Innovation-Managing The Renewal of The Business
Innovation-Managing The Renewal of The Business
Objectives:
The purpose of this chapter is for the reader to:
realize that operations management can play a central and pivotal role
in the innovation process;
Introduction
It’s a disturbing thought – but the majority of companies have a life span
significantly less than that of a human being. Even the largest firms can show
worrying signs of vulnerability – for example, of the top names in the Fortune
500 list for 1985, less than half were still there by 1995. For the smaller firm,
the mortality statistics are even more worrying. For instance, in 2003 over 200
restaurants were declared bankrupt in London alone.
Sometimes it’s individual firms which face the problem – sometimes it is
whole sectors. We only have to consider the sad fate in the United Kingdom of
industries like motorcycles, machine tools, coal mining and toys, to realize how
shaky the foundations of most of our industrial base really are. What goes up
can come down just as fast.
It is not all doom and gloom though – there are also plenty of stories of new
firms and new industries emerging to replace those which die. And in many
cases the individual enterprise can renew itself, adapting to its environment and
moving into new things. Consider a firm like Nokia – once a humble boot and
shoe maker and now the number one player in the global business of mobile
telephones. Arie de Geus (for many years the planning director for Shell and
responsible for helping that company navigate the turbulent waters of the oil
business) cites the example of the Stora company in Sweden, which was founded
in the twelfth century as a timber cutting and processing operation but which is
still thriving today – albeit in the very different areas of food processing and
electronics (de Geus, 1996).
Looking back …
Perhaps the most telling difference between past approaches to innovation and
the present day is provided by the eminent management writer, Peter Drucker
(Business 2.0, 22 August 2000), who describes how:
Drucker is not being critical of his ancestors, nor is he accusing them of not
being innovative, nor is he stating that such an approach was ‘wrong’. Indeed, it
might well be argued that in previous times such an approach would have been
entirely appropriate. The issue is: in today’s competitive arena it is not
appropriate.
Innovation has been with us since the earliest days, when our ancestors
began experimenting with different ways of hunting, of fighting, of cooking and
generally trying to survive in the hostile prehistoric environment. New tools,
new materials, new methods – all of these things on which our civilization was
founded did not happen by accident but by a gradual process of learning and
capturing of knowledge. History is punctuated by periods in which new ideas
drove society forwards – for example, the Renaissance or the Industrial
Revolution – and it is clear that technological change continues to be a powerful
force in all aspects of our lives.
Whilst innovation has been the mainspring of development in society, our
understanding of it has, until recently, been somewhat poorly developed. Much
thinking assumed relatively simplistic and linear models of the process – for
example, that all it takes is a good idea for successful innovation. Emerson’s
famous quote about the world beating a path to the door of the inventor of the
better mousetrap has never really been a good description of what actually
happens in innovation – but that has not stopped many people trying and failing
to introduce new ideas.
Innovation today
What is innovation?
Innovation can take many forms. It could be in the equipment used to
produce the product or service, or it could be in the way in which the process is
organized and structured. It could be in the repositioning of an existing idea –
for example, an established product in a new market. (Think about the cellular
phone, originally sold as a business tool but with suitable packaging and
advertising now sold to concerned parents as a safety aid to give to their
children when out alone at night.) The case of McDonald’s expanding
internationally into such diverse markets as France, China and the Middle East
demonstrates the extent to which global brands need not adapt to reflect local
needs. Likewise, HarleyDavidson motorcycles have had great success in selling
their products to the 50+ age group. And occasionally it can involve a complete
reframing of the way in which we see the world – a ‘paradigm shift’. The
transition to steam power and mechanization underpinning the first Industrial
Revolution, the emergence of mass transportation with the railways and the
motor car and, more recently, the radical changes in computing and
communications are all examples of this kind of innovation.
Changes do not always have to be great leaps forward or involve radical new
ideas. Most of the time change is more gradual, moving incrementally forward
with a sequence of little, and cumulative improvements. For example, although
the invention of the electric light-bulb was a dramatic breakthrough, little
improvements in the design of the bulb and in the process for manufacturing it
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led to a fall in price of over 80 per cent between 1880 and 1896. In recent times,
the dramatic growth and success of the Japanese car manufacturing industry is
primarily the result of a 40-year programme of systematic and continuous
improvement of product and process design.
Innovation depends on attitudes to change, as shown in Figure 4.1.
