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"If you want to meet aggressive product development objectives, these
distributed collaborative networks demand instant access to product development design and process
information throughout the lifecycle. PTC's Global Product Development (GPD) Solution is your key
to meeting today's manufacturing and product development challenges and anticipating tomorrow's."
Gaining Competitive Advantage through Global Product Development
Global Product Development
is also known as :
Aggressive Product Development Objectives
New Product Development
Product Development Design and Process Information
Product Development Specialists,
Product Lifecycle Management,
Product Development and Management Association,
Product Development Challenges,
PTC Global Product Development,
Mission Critical Product Development Process,
Offshore Product Development Capability,
Global Rearrangement of Product Development Activities,
Leverage Global Product Development,
Product Development Methodology,
Product Development Operation,
Global Product Development Strategies,
Non-digital Product Development Process,
Product Development Process,
Product Development Approach,
PLM Sopftware Solutions,
Global Product Development Partner.
For a manufacturing company, product development is a mission-critical process. It can also be a very expensive process. In fact, in many manufacturing
sectors, companies are reinvesting between 3% and 8% of their total revenues back into product development each year. This large investment
is primarily spent on human resources, and if all resources are concentrated in a single high-cost region, most companies simply overpay for their
respective level of productivity. While some companies may spend less across the board by mandate, they are just compromising on value-add and
therefore achieving correspondingly lower returns as well.
Thanks to the power of modern computer-aided design (CAD), computer-aided engineering (CAE), computer-aided manufacturing (CAM), and
Product Lifecycle Management (PLM) technologies, many manufacturing companies now have the tools that allow for resource portability and better
alignment of cost and value-add. This global rearrangement of product development activities and personnel is what many industry experts refer
to as "Global Product Development".
This paper is designed to help CEOs, CFOs, and senior Engineering executives understand how and where to leverage Global Product Development
as a means to gain a dramatic increase in productivity within their product development operation. For companies pursuing growth opportunities,
this productivity increase can materialize into increased capacity and capability within a constant cost structure. For companies pursuing increased
profitability levels, the same productivity increase can be monetized as reduced costs and improved profits within a constant capacity. Either way,
the benefit to a company and its shareholders is significant.
What Is Global Product Development?
Simply put, Global Product Development means maximizing the
financial and operational productivity of the product development
process by spreading product development activities across multiple
regions of the world in order to better match value-add to cost. In this
context, the definition of "product development" ranges from marketing
activities that identify and document customer needs; to engineering
activities that conceptualize, design, analyze and refine new
product ideas; to activities that plan and document manufacturing,
operation, and maintenance processes; to sustaining activities that
make ongoing product changes and refinements. Regions with high
costs include industrialized countries like the United States, United
Kingdom, Germany, France, Italy, and Japan. The list of lower-cost
regions is long, but major nations include India, China, Russia and various
other Eastern European and Asian countries.
Throughout the 1980s and 1990s, manufacturing companies in high cost
regions consistently shifted manual, blue-collar manufacturing
activities to lower-cost regions simply for the advantage of lower costs.
In certain market segments, this phenomenon has evolved to the point
where there are now very few textile mills and almost no television factories
left in the United States.
Though not a simple process, offshoring manufacturing was straightforward
in the sense that the process is discrete, with crisp and clear
inputs and outputs as hand-offs. For example, given a complete set of
specifications, drawings, and parts lists, an offshore manufacturing site
could fabricate and assemble the product and deliver finished goods
directly to the customer or distribution center. Arguably, the process
needed careful quality control and was slowed by the additional time
required to transfer ideas to an offshore location and ship tangible
products back; but still, the cost advantage was impressive. Entire new
industries were born out of this trend, a great example being the massive
electronics manufacturing industry that now exists in Taiwan.
As with any great business success, innovators look to migrate the core
concepts to new applications in hopes that they can deliver similar
successful outcomes. In the mid-1990s, thanks to the information
technology (IT) revolution driven by the Internet and World Wide Web,
the concept of using remote, low-cost resources to develop software
and maintain information systems was launched. For the first time, software
applications were available to make the work-product digital, and
the Internet allowed this digital work-product to be instantaneously
portable to nearly anywhere in the world.
With these important breakthroughs, companies, for the first time, had
an ability to distribute select functions or subsets of a broader process,
rather than transferring the process in its entirety. Seizing this cost-savings
opportunity, software companies began to offshore select functions
like Documentation and Quality Assurance, while companies of all
types looked for opportunities to offshore major portions of their internal
IT organizations as a means to cut back on this growing overhead
cost. Another new crop of companies, a prime example being the
Indian IT suppliers, was born in response to this trend.
