Transcript Slide 1

Slides for Chapter 4
Systematic Innovation
Any organization might get lucky once – but to deliver a
continuing stream of new products and services and regular
improvement and replacement of operating processes
requires a more systematic approach. Innovation is the core
business process associated with renewing what the
organization does and what it offers to the world – and as
such is a key area of focus for strategic operations
management.
The Importance of Innovation
As the economist William Baumol pointed out ‘virtually all
of the economic growth that has occurred since the
eighteenth century is ultimately attributable to innovation’,
and various studies highlight this correlation across the world
(Baumol, 2002).
Recent Major Innovations
Recently major new corporations have appeared on the global
scene and dominate their industries – for example, Amazon in
online retailing, eBay in e-auctions, Skype in voice over
internet telecoms and Google in everything from search
engines, through advertising to mobile telephones.
Service Innovation
Competitive advantage undoubtedly can come from
innovation in services. Citibank was the first bank to offer
automated telling machinery (ATM) service and developed a
strong market position as a technology leader on the back of
this process innovation, whilst Bank of America is literally a
textbook case of service innovation via experimentation with
new technologies and organisational arrangements across its
branch network.
Service Innovation
Southwest Airlines achieved an enviable position as the most
effective airline in the USA despite being much smaller than its
rivals; its success was due to process innovation in areas like
reducing airport turnaround times. This model has subsequently
become the template for a whole new generation of low cost
airlines whose efforts have revolutionised the once-cosy world of
air travel.
Managing Innovation
The good news is that there is evidence that innovation can be
managed – it isn’t simply gambling! Research highlights regularly
key practices which help and whose absence is associated with
failure – so there is a basic recipe book on which to draw. But that
doesn’t take away the challenge for strategic operations managers
– rather it puts the spotlight firmly on them since the real challenge
is not to find the general recipe book but to actually create – and
continue to create – different dishes from it.
The Example of 3M
3M see strategic advantage in their being able to come up with
a regular stream of product innovation, so much so that they
have a policy that 50% of sales should come from products
invented during the past 3 years. In practice this means that
they are betting on their ability to bring new ideas to market
not once or twice but consistently and across a range which
now numbers around 60,000 products world-wide.
Edison’s Example
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 –
as Edison is reputed to have said, ‘it’s 1% inspiration and
99% perspiration!’ – to make ideas into successful reality.
His skill in doing this created a business empire worth, in
today’s prices, 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.
Product Innovations
The Telephone.
This moved through a phase of radical innovation when it was first
invented and then stabilized into a pattern of incremental
improvements – both in terms of the external styling and shape and
the internal electromechanical functioning. Throughout its life there
have been long periods of such incremental development, punctuated
by surges of radical change – for example, the move to electronic
mechanisms, to mobile communications and now to ‘smart’ phones
which involve the convergence of computing and communications.
Service Innovations
A range of sectors continue to use processes and offer outputs that
are relatively little changed - hotels, cinemas, hairdressers,
schools, etc. But a closer look at these highlights the role which
incremental innovation plays – in improving efficiencies, in
differentiating services, in building customer loyalty, etc.
Incremental versus
Radical Innovation
The line between incremental and radical innovation is hard
to fix – not least because novelty is in the eye of the
beholder. For some firms an innovation may be a simple
and logical next step in an incremental process of
improvement. But for others it may represent a major
shift.
Types of Innovation
‘PRODUCT INNOVATION’ – changes in
(products/services) which an organization offers;
the
things
‘PROCESS INNOVATION’ – changes in the ways in which they
are created and delivered;
‘POSITION INNOVATION’ – changes in the context in which the
products/services are introduced;
‘PARADIGM INNOVATION’ – changes in the underlying mental
models which frame what the organization does.
Managing Innovation (cont).
It would be wonderful if the solution to the innovation management
problem involved one or two simple actions – for example, ‘spend
more money on R&D’ or ‘increase your market research
budget’. Unfortunately extensive research on the innovation
process tells us otherwise – it’s less about being really good at one
instrument than trying to conduct a huge orchestra and get
everyone to play in time, bringing their particular skills and
creativity to the process but also making sure they stay on the same
page of the score or (sometimes) that they are playing the same
piece of music!
Likely Failures:
......an organization with no clear innovation strategy, with
limited technological resources and no plans for acquiring
more, with weak project management, with poor external
links and with a rigid and unsupportive organization would
be unlikely to succeed in innovation.
Possible Success
........one which was focused on clear strategic goals, had
developed long-term links to support technological
development, had a clear project management process
which was well supported by senior management and which
operated in an innovative organizational climate would have
a better chance of success.
Operations and Innovation
The key message here for strategic operations
management is to ensure that the ways in which the
organization carries out its various tasks are tuned to
capturing and using knowledge. And much of this comes
through learning by doing, trying things out and capturing
useful lessons from that experience for next time.
Operations and Innovation
The key message here for strategic operations
management is to ensure that the ways in which the
organization carries out its various tasks are tuned to
capturing and using knowledge. And much of this comes
through learning by doing, trying things out and capturing
useful lessons from that experience for next time.
Open Collective Innovation
Innovation has always been a multi-player game, one
which involves weaving together many different strands of
what could be termed ‘knowledge spaghetti’ to create
something new. So building rich and extensive linkages
with potential sources of innovation has always been
important
User-led Innovation
As Eric von Hippel of MIT has shown over many years, the idea that
users are simply passive consumers of new products and services is
too simplistic (Von Hippel, 2005). Most users have views, opinions,
ideas and reactions to those innovations and a significant proportion
are prepared to put their frustration, inspiration or desire for
something different into action and create their own products. Often
these are simple sketches or crude prototypes but they can be picked
up by manufacturing and service organizations, polished and
developed to the point where they are offered to the wider market
place.
Types of Innovations
The 4Ps of Innovation Space
A Simple Model of the Innovation Process
Key Points
Innovation is not a luxury but an imperative; it is essential
for survival and growth.
Although the process is uncertain, it is not a lottery;
evidence shows that it can be managed to competitive
advantage.
Key Points
The key to this lies in recognizing that it is a process like any
other in organizational life, the difference being that this
process is concerned with renewing the things and
organization offers and the ways in which it creates and
delivers them.
Managing the process is thus of central concern in strategic
operations management