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Networks and Exchanges: A Contrarian's View" Michael J. Suman May 14th, 2004 Michael J. Suman 1979 – 1996 Vice President for Prince Corporation 1996 – 2002 Group Vice President for Johnson Controls Automotive Division Introduction Primary Areas Of Responsibility Sales Marketing

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networks and exchanges a contrarian s view

Networks and Exchanges: A Contrarian's View"

Michael J. Suman

May 14th, 2004

introduction

Michael J. Suman

1979 – 1996

Vice President for Prince Corporation

1996 – 2002

Group Vice President for Johnson Controls Automotive Division

Introduction

Primary Areas Of Responsibility

Sales Marketing

Business Development

Product Development (43 U.S. Patents)

Managed IT systems on a global basis

Interface with investor relations and press

introduction3

Michael J. Suman

Owner

Product and Market Development LLC

Introduction

Primary Areas Of Focus

Product and Business Development

Accelerated Partnering

Marketing

Strategic Planning Validation

slide4

The world of cost reduction and lean will continue to be the cornerstone of good business practices. What do executives do when lean practices are not enough? One author puts it another way:

Financial markets relentlessly pressure executives to grow and keep growing faster and faster. Is it possible to succeed with this mandate? Don’t the innovations that can satisfy investors’ demands for growth require taking risks that are unacceptable to those same investors? Is there a way out of this dilemma?

The Innovator’s Solution by Clayton Christian

The Internet as a medium is value neutral. During the explosion many companies tried to make this communication link a business in itself instead of using it as new tool.

slide5

From 1997 to 2001 it was Shoot – Ready - Aim

“E is best”

European IPOs 1999 Dot-Com Share Fall-Out

US Christmas 1998

Investor Disillusionment

Brick-and-Mortar Failures

US IPOs 1997/8

Dot-Com Shake-Out

Visibility

Dot-Com Starts

PublicizedE-Failures

Optimized E-Business

Businesses

“True” E-BusinessEmerges

Business Disillusionment

InternetWWW

Value

Technology Trigger

Peak of Inflated Expectations

Trough of Disillusionment

Slope of Enlightenment

Plateau of Profitability

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Source: Gartner

introduction6

This story begins with a look at where the Domestic Automotive Industry was in the year 2000

Introduction

  • Losing Market Share
  • Intensive Labor Issues
  • Internal Structural Issues that could not be addressed
  • Manic pressure on cost reduction
  • Forced to stand by and watch investor dollars run to the technology sector
  • Tremendous pressure from shareholders that were growing tired of “smokestack returns”
introduction9

The world of Automotive in 2000 – a suppliers perspective

Introduction

  • Purchase orders were based on commitment to multiple year price reductions
  • In some cases we were asked for the cost reduction up front in a lump sum
  • In a few cases we were expected to provide both
  • We were awarded business for components that were not designed - but with firm:
    • Piece cost
    • Guaranteed cost reductions
    • Accepted warranty risk
    • No funding for changes to design (for any reason)
introduction10

The stage was set for the perfect storm in the Automotive Industry

Introduction

  • Cost reductions were not coming fast enough
  • This near monopoly industry had the power to force supply their base to do almost anything
  • Everyday financial market pressures were increasing exponentially
  • Automotive executives were tired of the “dot.com” get rich stories
  • (Ref: Greenbrier and Scott McNealy)
introduction11

This perfect storm in Automotive produced a tornado called Covisint

Introduction

  • Covisint started with some obvious issues:
  • No products
  • No business case, strategy, or employees
  • It was brought together by three companies that have never had success collaborating on much in the past
introduction12

Even though many of us already had a plan, partners, and were moving fast, we were given incentive to stop our internal activities.

Introduction

introduction13

Covisint got off to a poor start

Introduction

  • More consultants than employees
  • No clear leadership
  • Covisint commercialization tactics did not include payback justification
  • The “getting started” meetings were.............
  • The success metrics were broadcast around the world and were beyond aggressive
slide15

The Business Cycle

Product

Planning

and

Business

Case

Dev.

Design

and

Tooling

Supply

Selection

Cycle

Planning

Production

Distribution

Promotion

200 global locations and hundreds of software legacy systems

slide16

Ford NAO Purchasing

BuyerZone

Commerce One

PurchasePro

General Motors NAO Purchasing

Marketsite

TradeXchange

ProcureNet

ANX

B2BGalaxy

Commerce One

i2/Tradematrix

VerticalNet

ProcureNet

M-Exchange

Intelisys

Covisint

Freemarkets

Intelisys

Auto-Xchange

Commerce One

Auto-Xchange

PurchaseCenter

Ford NAO Purchasing

ProcureNet

Ariba

eMarketplaces

ENX

TradeXchange

Marketsite

DaimlerChrysler NAO Purchasing

BuyerZone

JNX

M-Exchange

ComAuction

PurchaseCenter

Netbuy

VerticalNet

Auto-XChange

internet and it products are not immune to the laws of product life cycles

CYCLE PLANNING

Internet and IT products are not immune to the laws of product life cycles

Success Amplitude

PROFIT

DECLINE

GROWTH

Time

Exit or

New Phase

Introduction

Maturity

however internet product cycles can be out of phase with dependant product cycles

CYCLE PLANNING

However Internet product cycles can be “out of phase” with dependant product cycles.