The trend didn't stop within IT, however. Companies began to realize
that many other business processes, which had become IT-enabled for
purposes of automation, offered the very same opportunities for
realignment of cost and value-add. Claims processing, loan processing,
help-desk support, and many similar functions that were performed by
people sitting in front of computer screens all day offered another
opportunity: why not teach offshore resources to perform the very
same function at a fraction of the cost? Consequently, many of the
offshore IT services companies jumped into this adjacent business
opportunity, while a new class of "pure play" business process outsourcing
(BPO) firms was created as well.
All of which brings us to today's opportunity in Product Development:
Global Product Development.
The Basics of Global Product Development
Implementing Global Product Development requires reconfiguring
product development activities across multiple regions of the world.
This must be done, of course, with an eye toward maximizing
productivity while mitigating risk. With a Global Product Development
approach, process decomposition is used to identify and segregate high
value activities and resources from lower value-add activities and
resources. Those activities that add higher levels of value become
candidates to remain in higher-cost regions because their critical value add
justifies their higher cost, while many of the lower value-add
activities may become candidates for subsequent transfer to lower-cost
regions. The ability to characterize value-add is somewhat subjective
and naturally varies from industry to industry and even company to
company. Further, given the need to mitigate risk within the mission critical
product development process, the move to Global Product
Development should be viewed as evolutionary, not revolutionary.
Most companies simply cannot switch to a highly globalized model
overnight, but can migrate toward increasing levels of globalization
over a period of years.
Offshoring Versus Outsourcing
Ultimately, the value of Global Product Development is unlocked when
a balanced alignment of cost and value-add is achieved. "Offshoring"
and "outsourcing" are fundamental tools to be appropriately used to
achieve the desired balance. Offshoring, however, is the core strategy.
As a rule of thumb, companies typically look at maintaining in-house
(i.e., insourcing) that which is "core" to their business, and distributing
to others (i.e., outsourcing) that which is "context", or less critical.
Historically, manufacturing companies have done a high degree of
outsourcing of components of their products to companies that
specialize in their design and manufacture. Much of the outsourced
work remained onshore, though some went offshore. Another form of
outsourcing is the large onshore industry of "engineering services"
organizations now operating within high-cost regions that offer contract
engineering talent. While traditional outsourcing of manufacturing
and engineering will remain a viable method to improve products
while managing fixed costs, many companies have little additional
room to drive incremental productivity with this technique.
As a similar rule of thumb, companies look at retaining high value-add
activities onshore while offshoring low value-add activities. For example,
functions that require high degrees of product or market expertise, as
well as functions that require high levels of direct customer interaction,
are difficult to replicate offshore. Supporting activities to those functions,
however, may be good candidates for offshoring. Given the complexity,
initial startup costs, and ongoing management challenges associated
with managing a captive offshore facility, many companies choose to
develop their offshore capacity via an outsourcing partner.
In addition, labor rates will also vary with the outsourcing and offshoring
strategy deployed. Using typical US labor rates as a baseline, an
in-house onshore engineer would cost $40-$60/hour fully loaded with
compensation, benefits and overhead. An equivalent engineer, when
contracted from an onshore engineering services firm, may cost $60 -
$70/hour given the need for an additional profit margin to be added
to the same basic underlying cost. An equivalent engineer from an
Indian offshore outsourcing firm would cost $20-$30/hour. Moving to
a direct offshore employee model would subtract the necessity for the
contractor's profit margin and the resulting cost would drop to the $10-
$15/hour range. Obviously, the lowest steady-state cost is associated
with the captive offshore model, but that model also has significant
startup and ongoing management costs. To make the investment in
fixed assets (e.g., real estate, building, dedicated telecommunications
lines) pay off, most companies find that a captive offshore facility can
be economically justified only after the scale exceeds 300 employees.
A Global Development Maturity Model
To help mitigate the risk of disruptions to their product development
process, most companies evolve toward a Global Product Development
model over a period of time. Even within a single company, different
business units or product lines may very well be at different points in
their evolution toward global distribution and balance of cost and
The Maturity Model presented in Figure 3 helps to characterize common
states of evolution in the Global Product Development practices of
various manufacturers. The states may be described as follows:
- Numerous companies at Level 1-Ad Hoc find themselves with
some degree of offshore product development capability, but lack a
meaningful strategy regarding how to use this capability to achieve
a balance of cost and value-add. Typically, companies at Level 1
have "inherited" distributed operations through mergers and
acquisitions, but this was an adjunct to some other strategy and not
a primary strategy in and of itself.
- True Global Product Development begins at Level 2- Discrete
Services, where companies deploy a relatively conservative strategy
to retain control of product development projects and core
activities in-house and onshore, but "farm out" various discrete
support activities to offshore locations. For example, a company
may retain requirements capture and core design responsibilities
in high-cost regions, but shift drafting, technical publications, and
even simulation and testing activities toward lower-cost
offshore resources. Companies who are at Level 2 may achieve as
much as 30% portability (to low-cost regions) of their product
- At Level 3-Co-Development, companies become more aggressive
and begin to segment their overall product portfolio in order to
identify select subsets that can be "carved out" and transferred with
full responsibility to their offshore counterparts. Examples of Level
3 would include transferring responsibility for a complete
subassembly design for a new product effort, sustaining engineering
for existing products, or a specific value-engineering project aimed
at improving profitability of an existing design. Most companies in
high-cost regions envision getting to Level 3 over a period of time.
