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Ähnlich wie IDEO Know How Talk 2 Dec 2004 regarding my PhD work (20)
IDEO Know How Talk 2 Dec 2004 regarding my PhD work
- 1. Product Capital Model
Measuring the Value of Design to
Corporate Performance
John Feland
John Feland Copyright© 2004 22 November, 2004 1
- 3. Measures of Product Development
Cost
Schedule Performance
John Feland Copyright© 2004 22 November, 2004 3
- 4. Cost, Schedule, and Performance
Are Not Enough
John Feland Copyright© 2004 22 November, 2004 4
- 5. Drawing Inspiration from the past
• "The person trained in the creative process has a
greater chance of developing worthwhile innovations
than the person without such specialized training."
– John Arnold
• “emerging synthesis of artist, inventor, mechanic,
objective economist and evolutionary strategist.”
– Buckminster Fuller
• Effective design requires “a synthesis of technical,
human, and economic factors.”
– Morris Asimow
• Innovation Champion “must cut across the special
interests (technology, marketing, production, and
finance) which are essential to the product’s …
development."
– Donald Schon
John Feland Copyright© 2004 22 November, 2004 5
- 6. Comprehensive Design
Technical Business
Factors Factors
(feasibility) (viability)
Human
Factors
(desirability)
John Feland Copyright© 2004 22 November, 2004 6
- 7. “A measurement system that is so strictly
financially focused leads to neglecting
other aspects of the company and its
development.”
Jeffrey Pfeffer and Robert Sutton
p. 24, Knowing Doing Gap, 2000
John Feland Copyright© 2004 22 November, 2004 7
- 8. Measures of Design Performance
• Productivity
• Lead Time
• Total Product Quality
– Conformance Quality
– Design Quality
John Feland Copyright© 2004 22 November, 2004 8
- 9. Measures of Design Performance
• Productivity ->Cost
• Lead Time ->Schedule
• Total Product Quality ->Performance
– Conformance Quality
– Design Quality
John Feland Copyright© 2004 22 November, 2004 9
- 10. Product Capital Model
Product
Social Capital
Product Product
Financial Intellectual
Capital Capital
John Feland Copyright© 2004 22 November, 2004 10
- 11. Product Financial Capital Defined
Creation and Consumption of Financial
Capital supporting the development of
Products
•Financial measures associated with
product development
– Gross Margin
– Net Income
– Total Assets
John Feland Copyright© 2004 22 November, 2004 11
- 12. Product Intellectual Capital Defined
Creation and Consumption of
intellectual capital supporting the
development of products
•Measures come from Knowledge
Management and Innovation Strategy
– Patent Applications
– New Product Releases
– Research and Development Expenditures
John Feland Copyright© 2004 22 November, 2004 12
- 13. Product Social Capital Defined
Persistent perception of benefit to end user
• Actor-Network Theory considers artifacts and
people as equal actors
• Social Capital defined as perception of mutual
benefit within Social Networks
• Product Social Capital measures benefit in
product-user relationship
• Online customer reviews used as data source
– Average Customer Rating
– Incidence of New Customer Reviews
John Feland Copyright© 2004 22 November, 2004 13
- 15. Are Online Reviews About Products?
