This paper discusses the new demands that are placed on tools and methods used in industrial product development due to the transformation of industrial companies from hardware producers to function providers, including some effects on collaborative engineering. Traditionally, manufacturing industry focuses on providing excellent goods, i.e. hardware. Services occur on an aftermarket, as an add-on to the developed hardware. By supplying functions, companies can gain control of the aftermarket. The responsibility and availability of the functions provided by hardware remains with the function provider as well as the responsibility for maintenance and spare parts. This approach, a new business mode, is a response to a necessity for business-to-business collaboration to gain economy––of-scale partnerships in the extended enterprise and ultimately to be able to develop competitive offers [1] [2]. Hence, the shift in view is a move towards providing functions, taking a lifecycle commitment for the hardware as well as optimizing the availability of its function in the customers’’ system. The redirection from hardware development to a process where development of functions is in focus is hereafter referred to as Functional Product Development.