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Operations - Management
Operations - Management
Direct
Operations
management
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Operations Operations
performance strategy
Direct
The
Product
structure
and service
and scope of
innovation
operations
Operations Develop
Design
management
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WHAT IS PRODUCT AND SERVICE INNOVATION?
There are a number of terms that we will use in this chapter that have similar meanings, and
are defined by different authorities in different ways, or overlap to some extent, and yet are
related to each other. For example, what is ‘innovation’? Is it the same as ‘creativity’? How
does ‘design’ relate to both terms? So a sensible first step might be to establish how we will be
using these terms.
something before getting down to defining its details (we will observe this later in this chapter
when we examine the process of product and service design, and when we look at process design
in Chapter 6). Figure 4.2 illustrates the relationship between creativity, innovation and design as
we use the terms here. These concepts are intimately related, which is why we treat them in the
same chapter. First we will look at some of the basic ideas that help to understand innovation.
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OPERATIONS
IN PRACTICE How the iPhone disrupted the smartphone market2
Senior Vice-President of Design at Apple, has admitted team worked continuously and so closely together that it
that issues with the touchscreen were so difficult that it felt ‘like a college dorm’. It smelled like pizza.
brought the project to the brink of being aborted. ‘There The aesthetics of the iPhone were treated as being
were multiple times when we nearly shelved it because just as important as the iPhone technology. This was
there were fundamental problems that we couldn't solve’, the responsibility of Apple’s secretive industrial design
said Sir Jonathan. ‘I would put the phone to my ear and group. Apple designer Christopher Stringer said that
my ear dialled a number. The challenge is that you have their objective was to create a ‘new, original, and beau-
to then detect all sorts of ear shapes, chin shapes, skin col- tiful object [that was] so wonderful that you couldn't
our and hairdos. We had to develop technology, basically imagine how you'd follow it’. The design group, Stringer
a number of sensors, to inform the phone that “this is now explained, was composed of 16 ‘maniacal’ individuals
going up to an ear, please deactivate the touchscreen”.’ who shared one singular purpose – to ‘imagine prod-
Security during development was obsessively tight. ucts that don't exist and guide them to life’. Team mem-
For example, the senior Apple executive in charge of bers worked closely together, often gathering around a
developing what would later become known as the iOS ‘kitchen table’ where they exchanged ideas, often in a
operating system was told that he could choose anyone ‘brutally honest’ way. To the designers, even the tiniest
▼
existing knowledge and/or resources so existing products and services are not fundamentally
Idea approaches
its natural limits
Performance
Performance
Progressive
Slow
Obstacles to introduction
introduction
further of new
development innovative
overcome ideas
Time Time
(a) The basic S-shaped improvement in performance (b) Innovation following multiple S-shaped curves
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changed. This is why established companies may favour incremental innovation because they
have the experience of building up a significant pool of knowledge (on which incremental
innovation is based). In addition, established companies are more likely to have a mindset
that emphasizes continuity, perhaps not even recognizing potential innovative opportunities
(see the ‘Operations in practice’ case on Kodak). New entrants to markets, however, have no
established position to lose, nor do they have a vast pool of experience. They may be more
likely to try for more radical innovation.
High impact on
Direct call-up architectural knowledge Telemedicine
service
Architectural Radical
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innovation innovation
Incremental Modular
innovation innovation
Walk-in service
New scanner
Low impact on architectural
knowledge
Primary healthcare
example
Critical commentary
Remember that not all new services and products are created in response to a clear
and articulated customer need. While this is usually the case, especially for products
and services that are similar to (but presumably better than) their predecessors, more
radical innovations are often brought about by the innovation itself creating demand.
Customers do not usually know that they need something radical. For example, in the
late 1970s people were not asking for microprocessors – they did not even know what
they were. They were improvised by an engineer in the USA for a Japanese customer
who made calculators. Only later did they become the enabling technology for the PC
and after that the innumerable devices that now dominate our lives.
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Design pays for itself4
There is an increasingly common acceptance that design can add very significant value to all
types of organization. A growing number of books, articles, reports and blogs have looked at
companies and the benefits that they have gained by taking the design process seriously. This
interest in design is partly because of the success of companies like Apple (see the ‘Operations
in practice’ case earlier in this chapter), which are regarded as excellent at design. Numerous
authors have confirmed the impact of design on performance. One report from the Design
Council in the UK has shown that, on average, for every £1 businesses invest in design, they
gain over £4 net operating profit, over £20 net turnover and over £5 net exports.5
Design can add value to any organization. In particular, good design practice can:
● drive and operationalize innovation, increasing market share and opening up new markets;
● differentiate products and services, making them more attractive to customers, while
increasing consistency in the company’s range, and helping to ensure successful product
launches;
● strengthen branding, so that products and services embody a company’s values;
● reduce the overall costs associated with innovation, through more efficient use of
resources, reduced project failure rate and faster time to market.
