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.

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.

Service Innovation

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.

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

Open Collective Innovation

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