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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 the things (products/services) which an organization offers; • ‘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.
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