All of these benefits are strategic in that they very significantly affect the future of a busi-
ness. As one company boss said, ‘design is everything, because without it we have no business…
There is intense competition, and anybody can design a decent product. They can't all design out-
standing products. So, design is the differentiator.’
OPERATIONS
IN PRACTICE The sad tale of Kodak and its digital camera6
from grace is usually put down to while others looked at it and real-
the company ’s failure to see the ized it was important’, he says. He
approach of digital photography or fully appreciate how also decided not to use the word ‘digital’ to describe his
it would totally undermine Kodak’s traditional products. trial product. ‘I proposed it as filmless photography, an
Yet, ironically, Kodak was more than ahead of its com- electronic stills camera. Calling it “digital” would not have
petitors than most people outside the company realized. been an advantage. Back then “digital” was not a good
It actually invented the digital camera. Sadly, though, it term. It meant new, esoteric technology.’ Some resistance
lacked the foresight to make the most of it. For years the came from genuine, if mistaken, technical reservations.
company had, as one insider put it, ‘too much technology But others feared the magnitude of the changes that
in its labs rather than in the market’. digital photography could bring. Objections ‘were com-
It was back in 1975 when a newly hired scientist at ing from the gut: a realization that [digital] would change
Kodak, Steve Sasson, was given the task of research- everything – and threaten the company’s entire film-based
ing how to build a camera using a comparatively new business model’. Some see Kodak’s reluctance to aban-
type of electronic sensor – the charged-coupled device don its traditional product range as understandable. It
(CCD). He found little previous research so he used was making vast profits and as late as 1999 it was making
the lens from a Kodak motion-picture camera, an ana- over $3 billion from film sales. Todd Gustavson, Curator
▼
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What does quality mean for the design process?
Design quality is not always easy to define precisely, especially if customers are relatively sat-
isfied with existing product and service offerings. Many software companies talk about the
‘I don't know what I want, but I'll know when I see it’ syndrome, meaning that only when
customers use the software are they in a position to articulate what they do or do not require.
Nevertheless, it is possible to distinguish high- and low-quality designs (although this is easier
to do in hindsight) by judging them in terms of their ability to meet market requirements. In
doing this, the distinction between the specification quality and the conformance quality of
designs is important. No business would want a design process that was indifferent to ‘errors’
in its designs, yet some are more tolerant than others. For example, in pharmaceutical devel-
opment the potential for harm is particularly high because drugs directly affect our health.
This is why the authorities insist on such a prolonged and thorough ‘design’ process (more
usually called ‘development’ in that industry). Although withdrawing a drug from the market
is unusual, it does occasionally occur. Far more frequent are the ‘product recalls’ that are rela-
tively common in, for example, the automotive industry. Many of these are design related and
the result of ‘conformance’ failures in the design process. The ‘specification’ quality of design
is different. It means the degree of functionality, or experience, or aesthetics, or whatever
the product or service is primarily competing on. Some businesses require product or service
designs that are relatively basic (although free from errors), while others require designs that
are clearly special in terms of the customer response they hope to elicit.
tom line’ – people, planet and profit. When organizations carry out their design innova-
tion activities, they should consider their objectives in relation to this triple bottom line.
The design innovation process is particularly important in ultimately impacting the ethical,
environmental and economic well-being of stakeholders. And incorporating sustainability
criteria in the design process is increasingly common. Sometimes this is because of exter-
nal pressures, such as new legislation, sometimes because of changing customer attitudes.
For example, some innovation activity is particularly focused on the ethical dimension of
sustainability. Banks have moved to offer customers ethical investments that seek to maxi-
mize social benefit as well as financial returns. Such investments tend to avoid businesses
involved in weaponry, gambling, alcohol and tobacco, for example, and favour those pro-
moting worker education, environmental stewardship and consumer protection. Other
examples of ethically focused innovations include the development of ‘fair-trade’ products.
Similarly, garment manufacturers may establish ethical trading initiatives with suppliers;
supermarkets may ensure animal welfare for meat and dairy products; online companies
may institute customer complaint charters.
