| Implementation of design to profit in a complex and dynamic business context. | ||
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The life cycle concept and life cycle analysis have been used for several decades to support business decisions. The definition of life cycle varies, depending on the purpose for which it is used. In this thesis, the producer point of view will be used to highlight business profitability for as long as the company decides to support a given product.
Life cycle analysis is generally considered a good concept for integrating several views:
It works cross-functionally, which enables the company to aim at its overall targets.
It supports decision-making at every stage of the life cycle.
It can be used in planning and assessing the profitability of the investments.
It provides a basis for optimizing the allocation of the company resources.
It can simultaneously consider both revenue generation and cost reduction decisions.
It supports both the launching of new products and the decisions to abandon old products.
The concept is scalable according to the aims and targets: It is possible to consider such issues as the product life cycle, the brand life cycle or the industry life cycle.
It can be used both in short-term and long-term profit considerations.
It provides a sustainable basis for product data management.
The life cycle concept seems to be versatile. On the other hand, however, this seems to be a problem. There is no underlying exact theory, which makes the concept vulnerable to criticism. This also applies to some business managers, who focus on functional or other specific results rather than on life cycle results. Some accounting people also find it very difficult to fit product profitability estimations to their exact accounting systems. This may be the reason for the few practical implementations of the concept. Generally, all the texts that deal with the implementation of advanced information systems seem to presume careful planning, training and involvement of all stakeholders from the early stages of the project onwards.
It seems that the most natural way to measure profitability, especially during the early phases of the life cycle, is to consider the product as an object. Therefore, the product business case is a motivated choice for further profitability studies. According to the literature, we can define the difference between the traditional meaning of the product cost and the product business case. From the life cycle analysis point of view, the product business case is the product life cycle profitability calculation, while from the ABC point of view, it is the process cost during the product life cycle management process. This similarity also motivates us to use the ABC methods with the life cycle analysis. The traditional product cost is only the manufacturing part of the costs in both cases.
TOC can be applied throughout the life cycle of products. TOC gives a simple but effective logic to manage the company level profits without using product costing methods. The same philosophy can be used with consolidated product business cases in the design phase already, i.e. even before the products have been launched. In this study, we do not need the word ’product cost’, because the product business case is used.
Does the literature study solve the research task? There are partial answers to single questions, but none of the quoted studies will answer all of the four questions presented on page 19. The applications of life cycle and target costing seem to tackle the early profit estimation, the cross-functional view of business and proactive resource planning (Shields & Young 1991, Rink & Swan 1979, Tanaka T 1993). Close integration of the financial planning systems and the importance of the employees’ cost consciousness have been suggested in some references (Schnoebelen a, b, c 1993, Shields & Young 1991). Avoidance of suboptimal decisions also requires continuous profit control (Burstein 1988, Czyzewski & Hull 1991) and a possibility to consolidate and analyze the business information (Rink & Swan 1979, Susman 1989, Walker 1999). The TOC philosophy also supports achievement of the company level targets in any functional area (Goldratt 1990), and advanced costing methods improve our understanding of the financial relationships and facilitate the analysis of practical situations (Cooper 1990, Pesonen 1992, Pesonen 1994). The methods we will need to solve the research task exist as fragmentary pieces of information in the literature.
To solve the research task presented in this thesis, we will need to combine several of these concepts and theories effectively, construct the necessary system(s) and implement a design to profit procedure, as suggested in Fig. 8. There also seems to be a gap between the business demands and the practical applications used to support decisions. Some papers published after the year 1997 also demonstrate that other researchers have presented ideas similar to those presented in this study, but there is no similar implementation of the methods and design to profit procedure into practice.
This thesis will make a practical effort to construct a system using a combination of the presented methods because this seems to be the only way to solve the research task presented in Section 1.3. This is vital in the selected case environment, where we deal with dynamic and complex decision-making and need to support the design process of the company proactively.