- A small minority of companies envision getting to the Level 4-
Transformational Outsourcing model as the basis for a complete
reinvention of how their company does business. In Level 4, the
onshore resources capture customer requirements and become the
interface to the offshore operation, which in turn designs and
perhaps even manufactures the final product. The risk of completely
losing product development capabilities keeps most companies
from seriously considering Level 4.
Companies who deploy Global Product Development models can
potentially gain significant financial and operational benefits.
There is a significant "hard dollar" savings entitlement available to
manufacturers who implement Global Product Development strategies.
The gross savings entitlement is typically in the range of 0.5% of total
company revenue and 10% of the product development budget. This
savings can be clearly seen by following the intuitive logic of the
equation in Figure 4 (feel free to substitute your actual figures).
For companies pursuing a "reduce costs and grow profits" strategy, a
total savings of 0.5% of revenue attributable to Global Product
Development would translate into a 3% to 10% growth in operating
profits if taken to the bottom line (assuming typical manufacturing
operating profit ranges of 5% to 15%), while maintaining fixed levels of
capacity. For companies pursuing a "grow revenues profitably" strategy
(i.e., needing additional product development resources while monitoring
costs), some or all of the Global Product Development savings entitlement
could be reinvested into increased capacity and capability while
continuing to maintain a fixed cost structure. Either way, the benefit to
a company and its shareholders is both tangible and significant.
In addition to the tangible "hard dollar" financial savings entitlement,
there are important additional "soft dollar" operational improvements
that may follow the deployment of a Global Product Development model.
By conducting product development operations "around the world,
around the clock", manufacturers have the opportunity to shave
time-to-market and gain competitive advantage. Many manufacturers are
beginning to structure their product development processes so that
core design work is performed during the day in higher-cost regions,
then, at the end of the day, those designs are handed off to personnel
in lower-cost regions who (often via multiple shifts) perform analysis
and simulation of those designs, so that the feedback is immediately
available when the core design team returns to work the next morning.
Additionally, by changing their cost structure with Global Product
Development and then reinvesting some of that cost savings entitlement
in new resources, companies can add both general and highly specialized
capacity. For example, additional resources might enable the
exploration of more product alternatives, or even the development of
entirely new product lines. Also, the addition of specialized resources,
such as engineers who perform sophisticated computerized simulations
of product behavior, can allow companies to further optimize designs
for higher levels of quality, performance, and reliability. While this
specialized capability was always theoretically possible, it may have
been cost-prohibitive before the deployment of a Global Product
Companies that improve their product development infrastructure for
purposes of enabling a more effective deployment of Global Product
Development stand to receive benefits from this new capability across
the board, not just as it relates to interaction with their offshore
operations. Previously, companies have justified investments in product
development infrastructure purely on the basis of returns from internal
process improvements. Now, the savings accruing from Global Product
Development alone provide a compelling justification for the necessary
investments, and the internal process improvements come as an
ancillary benefit of that investment. These additional benefits might
include improved engineering change and configuration management
processes, as well as improved collaborative development capabilities
that could be further extended either into customer-facing operations,
or upstream into the company's supply chain.
Other benefits of globalization that might prove important include
access to significantly greater human resources capacity to fuel growth
initiatives, improved local market presence in developing markets,
further dismantling of the wall between engineering and manufacturing
via co-location of design resources with existing offshore manufacturing
resources, and geographic diversification.
Global Product Development-Is It Real?
The phenomenon of Global Product Development is definitely real and
gaining momentum. A previous study commissioned by PTC found
that, among those manufacturing customers who were likely candidates
for Global Product Development (i.e., with a concentration of
resources in high-cost regions and with no regulatory barriers such as
the U.S. State Department's International Traffic in Arms Regulations or
ITAR ), 35% had already begun active offshore development (typically
on a small scale), an additional 18% were "piloting" the concept, and
more than 80% overall felt they would have Global Product
Development operations in the next few years.
Manufacturing Leaders Deploy Global Product Development
General Electric (GE), United Technologies Corporation (UTC),
Siemens, and Cummins Engine represent a very small sampling of
worldwide manufacturing leaders who are aggressively adopting the
principles of Global Product Development.
GE, a $170B U.S. diversified technology, media and financial services
company, is widely recognized as one of the founders of India's
Business Process Outsourcing (BPO) industry. GE installed its first
Indian power plant in 1902, and by 1930 it had opened a sales center.