Business Case Justification

Change Amplitude

Hardware

Software Infrastructure

Network

Time

the task was over the top

The task was “over the top”

  • Many Internet suppliers did not have a clue as to how we created value
  • We had customers that said “scrap your Internet activities and use Covisint” with our leadership suggesting that our next order was a “tit for tat” directly related to our use of Covisint.
  • We had to cut budgets while all this was going on.
  • We had to do everything globally with 16 languages and even more cultures
  • To make things even more complicated with were acquiring companies at a rate of two per year – of course with different legacy systems and needs.
  • Note: When you acquire a company most internal service based budgets were starved to create an attractive balance sheet – IT systems are no exception.
very few new internet suppliers had the capability of understanding basic business case processes

BUISNESS CASE

Very few new Internet suppliers had the capability of understanding basic business case processes

  • Executive Summary -Objectives, Mission, Keys to success
  • Company Summary -Company Ownership, Start up Summary
  • Products -Product Description, Competitive Comparison, Sales Literature, Sourcing
  • Market Analysis Summary -Market Segmentation, Industry Analysis, Sales Forecast
  • Management Summary -Management identification, Job Descriptions, HR plan
  • Financial Plan -Funding, Spending, Profit, and breakeven analysis
slide21

Very few new Internet suppliers had the capability of understanding our product development process

  • Ideation
  • Commercialization and business plan
  • Product development and market testing
  • Tactical plan for each product life cycle phase:
    • Entry
    • Acceleration (growth)
    • Maturity
    • Decline
    • Freshen, Re-launch, or Exit
  • Co-developed product promotion and advertising plans
    • (not an afterthought)
selling new internet products require expensive prototypes that are almost production capable

$

Selling new Internet Products require expensive prototypes that are almost production capable

$

$

$

Investment Intensity

$

$

$

Time

Product

Planning

Design and

Tooling

Accelerated

Partnering

Promotion

Cycle Planning

Production

Distribution

Integration was not a technical issue

many new internet suppliers did not stand up to basic requirements to the supply selection process

SUPPLY SELECTION

  • Competitive but long term contracts
  • Vertical integration planning
    • Internal IT people would rather write their own code (source or knit)
    • Partnering can mean “cooperating with your competition”
  • On line “real time” open architecture activity status
  • Lean capable
      • Kaizen
      • 5 Why’s
      • JIT
      • Six Sigma
      • 5S
      • Kanban
  • Transit tracking capable

Many new Internet suppliers did not stand up to basic requirements to the supply selection process

how can the internet be applied across the entire automotive business cycle

The Business Cycle

Cycle Planning

Industries with long product cycles (automotive is 10 years) require a tremendous amount of compromising when it comes to “surprise and delight” features and functions. What does a product planner do when a feature market tests 50/50?

Product Planning

Being able to use carryover products on multiple vehicle platforms is mandatory – but market demographics and use preferences make this difficult. Many times the resulting investment is similar to a housing contractor tooling new fuse boxes and wall switches for every house in the subdivision.

Design

Many times engineers are kept from designing products in a master planned flex build method because of innovation freeze dates.

Lean Manufacturing with fewer parts

Automotive assembly plants need to have much less WIP yet provide mass customization

Distribution

Dealers are sometimes forced to floor plan more vehicles than necessary because of customers option preferences

Revenue Growth

Suppliers would be willing to carry more of the upfront costs if they could be a part of the aftermarket parts and accessories business. Many times OEM suppliers have no capability of competing with the AutoZone’s of the world.

How can the Internet be applied across the entire Automotive business cycle?

one idea

The Business Cycle

One Idea!

  • What if every car built had it’s own web page: www.vin#.com
  • The Bill of Material and VIN number join here and end with recycling instruction for the vehicle
  • Everyone that needs to know the build and delivery status has access (OEM, Dealer, Owner)
  • Every vehicle has a wireless data connection (5 – 7 years)
  • The vehicle power and signal distribution system is multiplexed (now)
  • All features that can be changed via a web site are master planned in the product planning phase:
    • By the factory
    • By the dealer
    • By the first and subsequent owners and or drivers
  • Each site is capable:
    • Keeping vehicle maintenance records and notifying when service is needed (intermittent failure tracking)
    • Warranty and TSB notification
    • Automatic failure notification to dealer, OEM, and owner
  • All original equipment suppliers are on the web site for accessory sales and replacement part accuracy
examples

The Business Cycle

Examples

  • Audio
  • Radio Settings
  • Turn Signal Loudness
  • Chime Loudness
  • Remote Locks
  • All doors unlock
  • Drivers door unlock
  • Headlight flash when lock
  • Auto lock in drive
  • Auto Lock at speed
  • Horn honk when locked
  • 4th Button function selection
    • Trunk
    • Alarm
    • Fuel Door
    • Car Finder (FCC Code)
  • Windows
  • All express up
  • All express down
  • Vent on high temp
  • Close when raining
  • Displays
  • Mirror Display Selection
    • Speed
    • Compass
    • Outside Temp
    • Clock
  • Cluster
    • Analog
    • Digital
    • Color
  • Audio
  • Radio Settings
  • Turn Signal Loudness
  • Chime Loudness
  • Lighting
  • Automatic Headlamps on/off
  • Running Headlamps
  • Interior lights on when unlocked
  • Interior lights slow dim to off
  • Seating
  • Auto setting
  • Auto entry
  • Memory on/off
what now
What now?

B2B = Back to Basics

  • We have just started to apply the Internet as a tool and yet have generated tremendous value:
  • Financial Markets
  • B2C
  • Follow the sun engineering
  • Real time open architecture program management
  • Banking
  • C2C
focus on basic business requirements
Focus on Basic Business Requirements

Internal Selling

Basic questions I would ask all IT and Internet suppliers

  • Has someone in my company researched this program
  • Do we have a reference outside our company.
  • Has there been third party testing.
  • What will this cost?
  • What will this mean to my bottom line?
  • Do we have an internal champion?
  • What are the metrics for success?
  • What is the supplier willing to risk?

Evaluation

Validation

Verification

Is this in our plan

ROI

Leadership

Accountability

Commitment