September Engineering excellence Squaring the circle in times of technological change

Transcription

1 September 2018 Engineering excellence Squaring the circle in times of technological change

2 2 Roland Berger Focus Engineering excellence Management summary Engineering-driven companies are facing a fundamental change, brought about by disruptive trends such as electrification, automation and digitalization. The challenge is twofold. On the one hand they must adapt to the latest technology and develop corresponding expertise. And at the same time they must improve their current product portfolio despite growing pressure from competition, falling prices and ever tighter budgets. In fact, they must achieve the seemingly impossible: to grow without growing. How can engineering companies square the circle? The answer lies in what we call "engineering excellence". Through systematic analysis, firms can identify inefficient or wasteful structures and processes within their organizations. Armed with this information, they can then set their ambition level and get to work making the required changes. We identify ten key areas for improvement on the road to engineering excellence, ranging from portfolio and requirement management to the company's global research and development (R&D) footprint. Supporting these ten areas is one underlying "enabler": transformation management. Experience shows that firms addressing all ten improvement areas and thus achieving engineering excellence can realize savings of percent on their total engineering costs. But this exercise is about more than saving money. Engineering excellence frees up the resources that firms desperately need for the development of innovative products and the adoption of new technology. Transforming the entire engineering function makes the business to a certain extent future-proof, preparing it for the inevitable technological change ahead.

3 Engineering excellence Roland Berger Focus 3 Contents 1. A twofold challenge:...4 Develop the new while excelling in the old. 2. The way forward? Engineering excellence!...5 Companies need to grow without growing. 3. Squaring the circle:...6 Ten areas for improvement and an underlying enabler. Cover photo: cosmin4000/istockphoto

4 4 Roland Berger Focus Engineering excellence 1. A twofold challenge: Develop the new while excelling in the old. Engineering companies particularly, but not exclusively, companies involved in traditional mechanical engineering, electronic engineering and software engineering have arrived at a difficult point in their history. They are facing challenges from trends such as electrification, automation and digitalization. But at the same time as embracing the disruptive technologies that these trends give rise to, they must maintain their conventional portfolio in a shrinking market with falling prices. The first part of this twofold challenge affects many industries. Trends such as electrification, automation, digitalization, connectivity and the Internet of Things (IoT) are eating away at companies' core technological competencies. In many cases, these trends are also turning established business models on their heads. The automotive industry is a good example. Conventional internal combustion engine-driven vehicles are being replaced by electric cars and self-driving vehicles fueled by clean energy. This will have a momentous impact on automotive suppliers and their product portfolios. Combustion engines will disappear, gearboxes will become almost insignificant. Digitalization, connectivity and the latest generation of sensors will allow significant enhancements in control systems, autonomous driving and maintenance. These developments are the inevitable consequence of technological progress. But the disruption goes even deeper. Suppliers who equip automakers' assembly lines face multiple challenges from additive manufacturing (3D printing and the like). Suppliers of driving infrastructure must turn their hands to producing charging stations for electric vehicles. Other industries will be similarly affected. Braking systems for rolling stock based on mechanics and pneumatics will be replaced by electromechanical systems. The energy industry will see a shift away from oil refineries, large-scale power stations, turbines and extensive pipeline networks toward the plants and equipment needed for renewable energy. The IoT and connectivity mean that smart machines will come to dominate manufacturing processes, and machine and plant manufacturers will require as much expertise in software as in hardware. In many cases, companies will have to find new fields of activity, develop new R&D departments, design new products and accommodate themselves to shorter product lifecycles. The second aspect of the challenge and what makes things particularly difficult for engineering companies is that while negotiating the shift toward new technology and products, firms will have to maintain their existing traditional product portfolio for years to come. That, after all, is their bread and butter. But that bread and butter is being phased out and will soon be eaten away by overcapacity, fierce competition and falling prices. Only companies that manage to deliver top quality in the form of product improvements and at the same time achieve cost leadership will survive. Instead of neglecting the old portfolio to develop the new one, companies need to rise to the top of their traditional fields, otherwise they risk being pushed out of the market before they can complete the transition. The challenge is to develop the new while excelling in the old. And with resources particularly tight for many companies today, that means squaring the circle. We believe that the answer to this conundrum lies in achieving "engineering excellence". We outline what this involves, and how companies can set about securing it, in the following sections.

