Innovation for Smaller Manufacturers
“In today’s world, innovation is not a choice. If you do not innovate, you are sowing the seeds of your own destruction. Success requires waking up every day and realizing that today’s sources of competitive advantage will not be tomorrow’s.” — The Little Black Book of Innovation*
Wow. Strong medicine.
Today, manufacturers operate in a highly competitive, rapidly changing global economy. To stay in the game, it is necessary to keep on improving by innovating — that is, by introducing and embracing the new and the better. For many people in manufacturing, “innovation” equates with white lab coats. While an R&D Department does have a place, there are many different modes of innovation. There are so many, in fact, that everybody can contribute, and needs to contribute.
These three modes of innovation apply to almost all smaller manufacturers:
Process Innovation: Business processes — including production processes, purchasing processes, sales orders management processes and a familiar host of others — can almost always be improved. Process innovations can lead to faster cycle times, reduced materials or energy losses, fewer errors, safer working conditions.
Lean Manufacturing provides a systematic approach for generating a continuous stream of process innovations. Such innovations are usually incremental, meaning rather small improvements that don’t fundamentally change the process.
Innovations that do fundamentally change, or even replace a given process are also possible, leading to improvements that can be transformational for an organization. The combination of a continuous stream of incremental changes (think of a gradual ramp, leading ever upward) plus occasional drastic changes (like steep steps) can be very powerful.
Product Innovation: In a business world where existing products can be readily commoditized, a continuing stream of new products is essential. New products can range from simple line extensions (check out the number of variations of your favorite toothpaste that are available where you shop) to entirely new product classes (like the first Xerox copier).
Product innovation can go further when one thinks of a product as “that which customers buy” rather than as some tangible thing. Then, product innovation includes much more, such as improvements in packaging, distribution or associated service offerings (such as financing, service contracts, delivery options, exporting, warranties, leasing, toll production or upgrade subscriptions).
A platform for product innovation can come into existence when a key idea provides an expanded scope for creating customer value. “Green” products one such platform for product innovation. “Green” products offer customers environmental or human advantages, along with the usual components of value. General Electric’s multi-billion dollar Ecomagination product portfolio (i.e. platform) provides a highly visible example of the power of the platform approach.
Business Model Innovation: Business models don’t last forever. Rather, the term “business life cycle” should more properly be thought of as a “business model life cycle”. Sooner or later, either the business model changes, or the business ceases to exist. In a global and highly interconnected economic environment, sooner is more likely than later.
There are plenty of examples of core product offerings that have suddenly disappeared; such as typewriters, television picture tubes, soda fountains, photographic films and the Pony Express. Organizations that implement innovate new business models in advance of catastrophe provide more useful examples. Examples include:
Waste Management, a company that changed its business model from “charge a fee to pick up your trash and carry it to the dump” to “charge a fee to pick up your trash then collect more revenues by recycling and composting that trash”.
Amazon has invented several innovative business models based on internet retailing. On-line book sales, coupled with fast delivery, are seriously threatening bricks and mortar book sellers. Further, Amazon’s Kindle provides an entirely new way to publish and distribute printed matter — an innovation that affects almost the entire publishing industry.
IBM: In the ‘60s and 70s, IBM “owned” the computer industry, leading with packages of hardware and software. By 1990, IBM faced the end of that highly successful business model. Then IBM brought in Lou Gerstner to turn their business around. Gerstner acquired PwC’s IT consulting business. Now IBM is primarily a services business that offers hardware and software
Netflix provides a caveat on managing change in business models, and an example of how short business model life cycles can be. Netflix offers movies for rent. Their innovative movie DVD rental business model consists of subscription payment, order on-line, very rapid postal delivery of the DVD, pre-paid return postage, and next DVD delivery triggered by the return. Users liked this model so much that the bricks and mortar DVD rental business is almost gone (ask Blockbuster).
However, Netflix also recognized that internet delivery presented another (and obviously cheaper) way to deliver rental movies. So, rather than allow somebody else to use internet delivery to do to Netflix what Netflix did to Blockbuster, Netflix offered their subscribers internet download as an alternative to DVDs by mail. Those customers who had the equipment and internet access bandwidth necessary to download found it convenient to do so. Then Netflix separated the two delivery services (postal and internet), and established separate subscription prices — customers could pick one or both. The customers rebelled, for reasons that aren’t entirely clear to me. The point: changing business models is risky business. Change management is essential.
Sears, Roebuck and Company pioneered the catalog mail order business early in the 20th century. Following World War II, Sears extended (new business model) into bricks and mortar retail, propelled by their mail order reputation for high quality goods along with innovative use of easy consumer credit. Today, both of Sears’ business models are very tired — they badly need to innovate again.
There is a lot of recent management literature on innovation. In particular, Scott Anthony’s new book The Little Black Book of Innovation includes a four week beginners’ course on how to innovate, written in engaging, conversational language. The Little Black Book is for those of us who recognize that innovation is essential, and know that how to innovate isn’t really as clear as we might wish.
Thoughtful comments and experience reports are always appreciated. Click on the title of this post to open the comments section.
… Chuck Harrington (chuck@JeraSustainableDevelopment.com)
A PDF version of this blog is available at: http://app4.websitetonight.com/projects2/4/9/9/4/2164994/uploads/Blog_Post_-_The_Ramp_and_the_Staircase_-_16_February_2012.PDF
*Anthony, Scott D., The Little Black Book of Innovation, Harvard Business Review Press, Boston (2012), page 28
Innovation for Smaller Manufacturers