Rethinking PLM ROI in cloud era

Rethinking PLM ROI in cloud era

cloud-plm-roi

To measure ROI is important part of PLM implementation decision. These days companies are less interested in 3-5 years implementation roadmaps. Therefore, discussion about PLM ROI can be very painful. It is better to get prepared upfront. PLM ROI is not a simplest thing to get into.  I put some of my thoughts why hard to sell PLM ROI earlier on my blog.I think companies have problems to measure ROI related to PLM implementations. The level company are measuring product development efficiency is far from the maturity, especially compared to company financial activities.

Jim Brown’s guest post on PTC Creo blog made me think again about PLM ROI. Navigate to Cloud PLM – A Big Return with a Smaller Investment to read more. Turns out cloud can change PLM ROI mathematics. Here is my favorite passage from the post:

Cloud Changes ROI Mathematics. The ROI for cloud solutions is fundamentally different. On-premise, licensed approaches take a lot of justification and validation before pulling the trigger. Why? Because you have to commit to spend a lot of money without any guarantee that you’ll get a return. Effectively, your “I” is fixed and your “R” is variable. That means you have to make a big bet on the value and you can end up upside-down on your investment. With cloud, your cost is aligned with value. As more people use the system the costs rise proportionally. That takes away the big financial hole that you had to dig at the beginning of a project and had to hope it would pay off. It also puts the vendor in the same camp as you. If you aren’t successful, neither are they. That’s a “win-win.”

It made me think more deeply about PLM ROI formula in the cloud era. Cloud (or SaaS) systems are bringing changes into two aspects – (1) upfront cost and (2) IT investment and running cost. All together it converted into cost of “PLM services”. I agree with Jim – it makes PLM more affordable for many companies by reducing an initial barrier to get into PLM world.

And it does change PLM ROI math. Assuming companies can implement PLM faster (no time for installation, hardware allocation, etc.) and upfront cost is lower, the return on PLM investment will be faster. However, here is a thing… Despite all obvious advantages of the cloud model, cloud PLM cannot solve fundamental problems of PLM implementations – most of PLM implementation got stuck with people and organizational changes. So, after quick honeymoon, cloud PLM systems can get back to the traditional math related to PLM ROI. And it all starts from the way to measure value. This is where core problem of PLM ROI calculations. Jim speaks about alignment of cost and value. The value of cloud PLM will be reflected in usage and aligned with cost. However, I can see it only as a starting point. PLM vendors should think beyond just PLM usage. Cloud PLM is an opportunity to provide a calculated real time ROI.

Think about cloud software and PLM DevOps. The ability to monitor and measure processes is increased because of nature of cloud software. PLM vendors can help organizations with measurement of their PLM ROI. Cloud software can give much more tools to provide KPI and related parameters that can be used to calculate ROI. However, manufacturing companies will have to do their job by bringing organizational information into PLM systems. Without that, ROI will be a fantasy of PLM vendors.

What is my conclusion? Cloud PLM is not a silver bullet to solve a problem with slow PLM ROI. Cloud reduces upfront cost and can show value of PLM faster. However, organization should focus on how to measure value of PLM implementations. At the same time, PLM vendors have an opportunity to develop measurement tools that will help to customers to make a value of PLM clear. Overall, cloud brings a new opportunity to both customers and vendors to streamline PLM value proposition and show clear ROI. Just my thoughts…

Best, Oleg

Image courtesy of Stuart Miles at FreeDigitalPhotos.net

 

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  • Jeremie FEBURIE

    Hello Oleg,
    I agree with the fact that with cloud, the more user use PLM, the more is the cost and on the other way, the less user use PLM, the less is the cost …
    If your PLM initiative succeed with Cloud PLM, you will have more users.
    If not, you can adjust number of “seats” and decrease your cost of usage…
    With an “on premise” solution, you cannot modulate your cost of ownership …
    So Cloud PLM has some advantages in term of ROI only if we address the infrastructure aspect of a PLM deployment

    What about the cost of customizing PLM ?
    I don’t know any customer using a PLM application out of the box …
    I think, cost of PLM adaptation is to be taken into account for ROI calculation.
    This will depend of business faculty to adapt to PLM and change their processes…
    Just my thoughts…
    Best, Jérémie

  • beyondplm

    Jeremie, I like the question about “cost of customizing”? Usually, it is bundled with services / implementation. You are right – there is no OOTB PLM deployments. Cloud supposed to simplify that. However, I’m not sure industry has enough metrics. What else, to optimize at that point will lead to decrease of PLM revenues from services which is rough 50% today. I agree, to rethink business model around PLM customization can be a very interesting innovation. Thanks for your comments!