On the last blog post (Product Cost Management – What is it?), I talked the different ways that my colleagues and I have seen the meaning of Product Cost Management take shape over our careers and PCM’s development. I offered what I believe is a good operating definition of PCM:
Product Cost Management – An agreed, coherent, and publicized system of culture/goals, processes, people, and tools following the product lifecycle, that ensures the product meets its profit (or cost) target on the day that it launches to the customer.
This definition can certainly be fleshed out further. I was at a conference a few weeks ago and heard a great presentation on social media by Overdrive Interactive. Part of the presentation was showing their map of the social media sphere that has become viral on the internet and the de facto standard many people use to orient themselves to the social web. I really liked that idea, and I’m a big believer in 1-page maps that give the reader an overview of a complex subject, as well as a starting point to dig for deeper detail.
What does Product Cost Management look like from a graphical viewpoint? I believe that it looks like the attached map (click on the diagram to enlarge the map or DOWNLOAD IT IN .PDF FORMAT.
Like any other major discipline that product companies follow, PCM contains four main areas:
- Culture, Goals, and Incentives
- Processes (tied to the product life cycle)
- Team Structure and Participants (tied to the product life cycle)
- Tools/Software that can help
CLICK TO ENLARGE!
Culture, Goals, Incentives – before attempting to put in place any process, people, or tools, the organization first has to ask the tough strategic questions. Where is our organization today in the PCM journey? To where does we hope to get and by when? And the big question: What is the priority of PCM and how much investment (honestly) will we make to close the gap from between today’s state to our goal? Once the company answers these questions, it can talk about the strategic structures that drive behavior (roles, incentives, and leadership support).
The next two continents on the PCM world map (PCM Processes, and PCM Tools/Software) follow the product lifecycle, and need to integrate with the company’s product development process. Different processes and different participants are appropriate at different points in the cycle.
Finally, we have the PCM Tools available to take on the journey. They fall into different buckets as follows: (a) homegrown tools (including Excel), (b) general platforms (e.g. PLM, ERP) that may be customized, and (c) specialty Best-In-Class (BIC) tools that focus on PCM processes. In the PCM World Map, many of the major BIC software systems are shown in a 2×2 diagram. We’ll discuss the 2×2 in more detail in a future post, but I don’t want readers to think there is a “magic [best] quadrant” in this 2×2. It is simply a descriptive conceptual diagram
One important thing for people who are navigating the map to realize is that Culture, Process, Team, and Tools are all interconnected and influence one another (see the top right in the header of the map). For example, if you are at the beginning of the PCM journey, it is likely that your company is not ready for all the processes shown. It also may only use one or two of the tools. The company may not have reached a capability level to benefit from some processes, people, or teams. Despite the inter-connectivity of the system, the best place to start when beginning the PCM journey is with the Culture (see blue arrows on the left of the map).
Like all high level maps, there are cities and even countries shown on it that have more detailed maps of their own. However, most companies would do well to focus on understanding the geography at the world level first, before hoping on a plane to a specific city. We can worry about street maps once we decide which cities we are going to visit!
41 Responses to “World Map of Product Cost Management”
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Nice chart, Eric. I like your four bucket approach, starting with company goals and culture.
I like to define behaviors of the people doing the work. One important behavior is working across boundaries. I’ve found it critical for engineering to actively reach out to manufacturing (as subject matter experts on process and cost) in order to co-design function and cost.
Mike
@Mike – yes, I agree. The X-functional ‘collaboration’ problem seems to age old, and even though there has been a big focus on that idea since the the eighties?, it still seems to be a challenge today, even with all the newest tools for sharing information and communicating. Why do you think it still exists and is so heavily lamented? Where are people missing the boat?
Eric, this is a very good overview of the product costing software that is available on the market. Some brands are new to me, allthough I am investigating for more than two years. I am the owner of ORAGO, a german software company that offers product costing & project controlling software.
Joerg
Welcome Joerg,
Thank you for joining the discussion and the compliment. I will have to have a look at your product. Eric
Hi Eric,
we also like this overview! Which software is it in the upper right field? There is just an icon, no name.
And to complete your list of software vendors, you should know us 😉 Since 2000 we develope software for product costing including calculation data.
Greetings from Germany
Claudia
Hi Claudia,
Thanks for your interest. I think that the logo that you are referring to is Boothroyd & Dewhurst DFMA. As far as your software, I am happy to learn about it. Please drop me a line to eric(at)hillerassociates(dot)com, and we can set up a time to chat.
Thanks,
Eric
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