Manage Change Across Critical Components

June 28, 2011
Product architects face a tradeoff with technology they include in their projects. Assembling a strategy to deal with component change is a three-part process.

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Only one thing is more painful than introducing a severe issue into a product being shipped: when the issue is caused by a nuanced aspect, that’s missed by regression testing, of a component supplier’s new technology.

Product architects face a tradeoff with technology they include in their projects. To the benefit of customers, component vendors continually innovate with newer standards, features, and cost-reduction initiatives that drive an evolution of their product lines.

But these product updates can come at a cost, as customers must constantly decide how to cope with the changes. If a component update catches a product team by surprise, it can spell disaster as the team scrambles to retest a system quickly enough to avoid disruption to manufacturing.

Assembling a strategy to deal with component change is a three-part process. First, the drivers and types of technology changes are understood. Second, each component of a project is categorized by the characteristics of the change it experiences. Finally, risk mitigation strategies are assigned to each component category.

Dell builds PC and server-based hardware products, so that market and its associated commodities will be used as the basis for the following example. While other markets may deal with subsystems and components that are different, the steps, guidelines, and strategies outlined here can apply to almost any project.

Characterizing Change

What causes a vendor to update a design? How does the vendor decide how to transition its customers to a revised product? And what impact does the updated product have on the industry?

By characterizing three aspects of a technology update, a great deal of insight can be gained into how to anticipate changes and put in place an effective plan to deal with change when it occurs. The three critical aspects of any transition from an old to a new product are motivation, impact, and speed.

Primary Motivation of Transition

Determining why a supplier is causing customers to move to a new product is critical, as it determines pricing strategy, the availability of legacy product, and upcoming features or standards that may need to be incorporated into a product design. Common motivations include:

  • Maintaining pricing: A vendor wants to stay competitive in its marketplace so it can maintain its prices.
  • Cost scaling: A vendor wants to ensure profitability by quickly bringing down the manufacturing and material costs of a new technology.
  • New standards: A vendor needs or wants to start supporting a new standard.

Impact of Transition

Even if a vendor decides to update its product, the impact of the decision varies depending on the size of the market, the size of the vendor within that market, and the degree of commoditization within it.

While a complete breakdown of the PC-component marketplace is outside the scope of this article, the range of implications to the market can be captured:

  • Industry-wide, dominant vendor: One or two big vendors force change throughout the industry.
  • Industry-wide, cross vendor: Multiple vendors supply the component but tend to transition at approximately the same time (usually at the request of customers or to stay competitive).
  • Vendor specific: Multiple vendors tend to transition as their technology allows.

Speed of Transition

Once a vendor begins introducing a revised product, the availability of the new and replaced product can differ depending on the manufacturing process, capacity planning, and customer appetite for the new product.

Transitions usually are characterized by a speed that’s gradual (the availability of old technologies and new ones overlap by years) or step-function (older technologies are quickly phased out once a newer one is introduced).

Categorizing Components

By characterizing the transition forces of each component of a project, a team can quickly assess the risks its project might face. For example, consider x86 processors and PC power supplies.

When the two big manufacturers of PC processors release a new generation of features and performance, they do so with the goal of maintaining the pricing of their overall portfolio. The selling price of cutting-edge processors erodes quickly after they are released.

Because the fixed costs of manufacturing processors are so high, it seems manufacturers would want to sell current product for a long time, and that is the case. Yet the ever-increasing demands of PC customers quickly absorb processor improvements, and each year PC manufacturers look to processor vendors to deliver a new generation of premium technology that will drive next year's product features, such as better power efficiency, expanded instruction sets, or increased core counts.

Three conclusions can thus be drawn about PC processor transitions:

  • There are two dominant vendors in the market, so when those vendors update products, the entire industry must follow suit.
  • Processors are refreshed to maintain pricing by introducing premium products to the top of the supplier’s portfolio.
  • There is a motivation to transition to the new product gradually. Profit per unit is maximized at the introduction of a new technology and then allowed to drop slowly, making the new product mainstream and increasing volume. The fixed costs of each generational change are high for vendors, so it is always in the vendors’ best interest to sell a product as long as possible.

As a contrasting example, consider the power supply, a component manufactured by many vendors and usually built to a unique specification mandated by a Tier-1 manufacturer. Because theses products are vendor specific, transitions do not affect the entire industry.

However, vendors can only produce so many variations of a product without driving costs up, so the vendor will stop building the current product variant at the same time it starts building a new variant.

PCs and servers require many components (see the table). Each component can be categorized by the characteristics of its transition behavior. With this information, strategies can apply to each component that best match the category of risk it brings.

The transition forces of a particular component expose any project that includes that component to particular risks. My next column will outline the risks and mitigation strategies for those risks.

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