Today, GE Capital International Services executes various back office
operations, such as call centers and IT support. After growing to become
the largest shared services center in India (11,500 employees), GE then
monetized its success by selling 60% of the business to a consortium of
US private equity firms. Building on a strong BPO heritage, GE also conducts
significant product development in India; design is performed at
captive centers and GE-approved Global Development Centers run by
third-party engineering service providers. Established in September
2000, the John F. Welch Technology Center in Bangalore, India is
General Electric's largest Research and Development center outside the
U.S., with a $120 million infrastructure and approximately 3,000 professionals.
A variety of GE products are designed here, including
some of its most complex jet engines.
United Technologies (UTC), like a number of other US conglomerates,
made a global investment by taking an ownership stake in an Indian "pure
play" engineering services business. Various UTC business units then
transitioned CAD modeling and other forms of engineering support work
to this and various other Indian engineering services companies.
Siemens, a $74B German company, while citing competitive pressures,
shifted one-third of its 30,000 embedded software engineers to China,
India and Russia. This shift affected product development operations in
Siemen's fixed-line and wireless telecom, automation and drives, transportation,
and energy transmission businesses.
Cummins Engine, a $13B US diesel engine and generator manufacturer,
operates a Regional Technical Center in Pune, India where it has been
manufacturing engines for over 40 years. Consolidating customers and
tightening of EPA emission standards has prompted a corporate mandate
to boost innovation without incurring a corresponding increase in
engineering spend. The technical center, managed in cooperation with
Satyam, employs over 200 people. It focuses on embedded software and
mechanical design analysis. While product development is led from
Cummins' Indiana (U.S.) headquarters, significant pieces of work are
now produced in India. One of the primary benefits that Cummins has
reaped from its Pune center is the ability to run analyses on literally hundreds
of product variations, both quickly and inexpensively, enabling
innovation to happen faster and without the time and cost of creating
many physical prototypes.
Although GE, UTC, Siemens, and Cummins are all sizeable industrial
companies, the phenomenon doesn't end there. Manufacturing
companies of all sizes within light industrial, heavy industrial, heavy
equipment, automotive, commercial aerospace, and electronics industries
are moving forward with strategies for Global Product Development.
Global Product Development at PTC
PTC, a global leader in Product Lifecycle Management Solutions, has
direct experience with Global Product Development, with compelling
results to show for it. As a major software company, PTC has an extensive
product development organization that includes more than 1600
personnel, of which approximately 1400 are directly involved in software
engineering and quality assurance. Because PTC was an early
adopter of Global Product Development, more than half of those 1400
personnel are based at PTC's captive offshore facility in Pune, India,
which was established in 1994 and is now PTC's single largest engineering
facility worldwide. Approximately 150 additional personnel are
based in PTC's facility in Haifa, Israel, which provides advanced mathematics
and geometry expertise at an important, albeit less dramatic,
cost advantage. Collectively, these two offshore facilities represent over
60% of PTC's engineering capacity and provide a cost savings of tens of
millions of dollars per year versus a hypothetical staffing profile where
the same resources are uniformly deployed in high - cost regions like the
United States. For PTC, the advantage gained through Global Product
Development represents multiple points of bottom line profit margin on
the corporate financial results.
PTC's approach to migrating work to its offshore development centers
focused on two key variables: the lifecycle of the software product and
the nature of the activity. PTC initially migrated relatively lower-value
activities, such as quality assurance and technical publications, on its
older products. The company eventually migrated higher-value activities,
including development and integration, on these same products.
As a larger portion of product development for its older products had
been migrated to the offshore development center, PTC started moving
lower-value activities on its newer products-again initially focusing on
quality assurance and technical publications, then moving to select
software programming activities. Today, work at the Indian offshore
development center includes development for most of PTC's products.
Using the Global Product Development Maturity Model, PTC's oldest
products, are at Level 4-Transformational Outsourcing, and its newer
products are at Level 2-Discrete Services.
For PTC, transitioning product development work offshore was a deliberate
and complex decision. Perhaps the biggest challenge was ensuring
access to key product and process information (e.g., source code,
requirements, change requests, processes and protocols) for all the
various stakeholders who needed it. PTC now relies heavily on several
key software solutions to control and facilitate collaboration in its
software engineering process. One tool, IBM's ClearCase, serves as
the product control application for software development, and
another tool, PTC's Windchill®, provides process and protocol information
for software development.
In addition, because the company had formerly relied almost exclusively
on a verbal method of maintaining and transferring its institutional
knowledge (i.e., "the way things are done"), PTC proactively documented
details of the development process to ensure that new participants
could productively ramp-up and participate. PTC engineers created a
library of accumulated knowledge that provided answers to commonly
asked questions and toolkits to automate common activities. While it
still takes longer for a remote software developer to become as productive
as his local counterparts, these tools, and an openness to welcome
cultural differences, continue to reduce the ramp-up time.
