Eric A. Hiller Reviews Top Mistakes Made by Executive Champions in Product Cost Management and DtV

Product cost management (PCM) and design-to-value (DtV) are two areas in companies capable of delivering the greatest of impact, but are sadly prone to the biggest blunders by leadership.

Eric A. Hiller, the managing partner of Hiller Associates and a specialist in product development and procurement, has unveiled some of the crucial errors that even the elite executives tend to commit in their PCM and DtV journeys.

· Trying to save one’s way to growth

· Not understanding the massive leverage of COGS savings on margin

· Focusing on short term savings without a plan for long term Product Cost management (Sisyphean projects)

· Not believing cost avoidance is more important than cost savings (the dark side of year-over-year cost reduction incentives)

· Thinking that a tool is the solution, not simply an enabler

· Under investing in a separate team and capability building for the organization

· Having the DtV / cost management team report to purchasing or product development, rather than the P&L owner or CFO, etc. — Companies who do have the good foresight to set up their own PCM and DtV teams often fall into another trap. Often the set up such team to report to purchasing, or in some cases, product development. This sets up a bad incentive structure. If the team is within purchasing, it can feel pressure from the organization to not identify over cost items that would embarrass category managers. If they report to engineering, their efforts can be seen as a barrier to time-to-market targets. Therefore, the PCM or DTV team should be viewed as independent auditors. They should report to the business owner of the product line or another independent group, such as the CFO’s office.

· Trying to do PCM / DtV in isolated teams with specialists in the background

· Not acknowledging the importance or knowing the priority of other organizational goals (e.g. growth, time-to-market, quality, etc.)

Eric Hiller concludes by saying noting that as with any organizational transformation technique, product cost management and design-to-value hold a lot of promise, however, executive leadership is one of the important things that can make or break the effort. The items above are the most often seen mistakes that are made in the transformations in which he is part. If you get these things right, Hiller says that you have a high chance of success.

Eric Arno Hiller is the managing partner of Hiller Associates | Chicago, IL |