Better Design, Better Business (Part Two): Embracing Radical Innovation In Product Performance Optimization – Corporate Governance – Corporate/Commercial Law

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Better Design, Better Business (Part Two): Embracing Radical Innovation In Product Performance Optimization – Corporate Governance – Corporate/Commercial Law


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Introduction

Product performance improvement has increasingly become a topic
in boardroom discussions, extending beyond the confines of
engineering departments. At Alvarez & Marsal (A&M), over
the past months, we’ve seen an increase in inquiries focused on
this issue. One of the big questions being raised is how to remain
competitive and secure profitability as market pressure
intensifies, significant technology changes need to be managed, and
resources become ever more limited.

For decades, many industries have primarily focused on improving
the cost position of their products, an approach that has resulted
in incremental performance enhancements. Nowadays, to maintain
competitiveness and compliance, it is necessary to embrace
innovative, holistic performance improvements throughout the entire
value creation process and product lifecycle.

This means integrating requirements such as sustainability, as
well as evolving regulations, tariffs, taxes and restrictions, into
traditional optimization levers like cost, quality and delivery
times, and, most importantly, putting in place the structures and
controls to sustain these enhancements. All in an environment of
very challenging and swift technological changes. We call this
360° Product Performance.

In this article, the second part in our series focusing on
product design, we will explore what is driving the need for
radical innovation and how business can accelerate product
performance enhancement across the lifecycle through our 360°
approach.

The need for radical product innovation

A wave of technological advancements – including
electrification, AI, autonomous systems, battery technologies and
sustainable energy solutions – is reshaping industries
globally (more on this in the next article in this series).

At the same time, society is progressively demanding products
aligned with sustainability principles, and many consumers now
believe that brands bear as much responsibility for positive change
as governments1.

Regulation is tightening, with the European Union (EU) at the
forefront of environmentally focused legislation, including new
norms around responsible supply chains, corporate due diligence
duty and circularity.

These dynamics demand a move beyond simply “greening”
(e.g. using recycled or recyclable materials) existing products. It
calls for radical innovation to develop new products and services
that resonate with consumers’ evolving expectations.

Radical innovation is not only an environmental imperative but
an economic necessity. As markets mature and resources become
scarce, companies that rely solely on incremental improvements risk
facing diminishing returns. In contrast, those developing
drastically innovative products have yielded significantly greater
market success than their peers. Companies like Patagonia
(clothing), Ecover (cleaning products), Beyond Meat (food) and
Interface (commercial flooring) stand out as examples of businesses
that have successfully adopted sustainable design, leveraging this
commitment to drive commercial growth and brand influence.

Eco-efficiency: measuring economic and environmental
impact

To manage environmental impact in a world growing to around 8.5
billion by 20302, material and energy efficiency must
improve considerably.

Eco-efficiency3 is a common method for assessing the
total cost and environmental impact of a product during its entire
lifecycle. Initially developed by BASF in 1996, it assigns a
monetary value to sustainability initiatives, based on the ratio
between the economic value4 of a product versus its
environmental impact. For illustration, halving a product’s
ecological footprint – by using recycled materials, for
example – would improve eco-efficiency by a factor of two.
Doubling the product’s economic value would deliver a factor of
four. Incremental improvements through redesigns typically only
yield eco-efficiency5 improvement factors6 of
2 to 47.

To achieve sustainable consumption and preserve resources for
future generations, science has argued that over the next 30-50
years, an increase in energy use and material flows by a factor of
10, and an increase in resource efficiency by a factor of 10, are
required8. Unless consumers can change their behavior
and consume less in quantity, the environmental impact of
consumption needs to be radically reduced.

Viable actions along the value chain range from consumers
consciously thinking about carbon emission from food (100 grammes
of protein from beef has a median footprint of 25 kgCO2eq, the
equivalent from peas emits 0.4 kgCO2eq9), to adjustments
in logistics (plastic pallets release 50% more emissions than
wooden ones10).

To achieve the necessary factor of 10-20
improvement11, a move towards radical redesign (of
product and its lifecycle) is required. This is achieved by
combining product cost-reduction with design-for-sustainability
(D4S) and redesigning service models built upon circular economy
principles.

