Operation Management and TQM

Chapter 4 - Product and Service Innovation

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.
INNOVATION, DESIGN AND CREATIVITY

 Given that this chapter is about product and service

innovation, we will start with what exactly we mean by
‘innovation’. In fact there are many definitions.
The term is notoriously ambiguous and lacks either a
single definition or measure.
It is ‘ a new method, idea, product, etc. (Oxford English
Dictionary), ‘ change that creates a new dimension of
performance’ (Peter Drucker), ‘ a new idea, method or
device’ (Webster), the act of introducing something new
or new knowledge incorporated in products, processes
and services.
INNOVATION, DESIGN AND CREATIVITY

What runs through all these definitions is the idea of novelty and
change
Innovation is simply about doing something new. But it is worth
noting that the idea of innovation is both broader and more
complete than that of invention.
An invention is also something that is novel or unique, but it does
not necessarily imply that the novel device or method has the
potential to be practical, economic or capable of being developed
commercially.
Innovation goes further than invention; it implies not just the novel
idea, but also the process of transforming the idea into something
that provides a return for an organizations customers, owners, or
both.
INNOVATION, DESIGN AND CREATIVITY

The study of innovation, what influences it, and how to manage

it, is a huge subject and beyond the scope of this chapter.
However, there is one particular attribute that is central to
innovation-creativity
Creativity is the ability to move beyond conventional ideas,
rules or assumptions, in order to generate significant new ideas.
It is a vital ingredient in innovation.
It is seen as essential not just in product and service innovation,
but also in the design and management of operations processes
more generally.
Partly because of the fast-changing nature of many industries, a
lack of creativity is seen as a major risk.
INNOVATION, DESIGN AND CREATIVITY

So, if creativity is an essential ingredient of

innovation, and innovation implies making novel
ideas into practical, commercial form, what is the
process that transforms innovative ideas into
something more concrete? It is design?
Innovation creates the novel idea, design makes it
work in practice
Design it ‘ conceive the looks, arrangement, and
working of something’. ‘ Design is also an activity that
can be approached at different level of details.
The figure show the relationship between creativity, innovation and design.
These concepts are intimately related, which is why we treat them in the same chapter
 THE INNOVATION S-CURVE

 However, with time, as experience and knowledge about the new

idea grow, performance increases.

But as the idea becomes established, extending its performance further

become increasingly difficult.

But when one idea reaches its mature, ‘leveling off’ period, it is
vulnerable to a further new idea being introduced which, in turn,
moves through its own S-shaped progression

This is how innovation works, the limits of one idea being reached
which prompts a newer, better idea, with each new S-curve requiring
some degree of redesign.
INCREMENTAL OR RADICAL INNOVATION

An obvious difference between how the pattern of new

ideas emerges in different operations or industries is
the rate and scale of innovation.
Some industries, such as telecommunications, enjoy
frequent and often significant innovations, but they
are usually less dramatic.
So some innovations radical, resulting in
discontinuous, ‘breakthrough’ change, while other
innovations are more incremental leading to smaller,
continuous changes.
INCREMENTAL OR RADICAL INNOVATION

Radical innovation often includes large technological advancements

which may require completely new knowledge and/or resources making
existing services and products obsolete and therefore non-competitive.
Incremental innovation, by contrast, is more likely to involve relatively
modest technological changes, built upon existing knowledge and/or
resources so existing products and services are not fundamentally
changed.
This is why establish companies are more likely to have a mindset that
emphasizes continuity, perhaps not even recognizing potential
innovative opportunities.
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.
 The Henderson Clark Model

 Although distinguishing between incremental and

radical innovation is useful, it does not fully make clear
why some companies succeed or fail at innovation.
Two researches, Henderson and Clark, look at the
question of why some established companies sometimes
fail to exploit seemingly obvious incremental innovations.
They answered this question by dividing the technological
knowledge required to develop new products and services
into ‘knowledge of how the components of knowledge link
together’. They called this latter knowledge ‘architectural
knowledge’.
Figure shows what has become known as the Henderson-Clark model.
It refines the simpler idea of the split between incremental and radical innovation.
The Henderson Clark Model

In this model incremental innovation is built upon

existing component and architectural knowledge.
whereas radical innovation changes both component
and architectural knowledge.
Modular innovation is built an existing architectural
innovation will have a great impact upon the linkage of
components, but the knowledge of single components
is unchanged.
What is the strategic role of product and service innovation?

Innovation is risky business. Not every idea is transformed,

or is capable of being incorporated into the design of a
successful product or service.
Sometimes this is because an innovative idea is just too
challenging, at least with realistically available technology,
or under prevailing market conditions.
Sometimes the development cost is out of the reach of the
business that had the original idea.
Ideas maybe abundant, but resources are limited.
Yet despite the obstacles to successful innovation, almost
all firms strive to be innovative.
What is the strategic role of product and service innovation?

The reason is that there is overwhelming evidence that

innovation can generate significant payback for the
organizations that manage the incorporation of
innovative ideas in the design of their products and
services.
What matters is the ability to identify the innovations
and manage their transformation into effective designs
so that they can sustain competitive advantage and/or
generate social payback.
Designs makes innovative ideas useful

It is worth repeating why design is so important.

Good design also communicates the purpose of the
product or service to its market, and brings financial
rewards to the business.
Products and service design, therefore, can be seen as
starting and ending with the customer.
So the design activity has one overriding objective to
provide products, services and processes which will
satisfy the operations customers.
Designs makes innovative ideas
Product designers try to achieve aesthetically pleasing
designs which meet or exceeds customers expectations.
They also try to design a product which performs well
and is reliable during its lifetime. Further, they should
design the product so that it can be manufactured easily
and quickly.
Similarly, service designers try to put together a service
which meets, or even exceeds, customer expectations.
Yet, at the same time the service must be within the
capabilities of the operation and be delivered at
reasonable cost.
Designs pay for itself
There is an increasingly common acceptances that
design can add very significant value to all types of
organizations.
This interest in design is partly because of the success
of companies like Apple, which are regarded as
excellent at design. Numerous authors have confirmed
the impact of design on performance.
Designs pay for itself
Design can add value to any organization, in particular, good
design practice can:
1. drive and operationalize innovation, increasing market share
and opening up new markets;
2. 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.
3. strengthen branding, so that products and services embody a
company’s value;
4. reduce the overall cost associated with innovation through more
efficient use of resources, reduce project failure rate and faster
time to market.
Designs pay for itself

 All of these benefits are strategic in that they are very

significantly affect the future of a business.
As one company boss said, ‘design is everything,
because without it we have no business. There is no
intense competition, and anybody can design a decent
product. They can’t design outstanding products. So,
design is the differentiator’.
The design activity is itself a process
Producing design innovations for products and
services is itself a process that conforms to the input-
transformation-output model.
Although organizations will have their own particular
ways of managing innovation and design, the design
process itself is essentially very similar across a whole
range of industries.
It therefore has to be designed and manage like any
other process. Broadly, the better the design process is
managed, the better the products and service offering.