The Law of Expanding Returns

Tuesday, November 13, 2018

#Management Consulting    #Team Integration    #Automotive Agile

Certainly we have all heard of The Law of Diminishing Returns; the marginal utility decreases over time approaching a asymptote and/or becoming negative (see right). However, this law does not apply to all situations and all times, including when sorely needed improvements have been postponed due to urgent interruptions. In fact, exponential growth in such situations can follow an acronymic curve, which is sometimes referred to as The Law of Expanding Returns. This is where a small amount of resources leads to an exponential Return On Investment (ROI); every dollar spent yields more than a dollar in return.

As described via third-party white papers below, this is quite often true with developmental standards and best practices: invest some, save more. Yes, we all have all taken a few initial steps down many of these paths, but here are some critical questions that’ll help you decide if you are a contender or a pretender, and which curve applies to any future, organizational spend:

  1. Are you able to able to consistently deliver on-time or early and, if so, does your organization rarely need to put-out urgent, last-minute fires?
  2. Have you measured satisfaction or efficiency of all customer touchpoints and have a prioritized backlog of improvements based upon projected revenue?
  3. Do both your customer and system requirements have 100% bidirectional traceability to all of your product development tests?
  4. Do you know for certain that all unreasonable risks have been addressed for all hazardous events on all items and elements of your product(s) to the appropriate Automotive Safety Integrity Level (ASIL)?

If you can answer “yes” to all of these questions without blinking, congratulations. Otherwise, we suggest the following actions:

  1. Gap Analysis: Get a third party, expert opinion on where you have weaknesses
  2. Improvement Prioritization: Understand which weaknesses will provide the greatest returns
  3. Quantify the ROI: Understanding and making visible the value from improving the processes will rally both the executives and the worker bees around making things better. Therein, the paragraphs below help to provide ways to calculate the ROI.

Agile Development

Almost everyone says they are Agile, but most just do work in two week increments and don’t implement many of the base practices that provide the Return on Investment (e.g. Product Backlog, Sprint & Product Burndowns, Product Owner, Org Cultural Change).

Therein, a small investment should yield returns like:

  •  67% increase in productivity
  •  65% increase in quality
  •  49% decrease in cost
  •  1872% Return on Investment[1]

In addition, those organizations that have implemented Agile successfully (and fully) have additionally reported the following gains:

  •  84% reported a better ability to manage changing customer priorities
  •  77% stated they had improved project visibility
  •  65% conveyed a reduction in project risk
  •  71% reported an improved time to market[2]

User Experience

This is probably the most confusing of the best practices for most people; probably because they are farthest from doing User Experience (UX) in a quality manner. Yes, nearly everyone has user interfaces of some sort (e.g. website), but few have taken a cross-medium, cross-product look at all of their touchpoints, designed them for the target persona(s), ensured a consistent experience, and measured the user satisfaction or product usability.

Here’s how UX done correctly could help those companies (i.e. why they should care):

  •  33-50% reduction in development time
  •  70% of products fail due to lack of user acceptance
  •  67% of users are more likely to purchase products from a mobile-friendly site
  •  43% stock improvement over the S&P500 for the Top 10 customer experience leaders (versus 34% below the S&P500 for the Bottom 10 in customer experience)
  •  Every dollar of UX spending brings $100 in return[3]

Additionally, those executives who thought improving user experience was a top strategic priority (93%) reported:

  • Boost in customer loyalty / conversion
  • Reduced deployment waste or inefficiencies
  • Reduced design risks
  • Fewer calls for customer support
  • Increased user satisfaction[4]

Automotive SPICE (ASPICE®)

No one is truly at zero Capability Level for Automotive SPICE® if they are getting product out the door and following something near the Engineering “V”, but many corporations are well below the highly-desired “CL3” and many are south of “CL1”. There are incentives to get better at managing the upfront work of development in the ASPICE® model:

  • 90% reduction in overall cost for minimally software development
  •  84% in overall development effort
  •  90% of all errors found eleven (11) months before Start of Production (SOP)[5]

These effects are amplified when considering the following:

  •  900-1000% increase in Lines of Code (LoC) from a F22 Raptor to a 2017 F-Series[6]
  •  70-80% of development hours for a vehicle are dedicated to “developing the software”[7]
  •  20% year-over-year increase in IQS issues for ADAS for the past three years (see below)[8]

Functional Safety 

Safety could be the hardest to perfectly quantify since the question of “what’s a life worth” provides a dubious, arguable number, especially when considering culpability and effects to the brand. Nevertheless, there are some statistics available from some third-party evaluators:

  • Average direct costs of $1.42 million for fatal injuries with indirect costs as high as $3M[9]
  • The cost of automotive warranty claims ranges between $8B and $11B per year for US automotive OEMs alone[10]
  • In 2016 alone, U.S. recalls cost automakers and suppliers over $22B, which was a 26% increase over the previous year[11]
  • It doesn’t take the reader too long to find glaring examples in the news of brands being besmirched by major failures in functional safety engineering:
  • The Takata airbag recall is estimated to have cost $15 billion causing it to file Chapter 11[12]
  • The 2001 Firestone recall cost Ford and Firestone approximately $3 billion and resulted in ~200 deaths and 3000 injuries
  • Toyota’s faulty accelerator pedals and floor mats forced a recall of 9M vehicles costing $2B in recall costs and an additional $1B in settlements[13]

Conclusion

The cliché says “You gotta spend money to make money”, and certainly that’s true with early, process improvements. The Law of Expanding Returns assumes an investment -- usually of time as well as money – but it is money well spent. As Benjamin Franklin said it best, “An investment in knowledge pays the best interest.”

    

[1] The Business Value of Agile Software Methods by Dr. F Rico, Dr. H Sayani, Dr. S Sone, Page 89

[2] See the State of Agile Development – Survey Results at file:///C:/Users/Steve%20Tengler/AppData/Local/Temp/notes90C43B/2011_State_of_Agile_Development_Survey_Results.pdf

[3] https://www.experiencedynamics.com/blog/2014/07/making-strong-business-case-roi-ux-infographic 

[4] Forrester Research, (2012). “The State of Customer Experience”

[5] Proprietary financial model created by Kugler Maag Cie

[6] See http://spectrum.ieee.org/green-tech/advanced-cars/this-car-runs-on-code and 

https://www.eitdigital.eu/news-events/blog/article/guess-what-requires-150-million-lines-of-code/ 

[7] See http://spectrum.ieee.org/green-tech/advanced-cars/this-car-runs-on-code 

[8] See https://www.jdpower.com/business/resource/mobility-disruptors-automated-driver-assistance-systems-alarms-abound 

[9] “The ROI of Safety”, Safety+Health Magazine, see https://www.safetyandhealthmagazine.com/articles/10414-the-roi-of-safety 

10] See Figure 1 (“Automotive OEM Warranties – Claims Paid Worldwide by U.S. Manufacturers (2003-2017)), https://www.warrantyweek.com/archive/ww20180405.html 

[11] “Auto Recall Bill Grew 26% to $22 Billion in 2016, Study Says”, see http://www.autonews.com/article/20180130/RETAIL05/180139974/auto-recall-bill-grew-26-percent-to-%2422-billion-in-2016-study-says 

[12] “Faulty Airbags Cost Takata Everything”, see https://www.engadget.com/2017/06/26/faulty-airbags-cost-takata-everything/ 

[13] “The Most Expensive Product Recalls”, see https://www.bloomberg.com/news/photo-essays/2018-10-04/bloomberg-s-week-in-pictur

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