The Profitability Puzzle: Integrating Sales and Product Development Improves Management’s Ability to Control Future Profitability

Abstract

Manufacturers today have sales teams that span the globe and are negotiating contracts today that will constitute the firm’s forward revenue stream, and profitability, for the next decade. Meanwhile, even larger teams of engineers and designers are working in product development refining and changing the product design that was specified in the contract. Controlling the profitability of hundreds of time-varying customer contracts, on a global basis, for products that are years away from production, and whose pricing and cost parameters are in constant flux, is a significant challenge inside the global manufacturer. This complex “Profitability Puzzle” of maintaining accurate profitability estimates for several years prior to production is an integration task that firms Enterprise Resource Planning (ERP) implementations fall short of. The integration of Product Lifecycle Management (PLM), Sales Forecasting, Cost Estimating and Quoting and Enterprise Resource Planning (ERP) applications now allows global manufacturers to solve the Profitability Puzzle and tightly control the profitability of their future product pipeline. Evidence is presented that integrating the strategic planning process with the sales and the product development disciplines can help manufacturers achieve higher returns. Market valuations of publicly listed global manufacturers that are known to have pursued the integration of long-term strategic planning with operational information are compared to their peers. Although the sample set is small, evidence suggests that implementers of these integration projects return far greater valuation growth than their competitors.