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Cash
Sales revenue
Cash flow
Time
Development costs
Delay in Delay in
time to financial
market break-even
Figure 4.6 Delay in time to market of new innovations not only reduces and delays revenues, but also increases the
costs of development. The combination of both of these effects usually delays the financial break-even point far
more than the delay in the launch
recycle or remanufacture once they have reached the end of their life. For example, some
food packaging has been designed to break down easily when disposed of, allowing its
conversion into high-quality compost. Mobile phones are often designed to be taken apart
at the end of their life, so valuable raw materials can be reused. In the automotive indus-
try, over 75 per cent of materials are recycled.
companies, yet most will use some stage model similar to this one. It moves from the concept
generation stage to a screening stage, a preliminary design stage that produces a design to be
evaluated and prototyped before reaching the final design.
Concept generation
This is where innovative ideas become the inspiration for new service or product concepts.
And innovation can come from many different sources:
● Ideas from customers – Marketing, the function generally responsible for identifying new
service or product opportunities, may use market research tools for gathering data from
customers in a structured way to test out ideas or check services or products against prede-
termined criteria.
● Listening to customers – Ideas may come from customers on a day-to-day basis; from
complaints, or from everyday transactions. Although some organizations may not see
gathering this information as important (and may not even have mechanisms in place to
facilitate it), it is an important potential source of ideas.
● Ideas from competitor activity – Most organizations follow the activities of their compet-
itors. A new idea from a competitor may be worth imitating or, better still, improved upon.
Taking apart a competitor’s product or service to explore potential new ideas is called
‘reverse engineering’. Some aspects of services may be difficult to reverse-engineer (espe-
cially ‘back-office’ services) as they are less transparent to competitors.
● Ideas from staff – The contact staff in a service organization or the salesperson in a
product-oriented organization could meet customers every day. These staff may have good
ideas about what customers like and do not like. They may have gathered suggestions from
customers or have ideas of their own. One well-known example – which may be urban
myth – is that an employee at Swan Vestas, the matchmaker, suggested having one instead
of two sandpaper strips on the matchbox. It saved a fortune!
● Ideas from research and development – Many organizations have a formal research
Copyright © 2016. Pearson Education UK. All rights reserved.
and development (R&D) function. As its name implies, its role is twofold. Research devel-
ops new knowledge and ideas in order to solve a particular problem or to grasp an oppor-
tunity. Development utilizes and operationalizes the ideas that come from research. And
although ‘development’ may not sound as exciting as ‘research’, it often requires as much
creativity and even more persistence. One product has commemorated the persistence
of its development engineers in its company name. Back in 1953 the Rocket Chemical
Company set out to create a rust-prevention solvent and degreaser to be used in the aero-
space industry. It took them 40 attempts to get the water-displacing formula worked out.
So that is what they called the product. WD-40 literally stands for Water Displacement,
40th attempt.
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Amazon, you are using open-source software. The basic concept of open-source software
is extremely simple. Large communities of people around the world, who have the abil-
ity to write software code, come together and produce a software product. The finished
product is not only available to be used by anyone or any organization for free, but also
regularly updated to ensure it keeps pace with the necessary improvements. The produc-
tion of open-source software is very well organized and, like its commercial equivalent,
is continuously supported and maintained. However, unlike its commercial equivalent,
it is absolutely free to use. Over the last few years the growth of open source has been
phenomenal, with many organizations transitioning over to using this stable, robust and
secure software. With the maturity that open-source software now has to offer, organ-
izations have seen the true benefits of using free software to drive down costs and to
establish themselves on a secure and stable platform. Open source has been the biggest
change in software development for decades and is setting new open standards in the
way software is used. The open nature of this type of development also encourages com-
patibility between products. BMW, for example, was reported to be developing an open-
source platform for vehicle electronics. Using an open-source approach, rather than using
proprietary software, BMW can allow providers of ‘infotainment’ services to develop com-
patible, plug-and-play applications.
Crowdsourcing8
Closely related to the open sourcing idea is that of ‘crowdsourcing’. Crowdsourcing is the
process of getting work or funding, or ideas (usually online), from a crowd of people.
Although in essence it is not a totally new idea, it has become a valuable source of ideas
largely through the use of the Internet and social networking. For example, Procter &
Gamble, the consumer products company, asked amateur scientists to explore ideas for a
detergent dye whose colour changes when enough has been added to dishwater. Other uses
of the idea involve government agencies asking citizens to prioritize spending (or cutting
spending) projects.