As an added benefit, many of the actions that were taken to enable
Global Product Development have also paid productivity dividends to
PTC's local development staff that now uses the enhanced business
processes and data management tools.
The key to implementing Global Product Development is to reconfigure
product development activities in a global manner to optimize the
alignment of value-add and cost. However, this must be done in a considered
and evolutionary fashion to avoid the real risk of a damaging
disruption to the output of the product development process.
The key is balance: be too conservative and you risk leaving money on
the table-money that could make an important difference in
profitability or competitive advantage; proceed too fast and you risk
disrupting the process, resulting in missed deliverables and product
launches-a potentially catastrophic situation for the business. Go too
far and you risk losing institutional knowledge that may compromise the
company for years to come. A measured, methodical approach, implemented
in phases over time, affords the necessary balance.
What To Offshore?
In order to proceed with the implementation of a Global Product
Development strategy, it is necessary to analyze product development
activities and segregate higher value-add activities from lower value add
activities. Separately, it is necessary to identify the degree to which
various activities are indeed portable without disrupting the overall
product development process. Some activities, though potentially
characterized as lower value-add, might require higher degrees of
institutional knowledge or physical co-location with the customer.
These activities may be poor candidates for relocation.
The analytical approach to be followed when answering "What to
offshore?" varies depending on the desired outcome as measured by
the Global Product Development Maturity Model presented earlier in
Figure 3. Companies that want to achieve a Level 2-Discrete Services
level of maturity will retain overall management and control for all
products and projects onshore, but try to identify those supporting
tasks and roles that could be relocated offshore. This outcome essentially
requires that companies take an approach that could be characterized as
"modular process design"-in other words, breaking their
process into a series of discrete steps, all of which have defined inputs
and outputs. Companies who want to proceed to a Level 3-Co-
Development level of maturity need to take a different approach.
These companies will analyze their portfolio of products and identify
those products or projects that can be moved offshore in their entirety.
These companies are more likely to focus on "modular product
To help companies proceed with this segregation, PTC developed
analytical models that examine each task within a typical electromechanical
product development process and ranked those tasks in terms
of their value-add and portability. This analysis shows how companies
can achieve the 30% resource portability level at Level 2-Discrete
Services of the Global Product Development Maturity Model, which is
the natural and more conservative starting point for most companies
who are contemplating Global Product Development. Figure 5 shows
the summary results from this analytical model.
There are two other key considerations when contemplating what
activities to offshore: business strategy and product lifecycle. Each
business must understand what its strategy is and the required core
competencies in product development that support that strategy. For
example, a company that focuses on a specific type of technological
innovation in its products would maintain those related activities inhouse.
The second consideration is the lifecycle of each product or platform.
In general, more product development activities related to older product
lines can be offshored versus the number of similar activities related
to new products, as indicated in Figure 6. The relative value added
for sustaining engineering on older products is generally less than the
value of new product development associated with new, yet-to-be
launched products. However, there are opportunities to utilize global
product development strategies for new and old products to take
advantage of cost and time - to - market benefits.
Where to Offshore?
Companies that have identified "what" activities can be relocated must
next decide "where" to relocate those activities. There are a number of
criteria that affect this decision, including cultural capabilities for product
development, cost advantage, cultural respect for intellectual property,
education levels of the population (as well as their language
capabilities), the business environment, and the existing provider base.
India is a major destination-especially among English-speaking countries-
for companies that want to implement Global Product
Development. In addition to having a population with exceptional
English-language skills, India enjoys a relatively strong educational
system that produces more than 200,000 new engineers each year. In
fact, it is these same engineering schools that supplied the technical
recruits who were repurposed to feed the IT boom that has developed in
India since the mid-1990s. Therefore, India has a large existing supply
of engineers, as well as strong annual recruitment.
There are other strong players on the global outsourcing scene as well,
and certain regional alignments are proving repeatable. For instance, it
is common to see Western European countries transferring work to
neighboring Eastern European and former Soviet countries due to a
stronger alignment of culture and language. Similarly, Japanese companies
are more likely to transfer product development activities to
China and other Asian countries.
How to Offshore?
Once a company has decided "what" and "where" to offshore, it must
then make the selected engineering design work portable. This requires
both process changes and technology infrastructure.
A degree of consideration must be given to the need for realignment
of product development processes to support Global Product
Development. Ad-hoc processes that may work fine when the team is
familiar and physically co-located are easily thwarted when the team
becomes separated by geographic, corporate and cultural divides.
For companies who desire to adopt the Level 2-Discrete Services
approach to Global Product Development, consideration must be given
to instituting a formalized "modular process" where each main step or
"module" has clear inputs, outputs, and responsibilities. By formalizing
these interactions, companies gain the ability to transition certain
"modules" to offshore facilities or partners, with clear expectations of
how the process will work when some work is done offshore and the
majority remains onshore.