5 Engineering excellence Roland Berger Focus 5 2. The way forward? Engineering excellence! Companies need to grow without growing. In today's environment, companies must somehow achieve the impossible: to grow without growing. Despite tight budgets and shrinking markets, they must free up resources for product innovation and new technology. This places a renewed focus on cost structures. And that calls for a systematic analysis of their entire engineering process, structures and procedures. The first step is for companies to take a good look at themselves. What is their current situation? Which of their structures are plagued by inefficiency or waste? And where would they like to be ideally in other words, what is their ambition level? The best approach for this INVESTMENT UP TRADITIONAL BUSINESS NEW TECHNO- LOGY PROFITS DOWN MORE EFFECTIVE AND EFFICIENT ENGINEERING TO FINANCE THE TECHNOLOGICAL CHANGE exercise in self-analysis is to employ a catalog of best-practice questions referring to the various areas of engineering, as we will see below. The objective for companies setting out on the road to engineering excellence is to become both more effective and more efficient. Sounds like a tautology? We draw a distinction between the two a distinction that we believe is important for engineering companies to understand. Being effective for engineering firms means increasing your product quality, raising the number of innovative products you offer and adapting to new technology. It means reducing your costs through optimally designed products with lower manufacturing or service costs and reshaping your organization if necessary. The result of becoming more effective? New, better products. Being efficient, on the other hand, means modularizing products to reduce your variant costs, focusing on components or engineering while outsourcing other tasks. It means making your processes faster and more flexible, avoiding reduplicated tasks and cutting the number of interfaces. It calls for clear responsibilities, optimized interfaces to functions such as procurement and production, an optimized organizational structure and a cost-efficient global R&D footprint. Steering methods and key performance indicators (KPIs) must be reviewed, IT systems and support tools optimized. In many cases, an increase in "frontloading" is needed investing in early development stages, such as requirements clarification and feasibility, where most of the costs arising during the product lifecycle are already determined. The result of becoming more efficient? Lower costs and a shorter time to market. If that sounds challenging it's because it is. Very. To become both more efficient and more effective, and ultimately to achieve the goal of engineering excellence, companies need a structured approach, as we describe below.

6 6 Roland Berger Focus Engineering excellence 3. Squaring the circle: Ten areas for improvement and an underlying enabler. To successfully navigate the road to engineering excellence, companies need a carefully thought out, systematic and structured approach. Below, we identify ten key areas for improvement and one underlying "enabler". For each of these areas and the enabler, companies should carry out a critical self-analysis exercise with the help of a catalog of best-practice questions. Figure A shows a sample catalog of best practices for "lean engineering", one of the ten key areas of improvement. The idea is that the company goes through each of the best practices on the right for each area in turn. It calculates the average score for that area and enters it in the chart in the middle. It also enters its ambition level for that area on the chart. A Figure B gives an example of the resulting graph for a sample engineering company, showing current and target levels of engineering excellence. It provides the company with a clear picture of where its main improvement potential lies, which problems to tackle and what steps to take. B We list the ten key areas for improvement below. For each area, we suggest some best practices against which engineering companies can assess themselves. For the first seven areas, we are able to quantify the efficiency potential in percentage terms see Figure C. 1. Portfolio and requirement management: The company's choice of products defines all its engineering decisions. The catalog of best practices for portfolio and requirement management includes having a clear market segmentation, long-term technology roadmaps, well defined cycle planning and a strict prioritization of development projects. 2. Simulation, prototyping and testing: Best practices here include optimized validation and verification processes (virtual/simulation, hardware/prototyping) and coordinated prototype planning and purchasing to reduce overall engineering effort and costs. 3. System architecture and variant management: Best practices include having the maximum degree of modularization and clearly distinguishing between platform and application. 4. Lean engineering: Best practices are lean and robust processes, tools, automation and process standardization to avoid over-engineering, and reducing the administrative burden and non-productive waiting time so as to maximize pure engineering time. 5. Project management: Best practices are stringent, transparent project steering and monitoring, and robust, realistic milestone planning. 6. Global R&D footprint: Best practices include optimized task allocation between different regions, taking labor costs into account. 7. Core competencies/"make or buy": Best practices here include target core competencies derived from the brand position, defining what is core and what is not, reallocating tasks, and answering the "make or buy" decision. For the three remaining areas for improvement, we do not quantify a cost-saving potential in percentage terms. Nevertheless, these are key areas that companies must address in conjunction with the first seven areas. 8. Organizational structure: Best practices in this area include the optimized allocation of tasks and responsibilities (between platform and application, for example) across the entire development and related organizations, support for a stronger system perspective, and enhanced interfaces. 9. Transparency and performance measurement: Best practices here include general and R&D-specific KPIs for all project phases. 10. Resource and budget management: Best practices should include optimal matching of available and required resources (quantity and competency) and target budget planning and controlling on a project level.