Parallel-path approach
Because the likelihood of successful innovation coming from a single source of ideas is highly
uncertain, it has been argued that firms could improve the odds of innovation success by
using what is sometimes termed a ‘parallel-path strategy’. This simply means utilizing a vari-
ety of different sources and approaches to generating ideas.
Traditionally, it was assumed that there was a trade-off between the depth and breadth
of the usefulness of the ideas that can come from various sources. One could pursue a
few sources of ideas in depth or a wide range of sources in a relatively shallow manner.
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In addition, the marginal cost of exploring a new source may increase as the number of
sources examined increases. So, the breadth of knowledge sources also may be subject to
diminishing marginal returns. However, more recent research9 suggests that firms also
may improve their odds of successful innovation by accessing a large number of knowl-
edge sources.
Ideas management
Obtaining new product or service ideas (or indeed any innovative ideas) from employ-
ees was traditionally done through the use of paper-based ‘suggestion schemes’ where
employees placed their ideas in a ‘suggestion box’. Such schemes were often only partly
effective, yielding few, low-quality ideas. Unless the running of the scheme was well
resourced it could be difficult to guarantee that all ideas were evaluated consistently and
quickly. Also, the scheme could lose credibility unless employees could track their ideas to
confirm that they ‘didn't just disappear’. However, the advent of ‘idea management’ soft-
ware tools has overcome some of these difficulties. Ideas management systems are a type
of enterprise software (often web-based) that can help operations to collect ideas from
employees, assess them and, if appropriate, implement them quickly and efficiently. Such
systems can track ideas all the way though from inception to implementation, making
it much easier to understand important performance measures such as where ideas are
being generated, how many ideas submitted are actually implemented, the estimated cost
savings from submitted ideas and any new revenues generated by implemented ideas.
Often ideas management systems are used to focus ideas on specific organizational tar-
gets and objectives, which it is claimed improved both the quality and quantity of ideas,
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Concept screening
Not all concepts which are generated will necessarily be capable of further development into
products and services. Designers need to be selective as to which concepts they progress to
the next design stage. The purpose of the concept-screening stage is to evaluate concepts by
assessing the worth or value of design options. This involves assessing each concept or option
against a number of design criteria. While the criteria used in any particular design exercise
will depend on the nature and circumstances of the exercise, it is useful to think in terms of
three broad categories of design criteria:
● The feasibility of the design option – can we do it?
● Do we have the skills (quality of resources)?
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● The acceptability of the design option – do we want to do it?
● Does the option satisfy the performance criteria which the design is trying to achieve?
(These will differ for different designs.)
● Will our customers want it?
Preliminary design
Having generated an acceptable, feasible and viable product or service concept the next stage
is to create a preliminary design. The objective of this stage is to have a first attempt at specify-
ing the individual components or elements of the products and services, and the relationship
between them, which will constitute the final offering.
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Figure 4.8 The design funnel – progressively reducing the number of possibilities until the final design is reached
Not everyone agrees with the concept of the design funnel. For some it is just too
neat and ordered an idea to reflect accurately the creativity, arguments and chaos
that sometimes characterize the design activity. First, they argue, managers do not
start out with an infinite number of options. No one could process that amount of
information – and, anyway, designers often have some set solutions in mind, looking
for an opportunity to be used. Second, the number of options being considered
often increases as time goes by. This may actually be a good thing, especially if the
activity was unimaginatively specified in the first place. Third, the real process of
design often involves cycling back, often many times, as potential design solutions
raise fresh questions or become dead ends. In summary, the idea of the design
funnel does not describe what actually happens in the design activity. Neither does
it necessarily even describe what should happen.
Standardization
Operations sometimes attempt to overcome the cost penalties of
high variety by standardizing their products, services or processes.
This allows them to restrict variety to that which has real value for
the end customer. Often it is the operation’s outputs which are standardized. Examples
of this are fast food restaurants, discount supermarkets or telephone-based insurance
companies. Perhaps the most common example of standardization is the clothes which
most us of buy. Although everybody’s body shape is different, garment manufacturers
produce clothes in only a limited number of sizes. The range of sizes is chosen to give a
reasonable fit for most body shapes. To suit all their potential customers and/or to ensure
a perfect fit, garment manufacturers would have to provide an unfeasibly large range
of sizes. Alternatively, they would need to provide a customized service. Both solutions
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Level 0 Remote presentation mouse
would have a significant impact on cost. This control of variety is an important issue with
most companies. A danger facing established operations is that they allow variety to grow
excessively. They are then faced with the task of variety reduction, often by assessing the
real profit or contribution of each service or product. Many organizations have signif-
icantly improved their profitability by careful variety reduction. In order to overcome
loss of business, customers may be offered alternative products or services which provide
similar value.