Companies who elect to pursue Level 3-Co-Development strategies
need to give strong consideration to how to segregate major products
or projects, so that they may be transitioned offshore in their entirety.
However, when the strategy calls for transitioning sub-components of
a new product design, additional thought must then be given to
"modular product design". Unlike modular "process" design that formalizes
interfaces between people, modular "product" design is a methodology for
formalizing interfaces between product modules, so that
design activities can proceed more independently with the assurance
that the results will integrate nicely in the final product.
It is the advancement of information technology that has made Global
Product Development a practical reality. The family of CAD, CAM, CAE,
PLM, and related IT technologies that companies have been deploying
for internal automation purposes for the last decade now also provide
the necessary enablement for Global Product Development. In order to
facilitate Global Product Development, an effective IT infrastructure
must enable the product development process to:
- Get Digital. By eliminating paper, and by moving to a purely digital
product modeling approach, companies can make their intellectual
property highly portable between locations and team members. It
is this portability that allows a US engineer to work on a design
during the day, have that same design advanced in India during the
night, and then be ready for review again in the morning. The consistent
use of CAD, in particular, is a prerequisite to any meaningful
Global Product Development strategy, but the use of CAM, CAE, and
Visualization technologies is required to realize its full potential.
- Get Automated. An effective information and process management
environment enables companies to capture digital data content,
securely control its various versions and configurations, manage
concurrent changes, and automate the flow of information between
members of the product development team. Like CAD, a baseline of
information and process control is a critical prerequisite to avoid
disabling chaos during the transition to, and ongoing operation of,
Global Product Development.
- Get Global. The introduction of Internet-based collaboration
technologies enables the establishment of "virtual team rooms"
that allow dynamic sharing of digital product information across
both geographic and company boundaries. When collaboration and
data management solutions are integrated, companies can share
enterprise information with offshore partners in a select and secure
manner, enabling productivity without compromising the proprietary
nature of intellectual property.
Modern IT infrastructure, like PTC's integrated Product Development
System (PDS), provides a digital backbone that enables manufacturers
to improve key product development processes and deploy Global
Product Development in an orderly and productive fashion. PTC's
PDS marries five core capabilities into a single IT architecture:
Pro/ENGINEER® and Mathcad® to "create" high-fidelity digital product
data; Windchill to enable "collaboration" across virtual teams;
Windchill to facilitate "control" and "configuration" of product
development data and processes; and Arbortext® and Windchill to
"communicate" this content to all affected members of the global
The Outsourcing Option
While a growing list of manufacturers want to participate in the savings
advantages of Global Product Development, many lack the wherewithal
or scale to start and effectively operate a captive offshore center.
Such a facility requires a substantial startup investment, not to mention
significant management talent to recruit, develop and retain key
employees in a highly competitive world. Even some of the companies
who initially launched captive offshore centers are reconsidering this
strategy as they struggle to make their operation viable.
Fortunately, a number of offshore outsourcing firms are responding to
the need to quickly provide employees that are trained and equipped to
step in and take on an important role in the product development
process. In India, outsourcing companies who provide engineering
services resources and capabilities include:
- IT Services and Business Process Outsourcing (BPO) Firms. Leading
IT and BPO firms like Tata Consulting Services (TCS), Infosys, Wipro,
Satyam, HCL, and a host of others see product development as yet
another "IT-enabled service" and have proceeded to add engineering
services to their portfolio of offerings. With strong process
capabilities, these firms generally excel at delivery via an offshore
model, but with their limited heritage in product development or
manufacturing, they may lack domain expertise and experience.
- Manufacturing Companies. A number of indigenous Indian
manufacturing companies like Larsen and Toubro, Eicher, Blue Star,
Tata Technologies (part of Tata Group), Harita (part of TVS), and
others see an opportunity to leverage their design and manufacturing
heritage to pursue this new growth opportunity, and accordingly
have created business units that focus on engineering services.
These suppliers typically start with strong domain expertise, but are
challenged to embrace this new business model and implement
world-class delivery processes necessary to make it effective. Some
manufacturers are also concerned about the potential competitive
issues with this model, especially since those suppliers who best
understand their business also have the largest potential to compete
- Engineering Services "pure play" companies. Naturally, this new
phenomenon has created a number of new providers like InfoTech
and Onward who specialize in the delivery of offshore engineering
services. Typically quite small, these companies tend to focus on
various niches within the manufacturing marketplace.
