Tuesday, June 8, 2010

The Product Value Torque Wrench

I was have lunch with some friends of mine yesterday and they asked me why having a quantifiable metric for product value is important, because businesses and managers have been making decisions since the beginning of business based on their intuition. I answered by offering an analogy which I'll call "The Product Value Torque Wrench"and it goes something like this:

Early on in the days of nuts and bolts it was just fine for the mechanic to swing the wrench around until he felt that the nut was secure. Automobiles had plenty of redundancy and their performance was relatively slow and forgiving.

As automobiles became more sophisticated and adopted by the masses, auto companies needed to improve weight and reliability to become more competitive. Walter Percy Chrysler developed the first beam type torque wrench in the late 1920's/early 1930's for the Chrysler Corporation and licensed the Cedar Rapids Engineering Company to manufacture and distribute the invention, which was patented in 1938. Torque wrenches allowed assemblers and mechanics to swing the wrench around until the device said the nut was tightened to its proper torque as identified by engineering calculations.

Today, the automobile market is hyper-competitive and everything in the automobile is expected to operate perfectly well into high mileage. Torque wrenches are used routinely to assemble cars because there is just too much to risk by having assemblers and mechanics swing the wrench until it "feels right".

For product managers who must make decisions in today's hyper-competitive markets, choosing innovations to pursue or how to price products based on gut feelings is just to risky. One slip and your competitors will sweep your feet from under you. Not only that, if you aren't taking product value into consideration when you price your products, you might be leaving money on table!

In comes the "Product Value Torque Wrench". It is now possible to measure product value based on historical purchase data and to forecast future product value using special attribute value analytics. The time is right, especially in the automotive business. I was speaking to a former automobile executive who told, "When it comes to making decisions about product planning in the automotive world, sometimes I think there are more cowboys in Detroit than all of Texas.... everyone is shooting from the hip!"

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