Whatever form it takes, innovation is at least a survival imperative and it can
also offer real opportunities for growth. But the choice of whether or not to
innovate remains at the level of the individual enterprise.
For some firms the challenge is obvious – take, for example, the printing
industry. Here the entire rules of the game are being rewritten – by
technological and market changes that have turned the industry upside down.
Firms that don’t recognize the need for change simply disappear – whilst those
that recognize that ‘we must change’ can use this to build new and growing
businesses.
Sometimes the pace of change appears slow and the old responses seem to
work well. It appears, to those within the industry, that they understand the
rules of the game and that they have a good grasp of the relevant technological
developments likely to change things. But what can sometimes happen here is
that change comes along from outside the industry – and by the time the main
players inside have reacted it is often too late. For example, in the late
nineteenth century there was a thriving industry in New England based upon
the harvesting and distribution of ice. In its heyday it was possible for ice
harvesters to ship hundreds of tons of ice around the world on voyages that
lasted as long as 6 months – and still have over half the cargo available for sale.
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By the late 1870s, the 14 major firms in the Boston area of the USA were cutting
around 700 000 tons per year and employing several thousand people. The
industry made use of a variety of novel techniques for cutting, insulating and
transporting ice around the world. But the industry was completely overthrown
by the new developments that followed from Linde’s invention of refrigeration
and the growth of the modern cold storage industry. The problem – as Professor
Utterback of MIT points out in his book studying a number of industries – is that
the existing players often fail to respond fast enough to the new signals coming
from outside their industry. Yet three-quarters of the industry-changing
innovations that he examined originated from outside the industry itself!
(Utterback, 1994).
Innovation as a process
If someone asked you ‘when did you last use your Spengler?’ they might well be
greeted by a quizzical look. But if they asked you when you last used your
‘Hoover’ – the answer would be fairly easy. Yet it was not Mr. Hoover who
invented the vacuum cleaner in the late nineteenth century but one J. Murray
Spengler. Hoover’s genius lay in taking that idea and making it into a commercial
reality. In similar vein, the father of the modern sewing machine was not Mr.
Singer, whose name jumps to mind and is emblazoned on millions of machines
all round the world. It was Elias Howe who invented the machine in 1846 and
Singer who brought it to technical and commercial fruition. (Of course, not all
great entrepreneurs put their own name to someone else’s invention. For
instance, it was Ray Kroc that made the restaurant concept invented by the
McDonald brothers what it is today.)
Perhaps the godfather of them all in terms of turning ideas into reality was
Thomas Edison, who during his life registered over 1000 patents. Products for
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which his organization was responsible include the light-bulb, 35-mm cinema
film and even the electric chair. Many of the inventions for which he is famous
were not in fact invented by him – the electric light-bulb, for example – but were
developed and polished technically and their markets opened up by Edison and
his team. More than anyone else, Edison understood that invention is not
enough – simply having a good idea is not going to lead to its widespread
adoption and use. Much has to be done – the 99 per cent perspiration in his
famous dictum – to make ideas into successful reality. His skill in doing this
created a business empire worth, in 1920, around $21.6 billion. He put to good
use an understanding of the interactive nature of innovation, realizing that both
technology push (which he systematized in one of the world’s first organized
R&D laboratories) and demand pull need to be mobilized.
Take the light-bulb, for example. To bring that to fruition required
enormous technical development on both the product and the process to
produce it at the right cost and quality, and it required the creation and
development of a market into which it could be sold. But Edison also recognized
that, although the electric light-bulb was a good idea, it had little practical
relevance in a world where there was no power point to plug it into.
Consequently, his team set about building up an entire electricity generation
and distribution infrastructure, including designing lamp stands, switches and
wiring. In 1882, he switched on the power from the first electric power
generation plant in Manhattan and was able to light up 800 bulbs in the area. In
the years that followed he built over 300 plants all over the world.
In other words, invention is just the first step along an extended process of
translating ideas into reality and it is of central concern in operations
management. Innovation can thus be represented as a process – a sequence of
activities which lead to an outcome. In the organization it is a core process
concerned with renewal – translating ideas and resources into new products
and processes that will underpin the future of the business, as shown in Figure
4.2.
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Types of innovation
Innovations come in various configurations – some radical and highly
visible (like the examples of new light sources or of robots in industrial
processes), but others less visible or dramatic. The challenge for effective
management of innovation begins with an understanding of the whole range of
innovation types and the need to manage them in different ways.