Commonality
Using common elements within a product or service product can also simplify design com-
plexity. Using the same components across a range of automobiles is a common practice.
Likewise, standardizing the format of information inputs to a process can be achieved by
using appropriately designed forms or screen formats. The more different product and
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services can be based on common components, the less complex it is to produce them.
For example, the European aircraft maker, Airbus, has designed its aircraft with a high
degree of commonality. This meant that 10 aircraft models ranging from the 100-seat
A318 through to the world’s largest aircraft, the A380 with over 500 seats, feature vir-
tually identical flight decks, common systems and similar handling characteristics. In
some cases, such as the entire A320 family, the aircraft even share the same ‘pilot-type
rating’, which enables pilots with a single licence to fly any of them. The advantages of
commonality for the airline operators include a much shorter training time for pilots and
engineers when they move from one aircraft to another. This offers pilots the possibility
of flying a wide range of routes from short haul to ultra-long haul and leads to greater
efficiencies because common maintenance procedures can be designed with maintenance
teams capable of servicing any aircraft in the same family. Also, when up to 90 per cent
of all parts are common within a range of aircraft, there is a reduced need to carry a wide
range of spare parts.
OPERATIONS
IN PRACTICE Innovative design from Dyson11
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dryers. Then came the Dyson Air Multiplier™: fans and said the heater was part of the company’s effort to turn
fan heaters that work very differently to conventional itself into a ‘broad-line technology company’ rather than
fans and electric heaters. They do not have fast-spinning being seen as only an appliance maker. ‘I would not limit
blades that chop the air and cause uncomfortable buf- the company to particular areas of technology or markets.
feting. Instead, they use Air Multiplier™ technology We are developing a range of technologies to improve
to draw in air and amplify it up to 18 times, producing both industrial and consumer products so that the people
an uninterrupted stream of smooth air. Sir James, who using them get a better experience than with the compa-
remains chief engineer and sole shareholder in Dyson, rable items that currently exist.’
by the design team. The symbols indicate the strength of the relationship. All the relation-
ships are studied, but in many cases, where the cell of the matrix is blank, there is none.
● The bottom box of the matrix is a technical assessment of the product. This contains the
absolute importance of each design characteristic.
● The triangular ‘roof’ of the ‘house’ captures any information the team has about the corre-
lations (positive or negative) between the various design characteristics
Importance to
Connector
Flash chip
5 = Maximum
customers
Strong positive
Strong relationship
Profile
Finish
1 = Minimum Positive
Medium relationship
Negative
Weak relationship Competitive score
Hows Strong negative
1 2 3 4 5
Size 4
Robustness 3
Capacity 7
Print logo 6
Price 10
Technical evaluation 1
(5 is best) 2
3
4
5
Figure 4.10 QFD matrix for a promotional USB data storage stick
Virtual reality-based simulations allow businesses to test new products and services as well
as visualize and plan the processes that will produce them. Individual component parts can
be positioned together virtually and tested for fit or interference. Even virtual workers can be
introduced into the prototyping system to check for ease of assembly or operation.
These systems allow conventionally used shapes such as points, lines, arcs, circles and text
to be added to a computer-based representation of the product. Once incorporated into the
design, these entities can be copied, moved about, rotated through angles, magnified or
deleted. The designs thus created can be saved in the memory of the system and retrieved
for later use. This enables a library of standardized drawings of parts and components to be
built up. The most obvious advantage of CAD systems is that their ability to store and retrieve
design data quickly, as well as their ability to manipulate design details, can considerably
increase the productivity of the design activity. In addition to this, however, because changes
can be made rapidly to designs, CAD systems can considerably enhance the flexibility of the
design activity, enabling modifications to be made much more rapidly. Further, the use of
standardized libraries of shapes and entities can reduce the possibility of errors in the design.