This entails incorporating the three pillars of sustainability
– people, planet, and profit – throughout the
product’s complete lifecycle, from design and manufacturing
through to use and end-of-life management. Critically, the drive
for resource efficiency must extend beyond the traditional cost
reduction efforts such as labor productivity.

Addressing the boardroom

Through our work with manufacturing, industrial and consumer
clients, we have seen firsthand how product performance directly
impacts sustained EBITDA performance. We strongly believe that
profitability and sustainability go hand in hand and that, when
well-designed, environmentally conscious products deliver
bottom-line results for businesses.

Better Design, Better Business (Part Two): Embracing Radical Innovation In Product Performance Optimization – Corporate Governance – Corporate/Commercial Law

Figure 1: Illustrative P&L impact Source: A&M

The illustration above outlines examples of cost and revenue
benefits from embracing sustainable design and circularity.
Replacing direct materials with greener alternatives, if done
right, drives down cost of goods sold (COGS). Being a responsible
employer can also attract and retain key talent12,
helping keep personnel costs under control.

A&M’s 360° Product Performance Improvement

A&M teams are often called into situations where traditional
approaches to product design have failed to achieve the desired
impact or where the disruptions in the respective industries are so
huge that piecemeal methods fail. This is typically due to a
combination of resource constraints and methodological
shortcomings.

Our 360° Product Performance Optimization program offers an
integrated approach to improving product performance, one that
looks beyond design to embrace product-service systems, bringing
out entirely new business prospects such as repairing, recycling,
refurbishments and more. The initiative delivers sustained benefits
in performance, cost efficiency and sustainability, ensuring faster
product break-even and directly enhancing profitability throughout
its lifetime.

Recent engagements have delivered revenue improvements in the
range of 8% to 25% after a year, and EBITDA improvements of 10% to
40% throughout the product lifecycle.

1525020b.jpg

Figure 2: A&M 360° Product Performance Improvement
framework

Accelerating product performance enhancement across the
lifecycle

Having clear design guidelines that incorporate sustainability
aspects streamlines product and process development, as it prevents
last-minute changes that can delay product launch. Additionally,
achieving required ESG criteria from the outset reduces lifetime
costs associated with in-process changes.

Effective front-loading and continuous checkpoints on ESG
performance and compliance are vital for successful product design
interventions. This enables businesses to proactively address
emerging sustainability trends and regulations, resulting in
potential improved brand reputation, increased market share and
influence over future industry standards.

Here’s a summary of several design sustainability levers
across the industrial product lifecycle:

1525020c.jpg

Figure 3: Design levers across the product value chain

New business models and product-service systems may be required
to go beyond incremental enhancements. The change in mindset
required to drive this must be visible across the entire
organization and maintained with regular feedback and encouragement
to keep the momentum.

Being able to demonstrate measurable impact is vital for
success. Setting a baseline, defining clear targets, and regularly
evaluating progress against milestones with stakeholders
demonstrates commitment. Eco-efficiency analysis can be used and
linked to ESG and other reporting mechanisms, fostering
transparency.

Conclusion

Businesses can be powerful catalysts in building a future where
commercial success and global sustainability are not competing aims
but rather intertwined principles. This requires a change in
mindset, from viewing sustainability as a series of constraints, to
recognizing it as a potent driver of innovation and long-term value
creation.

Sustainable design should not equal higher costs; if done right,
sustainably designed products can unlock new markets, attract
customers and enhance brand reputation, offering businesses a
competitive edge in the marketplace.

Footnotes

1.

2.

3.

4. Total costs from raw materials, labor, energy, capex,
maintenance, and others plus the manufacturer’s profit margin.
For chemical products, the sales price per unit is commonly used in
the calculation.

5. Ehrenfeld, J. R. (2005). “Eco-efficiency:
Philosophy, theory and tools”. Journal of Industrial
Ecology

6. The term “Factor Four” was introduced by the
Rocky Mountain Institute in 1998 and refers hypothetical fourfold
increase in “resource productivity”, brought about by
simultaneously doubling wealth and halving resource consumption. It
goes on to illustrate technologies that can deliver the necessary
improvements.

7. An effective target to reducing resource and energy
use by 50-75% by doubling output and halving input of
production.

8.

9.

10.

11. The ability to produce the same output with only
5-10% of the impact.

12.

13. Six Secrets of Breakthrough Business Models, John
Elkington, 2017.

Originally published by 01 October, 2024

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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