Upfront: Taming the R&D Dragon

Research and development is high on many CEOs' to-do lists for 2006, but many CFOs are wondering how they can keep projects under better financial control than they have in the past. "While some companies have reasonable cost control, most struggle with connecting the cost, value and effectiveness of the R&D effort with the business goals and strategic objectives," says Chris Groves, CEO of San Jose, Calif.-based business intelligence provider Centric Software Inc.

The answer may partly lie in product lifecycle management (PLM) software, a relatively new category. These tools "manage the system of record of the actual physical product," explains Michael Topolovac, CEO of on-demand PLM provider Arena Solutions of Menlo Park, Calif. "In much the same way that ERP manages the financial record for the company or CRM manages the customer record, PLM manages the product record."

The biggest value that PLM tools contribute to R&D is in improving time-to-market, says Topolovac. For finance, "the importance of getting your product to market two months early rather than two months late is pretty significant because there's a huge decay curve from the product launch date to the end of life, so most of the initial revenue comes in the first time-window of that launch."

PLM provides "visibility into product cost very early in the development cycle when it matters most and when you can actually make changes, and it can grant that visibility to senior management, in particular the finance organization," says Topolovac. "They can see, three months into a nine-month development cycle, that the current product cost is being forecast to be, say, twice the budget." At that point, CFOs can step in to arrest cost overruns, he adds.