7 Engineering excellence Roland Berger Focus 7 A: Best practice test Companies are rated on each area IMPROVEMENT AREAS LEVEL OF ENGINEERING EXCELLENCE BEST PRACTICES ASSESSMENT SCORE 1 Product portfolio & requirement mgmt. a Management assumes responsibility for ensuring that efficient processes and interfaces are defined and implemented Simulation, prototyping and testing b Employees adhere to global process standards ensuring a uniform process quality throughout the organization System architecture and variant management c Cross-functional and cross-site interfaces are clearly defined throughout the organization Lean engineering 3.6 d Processes are simple for employees to follow and enable smooth workflows with no corrections or reduplicated work (e.g. data transfers) Project management e Process champions are appointed at different levels of the organization 4 6 Global R&D footprint 7 Core competencies/ "make or buy" 8 Organizational structure f g Administrative tasks consume little time on the part of engineering personnel and are well supported by digital tools (e.g. travel applications, timesheets, purchase orders, etc.) Data between CAD, PDM and ERP systems are well integrated so as to secure good data quality and little transfer effort across the different systems Transparency and performance measurement (KPI) Resource & budget management h i Processes and interfaces are continuously monitored and evaluated to ensure that they function satisfactorily New methods (e.g. Scrum) are fostered and proactive use is supported by management not implemented at all 5 fully implemented Source: Roland Berger

8 8 Roland Berger Focus Engineering excellence B: Sample results for an engineering company The gap shows the potential for each improvement area IMPROVEMENT AREAS LEVEL OF ENGINEERING EXCELLENCE Very low Low High Very high 1 Product portfolio & requirement management 2 Simulation, prototyping and testing 3 System architecture and variant management 4 Lean engineering 5 Project management 6 Global R&D footprint 7 Core competencies/"make or buy" 8 Organizational structure 9 Transparency and performance measurement (KPI) 10 Resource & budget management Status quo Ambition level Supporting all ten areas for improvement is the underlying enabler transformation management. This category is "soft" but crucial, as it represents a precondition for change. The catalog of best practices for this enabler includes awareness-building at all levels of the company, as success is only possible if concepts that were effective in the past are adapted to future needs and conditions. Other best practices are effective communication (informing staff early, training, workshops), top-management support for the required development and change process, solid planning for technological and structural change, and sustaining the "change mode" throughout the process. The case study on page 10 illustrates how one company benefitted from identifying key areas for improvement using a catalog of best practices of the type we have described. Once the company had defined the problem

9 Engineering excellence Roland Berger Focus 9 C: Areas for improvement and efficiency potential By addressing all relevant areas, companies can often save percent in total 1 Product portfolio & requirement management 5-7% ENABLER = TRANSFORMATION MANAGEMENT 2 Simulation, prototyping and testing 2-3% 3 System architecture and variant management 4-6% 4 Lean engineering 5-7% 5 Project management 2-4% 6 Global R&D footprint 3-5% 7 Core competencies/"make or buy" 2-4% 8 Organizational structure 9 Transparency and performance measurement (KPI) 10 Resource & budget management Indirect levers increasing efficiency in above areas TOTAL* 15-25% *Usual added savings range. Not all levers work in every case. areas clearly, it was able to develop appropriate solutions and achieve some impressive results. As discussed above, we are able to estimate the potential range of cost savings in percentage terms for seven of the ten areas for improvement. This calculation is based on the results we have achieved in our work supporting clients. Firms addressing all relevant areas and attaining engineering excellence can generally expect to see savings of percent on their total engineering costs. C Saving money is always a good thing. But in the case of today's engineering companies, this is money that they can then direct into innovative products and technology. Change is inevitable, and change inevitably costs money. Achieving engineering excellence is the key to squaring the circle and putting yourself in the best possible position for mastering the technological changes ahead.