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(errors) in the product. Not surprisingly alpha testing comes before beta testing. Alpha testing
is essentially an internal process where the developers or manufacturers (or sometimes an
outside agency that they have commissioned) examine the product for errors. Generally, it is
also a private process, not open to the market or potential customers. Although it is intended
to look for errors that otherwise would emerge when the product is in use, it is in effect per-
formed in a virtual or simulated environment, rather than in ‘the real world’. After alpha test-
ing, the product is released for beta testing. Beta testing is when the product is released for
testing by selected customers. It is an external ‘pilot test’ that takes place in the ‘real world’
(or near real world, because it is still a relatively small, and short, sample) before commercial
production. By the time a product gets to the beta stage most of the worst defects should have
been removed, but the product may still have some minor problems that may only become
evident with user participation. This is why beta testing is almost always performed at the
user’s premises without any of the development team present. Beta testing is also sometimes
called ‘field testing’, pre-release testing, customer validation, customer acceptance testing, or
user acceptance testing.
OPERATIONS
IN PRACTICE Product innovation for the circular economy12
Typical of the companies that have either adopted was, and he set about finding a way to reprocess waste
this idea, or been set up specially to promote it, is paint back to a superior-grade emulsion. After two years
Newlife Paints, based on the south coast of England. of research, he successfully developed his technology,
It ‘remanufactures’ waste water-based paint back into which involves removing leftover paint from tins that
a premium-grade emulsion. All products in the com- have been diverted from landfill, and blending and fil-
pany’s paint range guarantee a minimum 50 per cent tering them to produce colour-matched new paints. The
recycled content, made up from waste paint diverted company has also launched a premium brand, aimed
from landfill or incineration. The idea for the company at affluent customers with a green conscience, called
began to take root in the mind of an industrial chemist, Reborn Paints, the development of which was partly
Keith Harrison. His garage was becoming a little unruly, funded by Akzo Nobel, maker of Dulux Paints. Although
after many years of do-it-yourself projects. Encouraged Keith started small (in his garage) he now licenses his
by his wife to clear out the mess, he realized that the technology to companies such as the giant waste com-
stacked-up tins of paint represented a shocking waste. It pany Veolia. ‘By licensing we can have more impact and
was then that his search began for a sensible and envi- spread internationally’, he says. He also points out that
ronmentally responsible solution to waste paint. ‘I kept manufacturers could plan more imaginatively for the
▼
Simultaneous development
We described the design innovation process as essentially a set of individual, predetermined
stages, each with a clear starting and an ending point. The implicit assumption is that one
stage is completed before the next one commences. Indeed, this step-by-step, or sequential,
approach has traditionally been the typical form of product/service development. It has some
advantages. The process is easy to manage and control because each stage is clearly defined.
In addition, each stage is completed before the next stage is begun, so each stage can focus
its skills and expertise on a limited set of tasks. However, the main problem of the sequential
approach is that it is both time consuming and costly. When each stage is separate, with a
clearly defined set of tasks, any difficulties encountered during the design at one stage might
necessitate the design being halted while responsibility moves back to the previous stage.
This sequential approach is shown in Figure 4.11(a).
Yet often there is really little need to wait until the absolute finalization of one stage before
starting the next. For example, perhaps while generating the concept, the evaluation activity
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(a) Sequential arrangement of the
stages in the innovation activity
Figure 4.11 (a) Sequential arrangement of the stages in the design activity; (b) simultaneous
arrangement of the stages in the design activity
finished, so there is simultaneous or concurrent work on the stages (see Fig. 4.11(b)). (Note
that simultaneous development is often called simultaneous (or concurrent) engineering in
manufacturing operations.)
OPERATIONS
IN PRACTICE IKEA’s slow development process13
Most companies are obsessed with reducing the time to more dynamic market) can be developed in as little as six
market (TTM) of their design process. Short TTM means months. So why does IKEA, the most successful homeware
lower development costs and more opportunities to hit retailer ever, take five years to design its kitchens? Because,
the market with new designs. Some automobile com- with the huge volumes that IKEA sells, development costs
panies have reduced the design time for their products are small compared with the savings that can result from
to less than three years, while a new smartphone (a far product designs that bring down the final price in its stores.
▼
example, suppose the company could not agree on the correct size of
electric motor to put into its vacuum cleaner. It might well carry on
✽ Operations principle with the rest of the design work while further discussions and inves-
tigations take place on what kind of electric motor to incorporate
in the design. Yet much of the rest of the product’s design is likely
to depend on the choice of the electric motor. The plastic housings,
the bearings, the sizes of various apertures, and so on, could all be
affected by this decision. Failure to resolve these conflicts and/or
decisions early on in the process can prolong the degree of uncertainty in the total design
activity. In addition, if a decision is made (even implicitly) and then changed later on in the
process, the costs of that change can be very large. However, if the design team manages to
resolve conflict early in the design activity, this will reduce the degree of uncertainty within
the project and reduce the extra cost and, most significantly, time associated with either
managing this uncertainty or changing decisions already made. Figure 4.12 illustrates two
patterns of design changes through the life of the total design, which imply different time-
to-market performances.