- Product Development Specialists. PTC, a leader in Global Product
Development solutions, offers a rich heritage in product development
derived from engagements with more than 50,000 manufacturing
companies worldwide over the past 20 years. PTC is best
known for its market-leading CAD and PLM technologies-
Pro/ENGINEER and Windchill-that are the core of its Product
Development System (PDS), a critical enabler of Global Product
Development. PTC has an extensive understanding of the methods
and processes now enabling GPD at thousands of manufacturing
companies. This collective experience shapes the services and solutions
PTC delivers to hundreds of customers each day. PTC has successfully
executed its own Global Product Development model, with
more than 60% of its software development now located in India
and Israel. In addition, because most of the major engineering service
providers operating across the low-cost regions of the world use
PTC solutions, these relationships have enabled PTC to understand
and answer the specific needs of Global Product Development.
- PTC has a Global Services organization with offices strategically
located around the world to ensure its customers can work with
locally-based consultants. In conjunction with this organization,
the PTC Global Services deployment model is designed to efficiently
leverage its worldwide network of capabilities. Thus, the PLM
industry's best consulting expertise can be delivered in an effective,
high-quality and cost-effective manner.
Each of the above categories of outsourcing has the potential to deliver
a viable means to get started with any Global Product Development
initiative. Determining the ideal partner depends, in part, on your
desired outcome versus where you want to be on the Global Product
Development Maturity Model. For example, companies who want to
proceed to Level 4-Transformational Outsourcing may need to pursue
arrangements with indigenous manufacturing companies who have the
necessary infrastructure to ultimately manufacture the product as
well as design it.
Risks and Challenges
There is a long list of potential risks and challenges associated with
Global Product Development, but in aggregate, they could be characterized
in four primary forms that merit discussion:
Global Product Development ultimately results in the transition of
innovation activities offshore. Many Western countries are sensitive
about ceding economic power that is underpinned by innovation. The
following are some common arguments that address this issue, and
- Argument: As we shift product development work to low-cost
countries, we will ultimately be turning unskilled foreigners into
highly skilled innovators. This will someday weaken the leadership
position of the high-cost countries and put them at a disadvantage
- Reply: In fact, just the opposite is likely to occur. As low-cost countries
strengthen their economies, their purchasing power will rise
and they will demand increasingly sophisticated goods and services
from high-cost countries. Furthermore, as the low-cost countries
accept the rote and mundane activities of product development,
they will free up more time for higher-cost engineers to work on
higher-level, innovation-oriented work. If anything, the high-cost
countries will become intellectually stronger-not weaker.
- Argument: Moving engineering jobs to low-cost countries will
compromise the economies of the higher-cost countries. Unemployed
workers do not spend money, which creates a drag on the high-cost
- Reply: Same argument as above-but with the added distinction that,
as low-cost country economies begin to demand more goods and
services from high-cost country economies, local firms would have
to increase staff to meet demand. In short, on a localized basis, jobs
may decline, but across the entire economy, increased demand will
spur job growth in adjacent industries and activities. The offshoring
of manufacturing did not coincide with an economic crash in highcost
countries, but actually fueled growth and prosperity.
Threat to National Security
- Argument: Many high-cost countries are prohibited from sending
defense-oriented intellectual property outside the country.
- Reply: This is, indeed, true. Global Product Development will not
be appropriate in all circumstances. However, there are proven
ways to disaggregate defense-oriented work to isolate those
components of the work that can be done offshore. Thus, one
should not necessarily assume that none of the work is applicable
for Global Product Development.
Given that economic strength plays such a strong role in world politics
today, it's not surprising that there are a series of business-oriented
criticisms to Global Product Development. These criticisms operate at
a level below international competition and focus more on competitiveness
of the individual firm. Here's a sampling of these challenges:
Intellectual Property (IP) Theft
- Argument: Many low-cost nations have no formal IP laws and lack
respect for intellectual property rights. For example, software piracy
is rampant in many low-cost countries. For this reason,
high-cost country firms are hesitant to distribute their own IP
(e.g., product designs, CAD models, assembly instructions) outside
of nations where they can't ensure its safety.
- Reply: While this is certainly true, there are measures that can be
taken to mitigate IP risk. These measures include making a
thoughtful and strategic up-front assessment of which IP to send
and which to keep, as well as using information technology, organizational,
and physical deterrents to control access to sensitive information,
or portions thereof. Additionally, a number of low-cost
countries recognize IP protection as a requirement to grow their
services businesses, and they are working on legislation and
- Argument: Some companies argue that their innovation processes
are not "standard" enough to be decomposed and reconfigured for
Global Product Development. In other words, they never conduct
product development the same way twice.
- Reply: While aspects of this may be true, most manufacturing
companies have taken steps to control their product development
processes. In fact, a survey by the Product Development and
Management Association (PDMA) found that 72% of companies
surveyed had a formal, cross-functional product development
process. In addition, for those companies that still do not have a
formal process, Global Product Development can serve as a focal
point around which to pilot and then instill process discipline.
Customers Will Complain
- Argument: Many companies in high-cost countries feel that they
will be viewed as "unpatriotic" in the eyes of their customers for
sending work outside of the home country, and they worry about
losing business as a result.