10 10 Roland Berger Focus Engineering excellence Case study Achieving engineering excellence at a leading automotive supplier With the help of a self-analysis exercise, the company identified three areas for improvement that were particularly relevant for their business: lean engineering (area for improvement #4), their global R&D footprint (#6) and core competencies (#7). The company's R&D budget was above normal industry levels. This was a particular problem because of continuous margin pressure from OEMs, the need to innovate with regard to electrification, and market demand for consistent development standards and processes worldwide. Prior internal cost reduction programs at the company had been ineffective. LEAN ENGINEERING The problem: When the company started supplying an electric vehicle manufacturer, it became clear that its own product development process (PDP) was too slow and had too many milestones. It needed to adapt its PDP to the new industry requirements and improve its time to market. The solution: The company effectively streamlined its PDP through better risk management and parallelization. It removed unnecessary double checks and reduced the number of milestones by 32 percent. The result: The company managed to cut the length of the PDP from order to series production from 34 months to just 18 months. This lean engineering approach led to cost savings. The company then used the money freed up to adapt its cooling system to the needs of electric cars and develop new technological competencies. GLOBAL R&D FOOTPRINT The problem: The R&D and engineering footprint had developed over a long period of time and was highly complex, with many different locations, a large share of activities carried out in high-cost countries and overall fragmentation. The solution: The company optimized its allocation of competencies to different engineering sites around the world, bringing it into in line with regional requirements, cost profiles and regional strengths. It also reorganized its engineering structure, introducing a structure based on product groups. Global processes were standardized and existing processes adhered to more strictly. The result: The new structure had 15 percent fewer management positions, clearly allocated roles and responsibilities, greater centralization, less reduplicated work and properly defined interfaces. CORE COMPETENCIES The problem: A functional analysis revealed that 50 percent of the company's daily engineering work was considered "non-core" by engineering staff. For instance, highly qualified engineers were spending time on administrative tasks, telephone conferences, travel expense forms, standard drawings, basic calculations and controlling templates tasks that were necessary but added very little value. Time and money were being wasted. The solution: The company identified 30 non-core activities. It then went through them, assessing whether each one should be: a) offshored internally to the client's low-cost location; b) outsourced to a local engineering service provider; c) outsourced to a low-cost country; or d) kept internal. The result: The company achieved an approximately two percent reduction in total engineering costs, equivalent to several million euros a year. CONCLUSION Using this approach, the company achieved total savings of 18 percent across its entire engineering process.

11 Engineering excellence Roland Berger Focus 11 About us Roland Berger, founded in 1967, is the only leading global consultancy of German heritage and European origin. With 2,400 employees working from 34 countries, we have successful operations in all major international markets. Our 50 offices are located in the key global business hubs. The consultancy is an independent partnership owned exclusively by 220 Partners. Navigating Complexity Roland Berger has been helping its clients to manage change for half a century. Looking forward to the next 50 years, we are committed to supporting our clients as they face the next frontier. To us, this means navigating the complexities that define our times. We help our clients devise and implement responsive strategies essential to lasting success.

12 WE WELCOME YOUR QUESTIONS, COMMENTS AND SUGGESTIONS AUTHORS JOCHEN GLEISBERG Partner DR. CARSTEN BOCK Partner PUBLISHER Roland Berger GmbH Sederanger Munich Germany DR. MICHAEL ZOLLENKOP Partner michael.zollenkop@rolandberger.com CHRISTIAN BÖHLER Principal christian.boehler@rolandberger.com THOMAS TOTZECK Project Manager thomas.totzeck@rolandberger.com More information to be found here: Disclaimer This publication has been prepared for general guidance only. The reader should not act according to any information provided in this publication without receiving specific professional advice. Roland Berger GmbH shall not be liable for any damages resulting from any use of the information contained in the publication ROLAND BERGER GMBH. ALL RIGHTS RESERVED. RB_PUB_18_031