Results of coding 231 Palm V customer reviews (5/99-5/02)
Product Customer Product Third Party
Design Support Accessories Software
Percentage of 99% 10% 19% 33%
Comments*
Average Rating for 4.2 2.8 4.3 4.5
Category
*Reviews can be classified in more than one category
John Feland Copyright© 2004 22 November, 2004 15
- 16. Methodology
• Develop measures of Product Capital
• Extract Corporate Performance measures
• Test Hypotheses
– Construct multivariate linear models
– Report analytical results
• Explain Contributions
• Detail implications
• Suggest next steps
John Feland Copyright© 2004 22 November, 2004 16
- 17. Hypothesis 1
The metrics of the Product Capital Model
correlate to corporate performance,
acting as state variables describing the
efforts of the enterprise in the pursuit of
product innovation
John Feland Copyright© 2004 22 November, 2004 17
- 18. Hypothesis 2
The Product Capital Model metrics
outperform purely financial measures in
describing the efforts of an enterprise
pursing product innovation
John Feland Copyright© 2004 22 November, 2004 18
- 19. Hypothesis 3
Product Social Capital is a leading
indicator of future product revenues
John Feland Copyright© 2004 22 November, 2004 19
- 22. Data Sources
• Product Financial Capital
– SEC Filings for Palm and Handspring
– 15 Quarters of Palm
– 13 Quarters of Handspring
• Product Intellectual Capital
– 145 patents
– Manufacturer press releases
– SEC Filings for Palm and Handspring
• Product Social Capital
– Over 4000 online customer reviews
– Covering 31 Personal Digital Assistants
John Feland Copyright© 2004 22 November, 2004 22
- 23. General Linear Model
y mx b
mn xProductFinancialCapitaln b1
n
yCorporate Performanc
e mn xProductIntellectual Capitaln b2
n
mn xProductSocial Capitaln b3
n
John Feland Copyright© 2004 22 November, 2004 23
- 24. Corporate Performance Measures
$60,000
Handspring
Market Capitalization Palm
$40,000
$20,000
$-
$600 Handspring
Gross Revenues $400
Palm
$200
$-
Handspring
Return on Assets 50.00% Palm
0.00%
-50.00%
-100.00%
John Feland Copyright© 2004 22 November, 2004 24
- 25. Testing Hypothesis 1
yMarket Capitalization mxProductCapital Metrics b
yGross Revenues mxProductCapital Metrics b
yReturn on Assets mxProductCapital Metrics b
John Feland Copyright© 2004 22 November, 2004 25
- 26. Market Capitalization
mxGross Margin mxTotal Assets
mxPatent Applications led by one quarter
y Market Capitaliza tion mxCurrent Patent Applications
R2 = 79% mxAverageRatings led by one quarter
b
John Feland Copyright© 2004 22 November, 2004 26
- 27. Gross Revenues
mxNet Incom e mxTotal Assets
mxPatent Applications led by one quarter
mxCurrent Patent Applications
yGross Revenues mxResearchand Developm ent Expenditure
R2 = 93% mxNum berof Reviewsled by twoquarters
mxAverageRatings led by twoquarters
b
John Feland Copyright© 2004 22 November, 2004 27
- 28. Return on Assets
mxNet Income
mxResearchand Development led by threequarters
yReturn on Assets
mxAverageRatings led by one quarter
R2 = 53%
b
John Feland Copyright© 2004 22 November, 2004 28
- 29. Useful Measures of Product
Capital
• Product Financial Capital
– Gross Margin
– Net Income
– Total Assets
• Product Intellectual Capital
– Patent Applications
– Research and Development Expenditures
• Product Social Capital
– Average Customer Rating
– Incidence of New Customer Reviews
John Feland Copyright© 2004 22 November, 2004 29
- 30. Product Capital Model Performance
Gross Revenues Return on Assets Market Capitalization
R2 = 93% R2 = 53% R2 = 79%
70.00% 70.00% 70.00%
60.00% 60.00% 60.00%
50.00% 50.00% 50.00%
40.00%
40.00% 40.00%
30.00%
30.00% 30.00%
20.00%
20.00% 20.00% 10.00%
10.00% 10.00% 0.00%
0.00% 0.00% -10.00%
70.00% 70.00% 70.00%
60.00% 60.00% 60.00%
50.00% 50.00% 50.00%
40.00% 40.00% 40.00%
30.00% 30.00% 30.00%
20.00% 20.00% 20.00%