- Reply: While customers might view the migration of work as
unpatriotic, they will certainly not complain about lower prices or
products getting to market faster. Assuming that a portion of
the Global Product Development entitlement is passed back to the
customer, any initial negative reactions will not be sustained. As
evidence, today virtually all products have some components
that are manufactured offshore, and yet customers show
Technology has played a pivotal role in the rise of Global Product
Development. The ability to digitize work products, the increased
bandwidth available in low-cost countries, and the proliferation of
networks and computers have all contributed. While technology has
great power to enable new business models, because of its naturally
dynamic nature, it can cause skepticism and even fear in those who are
not comfortable with it. Some common objections are:
Non-Digital Product Development Process
- Argument: Some high-cost country companies still do not use
digital technology (three-dimensional CAD, Product Lifecycle
Management, etc.) to orchestrate product development. So, to
effectively participate in Global Product Development, they would
first have to "digitize" their basic product development operations,
which can create a great deal of concurrent business changes.
- Reply: Over the past decade, the world of product development has
advanced rapidly, and those who have not adopted modern
techniques and technologies are now in a small minority and
already at serious risk of competitive disadvantage. Global Product
Development can be seen as a focal point for driving an initiative
to upgrade product development to be a fully digital, automated,
and collaborative process. This investment will pay productivity
dividends locally in the high-cost country, as well as contribute
toward the Global Product Development initiative.
Viability of the Technology
- Argument: Since Global Product Development is a relatively new
concept, some home country manufacturers might question the
viability of the underlying technology to actually support it.
- Reply: Global Product Development is simply a more advanced
application of the "Design Anywhere-Build Anywhere (DABA)"
concept, which is a well-understood and proven practice. The
same Product Lifecycle Management applications that have
been enabling DABA now enable Global Product Development;
they are well-understood and stable.
Global Product Development implies a radical shift in the way that work
gets accomplished, and this shift occurs across many different dimensions,
from process, to capabilities, to organization. Many would argue
that organizational issues are perhaps the most critical issues, given the
importance of smooth collaboration to the success of Global Product
- Argument: Management in high-cost countries may be wary of
telling employees that Global Product Development will entail local
staff reductions, for fear that morale and productivity will be
compromised. Offshoring strategies can cause difficulty with labor
unions as well. These reasons alone might be enough to prevent a
Global Product Development initiative from happening.
- Reply: Like offshore manufacturing, Global Product Development is
a reality whether we like it or not. Early adopters embrace the
opportunity to gain competitive advantage through better
productivity. Competitors must follow to regain competitive parity,
or they risk suffering even worse consequences. Either way, management
may have a tough message for some employees, but
business failure can be far more drastic.
PTC-Your Global Product Development Partner
For companies that are intrigued by the idea of Global Product
Development, but uncertain of their ability to "go it alone", PTC can be
a true partner in the journey. PTC's complete solution of Global Product
Development capabilities include:
- Experienced Partner. With a singular focus on improving product
development, PTC has an established relationship with tens of
thousands of leading manufacturing companies worldwide. As a
trusted business partner with staying power, PTC uses Western
business approaches, standing behind its commitments to ensure
that customers get full value from PTC solutions, even if surprises
are encountered in the process. With respect to Global Product
Development, PTC already successfully "practices what it preaches."
PTC has operated an offshore engineering practice in India dating
back to 1994. With more than 60% of its 1400 engineers
offshore, PTC continues to meet its customer commitments, to
build great products, and to deliver profitable business results.
PTC's experiences are invaluable to companies attempting to
chart their path to Global Product Development.
- Enabling Infrastructure Provider. At the end of the day, Global
Product Development is an IT-enabled business practice, and PTC is
the sole supplier of the critical IT enablers to thousands of companies
worldwide. PTC's global Product Development System is unique in
the industry in terms of its ability to help companies deploy a digital,
collaborative, and automated product development process. PTC
also supplies IT consulting services and on-demand solutions to
help customers deploy technology quickly and gain maximum
advantage from their investments.
- Process Change Agent. By leveraging experiences gained internally
and through engagements with leading customers worldwide,
PTC has developed a series of product development process reengineering
practices that help companies decompose, distribute,
and reconfigure product development processes for Global Product
Development. In particular, PTC has developed and standardized
techniques for implementing modular product approaches and
modular process approaches- key prerequisites to implementing
Level 2 and Level 3 Maturity approaches.
- Trusted Guide. PTC has already established solid relationships with
many of the major engineering service providers now operating
across the world's low-cost regions. In fact, these organizations are
very important customers and partners of PTC. Since PTC is already
an active participant in these markets, we welcome the chance to
assist our customers in finding the appropriate Global Product
Development engineering service provider.
© 2008, Parametric Technology Corporation (PTC). All rights reserved. Information described herein is furnished
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