The first helpful distinction is to recognize that innovation can take place
in terms of what a firm offers or how it creates that offering – traditionally, these
are termed ‘process’ and ‘product’ innovation, although they can be applied just
as much to a service context as to physical products. Hence we shall refer to
these as process and output innovation. And they are not mutually exclusive.
For example, the budget hotel was a new way of processing the hotel guest stay,
but the basic output – a good night’s sleep – remains unchanged. On the other
hand, the same process capability in food manufacture can be used t make a
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We should also add the point that enterprises can learn from progressing
through this cycle so that they can build their knowledge base and can improve
the ways in which the process is managed, as illustrated in Figure 4.7.
well as operations.
Managing innovation
Table 4.2 sets out the key challenges at different stages in the process but
says nothing about how these things might be achieved. This is the core problem
in managing innovation – every firm has to do these things but each finds its
own particular solutions to the problem. Firms develop their own particular
ways of doing things – sometimes called ‘firm-specific routines’ – and some
work better than others. It is quite possible to find two firms trying to innovate
the same thing, but one succeeds whilst the other fails – indeed, this is a common
approach to studying success and failure in managing innovation.
So what are the key routines? What do strategic operations managers need
to consider in tackling the problem of managing innovation? In essence, the task
is one of developing capability so that the organization has appropriate and
effective structures and procedures for making the process work. Table 4.3 lists
some of the main capabilities required.
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We can break this capability analysis down further, into four key areas, as
shown in Table 4.4. From this we can begin to focus on some key tools,
techniques, structures and other enabling routines that can be deployed to help
manage the process. (We do not have the space to discuss them in depth in this
chapter, but references to further information are given.) It is also possible to
use this research-derived model to develop frameworks against which
innovation management can be audited and through which learning can be
facilitated by looking at examples of firms who manage particular aspects well.
Examples of such audit frameworks include process models, innovation climate
audits, innovation performance measures and innovation network maps
(Ekvall, 1990; Chiesa et al., 1996; Francis, 2001; Tidd et al., 2001;
Design Council, 2002).
Table 4.5 gives some other examples of firms that have survived but that
have done so by being prepared to take on new knowledge and to let go other
sets of knowledge when needed.
An important piece of work was done on this theme of competence by two
US writers, Tushman and Anderson (1987). Their paper looked at the historical
evidence from a wide range of industries that had faced discontinuous change
and they identified that there were two ways in which a new technology could
affect an industry. On the one hand, it could be what they called ‘competence
enhancing’ – that is, it actually extended the range of things a firm could do and
built on what they already knew. Examples might be the jet engine, which didn’t
knock aircraft makers out of the sky but rather enhanced their ability to deploy
what they knew about aerodynamics, control systems, etc.
On the other hand, there are technologies that they term ‘competence
destroying’ – which have the capacity to make redundant all the knowledge that
a firm has accumulated over many years and on which it has built its business.
A good example here would be those printing and publishing firms we looked at
earlier, where much of what they knew about how to make physical printing
plates and typesetting operations becomes irrelevant in an era of digital imaging
and communication.
Kodak faces a significant challenge of this kind. Founded around 100 years
ago, the basis of the business was the production and processing of film and the
sales and service associated with mass-market photography. Whilst the latter
set of competencies are still highly relevant (even though camera technology
has shifted), the move away from wet physical chemistry in the dark (coating
emulsions onto film and paper) to digital imaging represents a profound change
for the firm.
It needs – across a global operation and a workforce of thousands – to let go
of old competencies that are unlikely to be needed in the future whilst at the
same time rapidly acquiring and absorbing cutting-edge new technologies in
electronics and communication.
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Looking forward …
We have seen in this chapter the growing recognition of innovation as a
core business process, something essential to the renewal and indeed the
survival of the enterprise. Our thinking has moved it from the periphery of the
organization to the centre of the stage, and the creation and management of
suitable routines and structures to enable innovation is a key role for strategic
operations. But we need in the future to look more closely at the key
components of innovation – and to manage these for competitive advantage.
Knowledge management
Three themes are worth mentioning here. First, we need to recognize that
innovation is always a race in which front runners are constantly being chased
and caught. Finding something that confers sustainable and protectable
competitive advantage is a key challenge – and we have come to realize that in
a global economy this is not an easy task.