10.00% 10.00% 10.00%
0.00% 0.00% 0.00%
Product Financial Capital Product Intellectual Capital Product Social Capital
John Feland Copyright© 2004 22 November, 2004 30
- 31. Testing Hypothesis 2
yMarket Capitalization mxProductCapital Metrics b
Compared to
yMarket Capitalization mxTraditional FinancialMetrics b
John Feland Copyright© 2004 22 November, 2004 31
- 32. Market Capitalization
$70,000 Actual Market Capitalization
Millions
$60,000 Predicted Using Financial Metrics
$50,000 Predicted Using Product Capital Model
$40,000
$30,000
$20,000
$10,000
$0
-$10,000
Aug- Mar- Oct- Apr- Nov- May- Dec- Jun-03 Jan-
99 00 00 01 01 02 02 04
John Feland Copyright© 2004 22 November, 2004 32
- 33. Gross Revenues
Actual Gross Revenues
$600
Millions
Predicted Using Financial Metrics
Predicted Using Product Capital Model
$500
$400
$300
$200
$100
$0
Jul-98 Dec-99 Apr-01 Sep-02 Jan-04
John Feland Copyright© 2004 22 November, 2004 33
- 34. Return on Assets
Actual Return on Assets
Predicted Using Financial Metrics
20% Predicted Using Product Capital Model
10%
0%
-10%
-20%
-30%
-40%
-50%
-60%
Jul-98 Dec-99 Apr-01 Sep-02 Jan-04
Product Capital Model R2=53% Financial Only R2=80%
John Feland Copyright© 2004 22 November, 2004 34
- 35. Implications of Product Capital Model
• Demonstrates the impact of Design
Performance on Business Performance
• Improved characterization of Market
Capitalization and Gross Revenues over
purely financial measures
John Feland Copyright© 2004 22 November, 2004 35
- 36. Product Social Capital Exhibits
Leading Behavior
Average Number of
Ratings Reviews
Market One Quarter
Capitalization
Gross Two Two Quarters
Revenues Quarters
Return on One Quarter
Assets
John Feland Copyright© 2004 22 November, 2004 36
- 37. Hypothesis 3
Product Social Capital is a leading
indicator of future product revenues
John Feland Copyright© 2004 22 November, 2004 37
- 39. MINI Cooper
Monthly Sales
20
Thousands
15
10
5
0
Dec-01
Dec-02
Dec-03
Aug-01
Aug-02
Aug-03
Apr-02
Apr-03
Apr-04
John Feland Copyright© 2004 22 November, 2004 39
- 40. Ford Thunderbird
Monthly Sales
20
Thousands
15
10
5
0
Aug-01
Aug-02
Aug-03
Feb-02
Feb-03
Feb-04
John Feland Copyright© 2004 22 November, 2004 40
- 41. Palm
$600
$500
$400
$300
$200
$100
$-
Q4 1998
Q2 1999
Q4 1999
Q2 2000
Q4 2000
Q2 2001
Q4 2001
Q2 2002
Q4 2002
Q2 2003
John Feland Copyright© 2004 22 November, 2004 41
- 42. Handspring
$600
$500
$400
$300
$200
$100
$- Q4 1998
Q3 1999
Q2 2000
Q1 2001
Q4 2001
Q3 2002
Q2 2003
John Feland Copyright© 2004 22 November, 2004 42
- 43. Correlation Analysis
Predictive interval (Months)
7
6
5
4
3
2
1
0
-1
*
MINI Tbird Palm Handspring
* Only the “Number of Comments” correlated to Palm Gross Revenues
John Feland Copyright© 2004 22 November, 2004 43
- 44. MINI Cooper Leading Behavior
Cumulative Sales
450
Thousands
400
350 Predicted
Actual
300
250
200
150
100 Leading by Five Months
2
50 R = 11%
0
Nov-01 May-02 Dec-02 Jun-03 Jan-04 Aug-04
John Feland Copyright© 2004 22 November, 2004 44
- 45. Ford Thunderbird Leading Behavior
Cumulative Sales
40
Thousands
35
Predicted
30 Actual
25
20
15
10 Leading by Four Months
5 R2 = 12%
0
Nov-01 May-02 Dec-02 Jun-03 Jan-04 Aug-04
John Feland Copyright© 2004 22 November, 2004 45
- 46. Handspring Leading Behavior
Cumulative Sales
$900
Millions
$800
Predicted
$700 Actual
$600
$500
$400
$300 Leading by Three Months
2
$200 R = 78%
$100
$-
Mar-00 Oct-00 Apr-01 Nov-01 May-02 Dec-02 Jun-03 Jan-04
John Feland Copyright© 2004 22 November, 2004 46
- 47. Palm Leading Behavior
Cumulative Sales
$6,000
Millions
$5,000 Predicted
Actual
$4,000
$3,000
$2,000
No Predictive Capability
$1,000 R2 = 10%
$-
Jul-98 Dec-99 Apr-01 Sep-02 Jan-04
John Feland Copyright© 2004 22 November, 2004 47
- 48. Product Social Capital Predicts
Future Sales
• Measures of Product Social Capital predict
product sales