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Figure 4.12 Sorting out problems early saves greater disruption later in the design activity
the individual members of staff from each function who are involved in the project could be
moved out of their functions and perhaps even physically relocated to a task force dedicated
solely to the project. The task force could be led by a project manager who might hold the
entire budget allocated to the design project. Not all members of the task force necessarily
have to stay in the team throughout the development period, but a substantial core might see
the project through from start to finish. Some members of a design team may even be from
other companies. In between these two extremes there are various types of matrix organiza-
tion with varying emphasis on these two aspects of the organization (see Fig. 4.13). Although
the ‘task force’ type of organization, especially for small projects, can sometimes be a little
cumbersome, it seems to be generally agreed that, for substantial projects at least, it is more
effective at reducing overall time to market.
Skunkworks14 Encouraging creativity in design, while at the same time recognizing the
constraints of everyday business life, has always been one of the great challenges of indus-
trial design. One well-known organizational structure that is claimed to release the design
and development creativity of a group has been called ‘a Skunkworks’. It is usually taken to
mean a small team who are taken out of their normal work environment and granted freedom
FM FM FM PM PM
PM PM
PM
Increasing project
orientation Balanced matrix
PM
organization
PM
Pure project
organization Heavyweight project managers
PM FM FM FM FM FM FM
PM
PM PM
PM
PM PM
PM PM
FM = Functional manager
PM = Project manager
from their normal management activities and constraints – what we have called here a pure
‘project-based’ structure. It was an idea that originated in the Lockheed Aircraft Company
in the 1940s, where designers were set up outside the normal organizational structure and
given the task of designing a high-speed fighter. The experiment was so successful that the
company continued with it to develop other innovative products. Since that time many other
companies have used a similar approach, although ‘Skunk Works’ is a registered trademark of
Lockheed Martin Corporation.
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● Incremental and radical innovations differ in how they use knowledge. Radical innova-
tion often requires completely new knowledge and/or resources making existing products
and services obsolete. Incremental innovation builds upon existing knowledge and/or
resources.
● The Henderson–Clark model goes further by distinguishing between ‘knowledge of the
components of innovation’ and ‘knowledge of how the components of innovation link
together’ (called architectural knowledge).
reach the test marketing stage, but that had now changed tus by the company’s board. Even so, it was not expected to
dramatically. come to the market for another two years and was seen by
‘Orlando’ was a concept for a range of snack foods, some as potentially the most important new product devel-
described within the company as ‘savory potato cookies’. opment in the company’s history.
Essentially they were 1½ inch discs of crisp, fried potato
with a soft dairy-cheese-like filling. The idea of incorpo- The project team
rating dairy fillings in snacks had been discussed within the Immediately after the board’s decision, Monica had
industry for some time, but the problems of manufactur- accepted responsibility to move the development forward.
ing such a product were formidable. Keeping the product She decided to put together a dedicated project team to
crisp on the outside yet soft in the middle, while at the oversee the development. ‘It is important to have represent-
same time ensuring microbiological safety, would not be atives from all relevant parts of the company. Although the
easy. Moreover, such a product would have to be capable of team will carry out much of the work themselves, they will still
being stored at ambient temperatures, maintain its physical need the cooperation and the resources of their own depart-
robustness and have a shelf life of at least three months. ments. So, as well as being part of the team, they are also
Bringing Orlando products to market involved over- gateways to expertise around the company.’ The team con-
coming three types of technical problem. First, the formu- sisted of representatives from marketing, the development
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kitchens (laboratories), PGT’s technology centre (a develop- this would raise the problem of whether any process
ment facility that served the whole group, not just the snack innovations would work when scaled up to full size.
division), packaging engineers, and representative from the However, it would be far more convenient for the
division’s two manufacturing plants. All but the manufactur- project team and allow its members to ‘make their
ing representatives were allocated to the project team on mistakes’ in private.
