrate around that?” — John Q PD Manager, Automotive OEM
Translation: “Can we write SOFTWARE or change the data tables to get around the problem that we are seeing in analysis or testing, rather than adding or changing HARDWARE?” This was the default first question to EVERY problem, especially in NVH (noise vibration and harshness). But, according to Jim’s paper (with which I wholeheartedly agree), software INCREASES product development cost. So why would Ford managers prudently ask the question above? That’s simple; it’s because…
Hardware Costs MORE Than Software
- 4.7% of Sales spent on R&D
- 95.2% of Sales Spent on COGS (Cost of Goods Sold, which is ~= to Product Cost)
Product cost is over 20x more important to Ford than R&D cost!
I would have like to seen an investigation of this relation between:
- Software intensity in a product
- R&D cost
- Product Cost