• Three of four cases exhibit predictive
behavior
• Lead interval of three to five months
• Number of Customer Reviews is primary
leading indicator
John Feland Copyright© 2004 22 November, 2004 48
- 51. Decay of Product Social Capital
5
4
3
2
1
0
John Feland Copyright© 2004 22 November, 2004 51
- 52. Decay of Product Social Capital
5
4.5
4
3.5
3
2.5
2
1.5
1
0.5
0
John Feland Copyright© 2004 22 November, 2004 52
- 53. Indication of Product Adoption
Early Adopters
Innovators
Early Majority Late Majority Laggards
John Feland Copyright© 2004 22 November, 2004 53
- 54. Indication of Product Adoption
35
30
25
20
15
10
5
0
Fe 9
00
01
02
03
00
01
02
03
-9
g-
g-
g-
g-
b-
b-
b-
b-
g
Fe
Fe
Fe
Au
Au
Au
Au
Au
John Feland Copyright© 2004 22 November, 2004 54
- 55. Indication of Product Adoption
35
30
25
20
15
10
5
0
Fe 9
Fe 0
Fe 1
Fe 2
03
Au 0
Au 1
Au 2
Au 3
-9
0
0
0
0
0
0
0
g-
g-
g-
g-
b-
b-
b-
b-
g
Au
Early Adopters
Innovators
Early Majority Late Majority Laggards
John Feland Copyright© 2004 22 November, 2004 55
- 57. MINI Cooper Means
Exterior Design
Interior Design
Overall Rating
Fuel Economy
Fun-To-Drive
Performance
Build Quality
Less than 25%
Comfort
25% 25% - 50%
55% Greater than 50%
Performance ##
Comfort 0% 0%
Fuel Economy 0% 0% 2%
Fun-To-Drive 0% 0% 0% 0%
Interior Design ## ## 0% 0% 0%
Exterior Design 0% 0% 0% 0% 3% 0%
Build Quality 0% 6% 0% 0% 0% 4% 0%
Reliability ## ## 0% 0% 0% ## 0% 5%
John Feland Copyright© 2004 22 November, 2004 57
- 58. MINI Cooper Variance
Exterior Design
Interior Design
Overall Rating
Fuel Economy
Fun-To-Drive
Performance
Build Quality
Less than 25%
Comfort
25% 25% - 50%
55% Greater than 50%
Performance 1%
Comfort 0% ##
Fuel Economy 6% ## 9%
Fun-To-Drive ## 6% 0% ##
Interior Design ## ## 1% ## ##
Exterior Design ## 0% 0% 0% 2% 1%
Build Quality 0% 0% 0% 0% 0% 0% 0%
Reliability 0% 0% 0% 0% 0% 0% 0% ##
John Feland Copyright© 2004 22 November, 2004 58
- 59. Thunderbird Mean
Exterior Design
Interior Design
Overall Rating
Fuel Economy
Fun-To-Drive
Performance
Build Quality
Less than 25%
Comfort
25% 25% - 50%
55% Greater than 50%
Performance 3%
Comfort 1% 0%
Fuel Economy 0% 0% 0%
Fun-To-Drive 0% 0% 0% 0%
Interior Design 2% 1% ## 0% 0%
Exterior Design 0% 0% 0% 0% ## 0%
Build Quality ## 5% ## 0% 0% ## 0%
Reliability 0% ## 0% 0% 0% 0% 0% 0%
John Feland Copyright© 2004 22 November, 2004 59
- 60. Thunderbird Variance
Exterior Design
Interior Design
Overall Rating
Fuel Economy
Fun-To-Drive
Performance
Build Quality
Less than 25%
Comfort
25% 25% - 50%
55% Greater than 50%
Performance ##
Comfort 0% 0%
Fuel Economy 0% 0% 0%
Fun-To-Drive 0% 0% 0% 0%
Interior Design 0% 0% ## 3% 0%
Exterior Design 0% 0% 0% 0% ## 0%
Build Quality 0% 0% ## 9% 0% ## 0%
Reliability 2% ## 1% 0% 0% 0% 0% 0%
John Feland Copyright© 2004 22 November, 2004 60
- 63. Key Insights
1. Higher levels of design performance, as
measured by the Product Capital Model,
correlate to enterprise performance
2. Product Social Capital is a leading
indicator of product sales
3. Use of Online Customer Reviews as
source of data in support of design
research
John Feland Copyright© 2004 22 November, 2004 63
- 64. Implications for
Research and Practice
• Industry: Comprehensive Design as a
Competitive Advantage
– Cost, Schedule and Performance are
insufficient to support product innovation
– Product Capital Model measures the design
impact on the enterprise
• Academia: Comprehensive Design
Research
– Explore Comprehensive Design activities
– Develop new tools and methods
John Feland Copyright© 2004 22 November, 2004 64
- 65. Next Steps
• Comprehensive Design Activity
– > Product Capital Metrics
–> Enterprise Performance
• Develop and validate Comprehensive
Design methods
• Apply Comprehensive Design methods to
industrial practices
John Feland Copyright© 2004 22 November, 2004 65
- 67. Questions?