a full-time basis. Unfortunately, manufacturing had no one ● How much development to outsource – Because
who had sufficient process knowledge and who could be of the size of the project, Monica had considered
spared from their day-to-day activities. outsourcing some of the innovation activities. Other
divisions within the company might be able to under-
Development objectives take some of the development work and there were
Monica had tried to set the objectives for the project in also specialist consultancies that operated in the food
her opening remarks to the project team members when processing industries. The division had never used any
they had first come together. ‘We have a real chance here of these consultancies before but other divisions had
to develop an offering that not only will have major mar- occasionally done so.
ket impact, but will also give us a sustainable competitive ● How to organize the innovation activities – Current-
advantage. We need to make this project work in such a ly the small development function had been organized
way that competitors will find it difficult to copy what we around loose functional specialisms. Monica wondered
do. The formulation is a real success for our development whether this project warranted the creation of a sepa-
people, and as long as we figure out how to use the new rate department independent of the current structure.
extrusion method and packaging material, we should be This might signal the importance of this innovation
difficult to beat. The success of Orlando in the marketplace project to the whole division.
will depend on our ability to operationalize and integrate
the various technical solutions that we now have access
Fixing the budget
to. The main problem with this type of offering is that it
The budget to develop Project Orlando through to launch
will be expensive to develop and yet, once our competitors
had been set at $30 million. This made provision to increase
realize what we are doing, they will come in fast to try and
the size of the existing innovation team by 70 per cent
out-innovate us. Whatever else we do we must ensure that
over a 20-month period (for launch two years later). It
there is sufficient flexibility in the project to allow us to
also included enough funding to build a pilot plant which
respond quickly when competitors follow us into the mar-
would allow the team the flexibility to develop responses
ket with their own ‘me-too’ products. We are not racing
to potential competitor reaction after the launch. So, of
against the clock to get this to market, but once we do
the $30m, around $18m was for extra staff and contracted-
make a decision to launch we will have to move fast and
out innovation work, $7.5m for the pilot plant and $4.5m
hit the launch date reliably. Perhaps most important, we
for one-off costs (such as the purchase of test equipment
must ensure that the crisps are 200 per cent safe. We have
etc.). Monica was unsure whether the budget would
no experience in dealing with the microbiological testing
be big enough. ‘I know everyone in my position wants more
which dairy-based food manufacture requires. Other divi-
money, but it is important not to under fund a project like this.
sions of PJT do have this experience and I guess we will be
Increasing our development staff by 70% is not really enough.
relying heavily on them.’
In my opinion we need an increase of at least 90% to make
Monica, who had been tasked with managing the (now
sure that we can launch when we want. This would need
much expanded) development process, had already drawn
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*Six-month periods.
calculations indicate a delay of only six months could not only QUESTIONS
delay the profit stream by the six months but also cut it by up 1 How would you rank the innovation objectives for the
to 30%.' project?
Monica was keen to explain two issues to the man-
2 What are the key issues in resourcing this innovation
agement committee when it met to consider her request
process?
for extra funding. First, that there was a coherent and
well-thought-out strategy for the innovation project over 3 What are the main factors influencing the resourcing
the next two years. Second, that saving $5m on Project decisions?
Orlando’s budget would be a false economy. 4 What advice would you give Monica?
2 A company is developing a new app that will allow customers to track the progress of their
orders. The website developers charge €10,000 for every development week and it is esti-
mated that the design will take 10 weeks from the start of the design project to the launch of
the website. Once launched, it is estimated that the new site will attract extra business that
will generate profits of €5,000 per week. However, if the website is delayed by more than five
weeks, the extra profit generated would reduce to €2,000 per week. How will a delay of five
weeks affect the time when the design will break even in terms of cash flow?
3 How can the concept of modularization be applied to package holidays sold through an
online travel agent?
4 One product where a very wide range of product types is valued by customers is that of
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domestic paint. Most people like to express their creativity in the choice of paints and other
home decorating products that they use in their homes. Clearly, offering a wide range of paint
must have serious cost implications for the companies which manufacture, distribute and sell
the product. Visit a store which sells paint and get an idea of the range of products available
on the market. How do you think paint manufacturers and retailers manage to design their
services and products so as to maintain high variety but keep costs under control?
5 Some firms specialize in helping clients to innovate and design their products and services.
One of the best known of these is IDEO (ideo.com). Look at the website and:
(a) Identify the stages of design innovation that the firm goes through with its clients.
(b) Assess its approach to design innovation. What does the firm believe are the most impor-
tant aspects of successful new product and service development?
(c) Why do you think IDEO is so willing to tell everyone how to go about the design innova-
tion process? Isn’t that giving away the firm’s expertise for free?
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