In particular, advantages of location, of access to cheap labor or raw
materials is not often sustainable – because globalization means that others can
move somewhere with similar or better factor endowments.
Even technology is not a good solution – having a machine with powerful and
clever capabilities is not really an edge, since anyone else with deep enough
pockets can also buy such a machine or, if the underlying technology is
protected, they can reverse engineer or even steal the ideas!
For these reasons we are beginning to think of competitive advantage as
lying fundamentally in knowledge – in what we know about and can deploy in
new products or processes. This places emphasis on the aspects of innovation
to do with acquiring, capturing and managing the knowledge bases of the firm
as the key task (Teece, 1998). Thinking in this way brings a new perspective to
the task of managing innovation – we need to recognize that innovation is
essentially a knowledge creating and deploying process (Leonard-Barton,
1992). Developing the capacity to learn becomes central to strategic operations
management.
Involvement
The second challenge for the future lies in the area of involvement. In the
past, and still to a large extent in today’s innovation operations, there is an
emphasis on specialists – those who, by virtue of possessing particular skills or
experiences, are ‘licensed’ to participate in the innovation process. It is true that
such people have been central to the creation of all the radical innovations we
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have been speaking about in this chapter – but they represent a small part of the
total workforce in most organizations. Yet innovation is primarily the
application of a fundamental human skill – that of creative problem-solving.
This is something with which everyone in the organization could potentially
make a contribution – and the relatively few studies that have been done on high
levels of involvement in innovation support this view. In recent years, we have
seen some dramatic examples – for instance, the transformation of Japanese
manufacturing from its weak base in the 1950s to world-class by the 1980s –
and we now understand that much of this can be related to high involvement of
people in the innovation process. Where a firm like Toyota receives over two
million ideas per year and does so over a 30-year period it becomes clear that it
has learned to harness considerable innovative resources.
The challenge for strategic operations management is making high
involvement a reality. It sounds simple. As one manager put it, ‘now I see the
potential – with every pair of hands you get a free brain!’ The difficulty is finding
ways to mobilize such involvement and to sustain it in the long term.
Sustainability
The final area in which there are significant future challenges for the
strategic operations manager in managing the innovation process lies in the
concept of sustainability. One of the implicit problems in innovation is that it
assumes anything is possible, that there is always something new in product or
process. The trouble with this view is that it ignores the fact that we live on a
planet with finite resources, many of which are not renewable. Increasingly,
there is public concern about changes that appear to have negative effects on
the world we live in or on quality of life – not just for ourselves but throughout
the value chain from raw material to finished product. People like new designs
in furniture, for example – but are no longer so interested when they find that
such innovative products are made by destroying a non-renewable teak forest
in Indonesia.
Key questions
1. ‘Invention is not enough’ was the response given by a major
designer/manufacturer when asked about the secrets of successful
innovation. What other factors need to be managed to ensure a good idea
makes it through to successful implementation?
2. We have only scratched the surface of the topic of innovation in this
chapter and have presented a general model of how the process works.
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What factors (for example, sector, type of product, etc.) might shape the
ways in which a particular firm needs to go about the process? How
might they affect its management?
3. Introducing process innovation – change in ‘the way we do things around
here’ – can be thought of in the same way as trying to launch a new
product in the commercial market-place. What similarities and
differences might there be between the two, and what messages emerge
for successful management of both?
4. ‘Innovation is a survival imperative, not a luxury!’ Thinking of an
organization with which you are familiar, think about whether this
statement applies – and if it does, what kinds of innovation can you trace
in its history? What triggered them, and what difference did they make?
5. In this chapter we have positioned innovation as a core process in the
business, concerned with renewing what the organization offers and the
ways in which it does so. This process operates in parallel with those
concerned with the present-day operations – managing supply through
to satisfying customers. Inevitably, there will be points of conflict
between managing today and building for the future. Where do you think
these ‘flashpoints’ might emerge – and how would you deal with them as
an operations manager?
Booz, Allen & Hamilton (1982) New Product Management for the 1980s.
Booz, Allen & Hamilton Consultants.
Camp, R. (1989) Benchmarking – The Search for Industry Best Practices that
Lead to Superior Performance. Milwaukee, WI: Quality Press.
Chiesa, V., Coughlan, P. and Voss, C. (1996) Development of a technical innovation audit.
Journal of Product Innovation Management,
13(2), 105–136.