John Feland Copyright© 2004 22 November, 2004 67
- 68. Innovation literature
Designers as knowledge brokers
– Hargadon and Sutton
Inspiration from user observations, fail faster to succeed
sooner
– Tom Kelley
You can't be a leader over the next five years and not be
totally into design… If you don't already know how,
learn how to speak design
– Tom Peters
Once a dominant design is established, process
innovations become paramount
– James Utterback
John Feland Copyright© 2004 22 November, 2004 68
- 69. Design as a Cost Center
Cost of new product design
Percentage of total cost
45,7 %
sion
eci
fD
o
nce
orta
17,5 %
12,5 %
Imp
12,0 %
6,9 % 5,5 %
Market Product Concept Detail Manufacturing Selling
Research Development Design design
Specification
John Feland Copyright© 2004 22 November, 2004 69
- 71. Multivariate Linear Model
mn xProductFinancialCapitaln b1
n
yCorporate Performanc
e mn xProductIntellectual Capitaln b2
n
mn xProductSocial Capitaln b3
n
John Feland Copyright© 2004 22 November, 2004 71
- 72. Product Financial Capital Metrics
• Gross Margin $200
Millions
$100
$-
$(100)
• Net Income $200
$-
Millions
$(200)
$(400)
$(600)
• Total Assets $2,000
Millions
$1,500
$1,000
$500
$-
John Feland Copyright© 2004 22 November, 2004 72
- 73. Product Intellectual Capital Metrics
• Patent Applications 30
20
10
0
• New Product Releases 3
2
1
0
• Research and Millions
$50
$40
Development $30
Expenditures
$20
$10
$-
John Feland Copyright© 2004 22 November, 2004 73
- 74. Product Social Capital Metrics
5
• Average Online 4.5
Customer Reviews
4
3.5
3
• Number of New 200
Customer Reviews 150
Posted 100
50
0
John Feland Copyright© 2004 22 November, 2004 74
- 75. Market Capitalization
$15,000
Millions
Market Capitalization
Financial Only
$10,000
Product Capital Model
$5,000
$0
-$5,000
-$10,000
Dec-99 Apr-01 Sep-02 Jan-04
$70,000
Millions
$60,000 Market Capitalization
Financial Only
$50,000
Product Capital Model
$40,000
$30,000
$20,000
$10,000
$0
-$10,000
Dec-99 Apr-01 Sep-02 Jan-04
John Feland Copyright© 2004 22 November, 2004 75
- 76. Gross Revenues
$140
Millions
$120 Gross Revenues
Financial Only
$100
Product Capital Model
$80
$60
$40
$20
$0
-$20
Dec-99 Apr-01 Sep-02 Jan-04
$600
Millions
Gross Revenues
$500 Financial Only
Product Capital Model
$400
$300
$200
$100
$0
Jul-98 Dec-99 Apr-01 Sep-02 Jan-04
John Feland Copyright© 2004 22 November, 2004 76
- 77. Return on Assets
20%
0%
-20%
-40%
-60% Return on Assets
Financial Only
-80% Product Capital Model
-100%
Dec-99 Apr-01 Sep-02 Jan-04
20%
10%
0%
-10%
-20%
-30% Return on Assets
-40% Financial Only
Product Capital Model
-50%
-60%
Jul-98 Dec-99 Apr-01 Sep-02 Jan-04
John Feland Copyright© 2004 22 November, 2004 77
- 78. Form of Financial Only Models
yMarket Capitalization mxTraditional FinancialMetrics
yGross Revenues mxTraditional FinancialMetrics
yReturn on Assets mxTraditional FinancialMetrics b
John Feland Copyright© 2004 22 November, 2004 78
- 79. Correlation Analysis
Product Social Capital
Lead Intervals
MINI Cooper 1, 5 months
Thunderbird 1-6 months
Handspring 0-4 quarters
Palm* current quarter
* Only the “Number of Comments” correlated to Palm Gross Revenues
John Feland Copyright© 2004 22 November, 2004 79