The Office of Innovation
Some things never cease to amaze. We are meeting with the executive committee of a major global company, and we have just asked if innovation is one of their top strategic priorities. Their unanimous answer is “yes.” We then ask about their individual responsibilities. “Which one of you is the CFO?” “Who is head of HR?” “Where’s the CIO?” One by one their hands go up. Yet, when we ask to see their global director of innovation, nobody raises a hand. Everyone just looks around the room with blank expressions. So, sure, this company understands that innovation is imperative. But nobody in its leadership team is directly responsible—or accountable—for making innovation happen across the organization. And in many instances, they don’t even seem to be aware of the paradox.
Consulting firm Booz Allen Hamilton made an astute observation to us after interviewing thousands of senior executives about corporate innovation. Their conclusion was this: “Of all the core functions of most companies, innovation seems to be managed with the least consistency and discipline.” Some pundits would argue that this makes sense. Innovation is, by definition, a creative process—a mysterious mix of happenstance, individual brilliance, and the occasional bolt of lightning. How could it possibly be managed? Business guru Tom Peters appears to share this distorted commonplace view; and not too long ago, he announced, “The ‘innovation process,’ is an oxymoronic phrase, believed only by morons with ox-like brains.”
We’d rather side with Peter Drucker who wrote way back in the 1980s about “the systematic practice of innovation” and argued that innovation is a discipline that can and should be managed like any other corporate function. It’s worrisome that today, more than two decades later, organizations still assign responsible people to every other core function except innovation. And then they wonder why they can’t seem to make innovation happen in a profitable and sustainable way.
Ask yourself, “How many ‘innovation managers’ do we currently have in our entire organization?” Perhaps your immediate response is to point to a department like research and development. The executives running this department are “innovation managers,” aren’t they? And what about the people in charge of other innovation units like incubators, new venture divisions, or Skunk Works? Surely these are “innovation managers.” At some level, you would most likely be right. However, confining innovation to these traditional structures is always counterproductive.
Innovation should be systemic
Putting innovation out on the periphery reinforces several erroneous and persistent views. One is that innovation is something that happens at the margins, not in the core business. Another is that innovation is the responsibility of a small cadre of experts, not something that should involve everyone in the company—and even people on the outside. Still another misconception is that innovation is mostly about new products and technologies, not about breakthroughs in cost structures, processes, services, customer experiences, management systems, competitive strategies, and business models.
Instead of trying to manage innovation by forcing it to reside in a disconnected “silo” or enclave, where it neither involves nor affects the rest of the organization, companies should be working to embed innovation as an “all the time, everywhere” capability that permeates the entire firm.
To make innovation a pervasive and corporatewide capability, innovation’s ownership must be broadened beyond conventional structures and spread throughout a company’s functions. This is exactly what happened to quality during the 1970s and 1980s when it ceased to be the exclusive responsibility of a specific department, and instead was distributed to every corner of the company. A similarly systemic infrastructure for innovation, which starts at the corporate level and infiltrates every part of the organization, is required. Such an infrastructure would make managers accountable at all levels for driving, facilitating, and embedding the innovation process into every nook and cranny of the culture.
Check your innovation infrastructure
Let’s go back to the executive committee meeting. When we ask which of the leaders is globally responsible for innovation in all its forms, we expect the chief executive officer (CEO) to say, “That’s me.” Building a deep, self-sustaining enterprise capability for innovation is something so vital to the firm’s destiny that it absolutely must be spearheaded by the CEO. We see this happening right now in several of the world’s biggest and best-known companies. Steve Jobs at Apple, Jeff Immelt at GE, Sam Palmisano at IBM, and Alan Lafley at Procter & Gamble are just a few examples. These leaders have clearly taken on the role of “chief innovation officer” at their respective firms.
What we’d next like to see is another hand being raised—this time by the chief operating officer (COO). We’d like that executive to tell us that he or she has been appointed as the chief architect of innovation embedding at the firm—responsible for making innovation happen from an operational perspective, just as the company succeeded in making quality happen. And we’d like him or her to proudly hold up an organizational chart that shows the company’s innovation infrastructure. We want to see a global vice president of innovation—an “innovation czar”—who reports directly to the CEO as the firm’s leading innovation practitioner.
We want to see an office of innovation and innovation council made up of the company’s top business unit leaders that manage innovation embedding and development across the organization. Beyond that, we want to see regional vice presidents of innovation who work with the respective regional heads in a visible and senior position.
In addition, there should be innovation boards in the regional as well as the business units, which are comprised of senior leaders who manage and advance the innovation process at local levels. Organizations should have hundreds of part-time “innovation mentors” along with dozens of full-time “innovation consultants” who have been thoroughly trained to coach and support would-be innovators and help push their ideas forward. These mentors and consultants would stoke the fires of innovation in the company’s divisions by actively monitoring and managing the pipeline process.
How innovation drives renewal
Having an innovation czar in any organization would be great. However, if a company fails to understand what innovation is all about, top-level leadership doesn’t matter.
“Innovation is the art of making an outcome easier to obtain,” says author, Robin Lawton. It is also the art of constantly asking what business the company is really in and who it is here to serve.
“Customers don’t buy products; they buy results,” said Peter Drucker. There is no reason to make a better, faster, cheaper product that should not be made at all. A friend of ours recently did a TV interview on this very topic that can be viewed here [1] under the videos section.
Strategic renewal is the act of dynamically adjusting business models and strategies to the deep changes at work in the external environment. Above all else, this requires innovation. In a 2003 article in Harvard Business Review titled, “The Quest for Resilience,” Gary Hamel wrote,“Strategic renewal is creative reconstruction.” It’s about taking a traditional business strategy and model apart and looking for imaginative ways to reconstruct it to create significant, new value for your customers and your company. This becomes all the more urgent during recessionary times, when customer needs and market conditions swiftly and dramatically change.
The innovation war room
How can you actually go about the task of strategic renewal? By setting up an innovation war room. This may well be a physical space, as in the case of Emerson Electric, the global technology and engineering leader, where former client and CEO Chuck Knight set aside a specific room, right next to his own office, for directing the company’s strategic renewal efforts. It was reminiscent of the cabinet war room in London used by Winston Churchill to direct military strategy during World War II.
Chuck Knight’s innovation war room was a simple but highly effective tool that forced all of Emerson’s people to focus on directing, innovating, and reinventing the business strategy and model to find bold new growth opportunities. Its effect on the company’s strategies—and ultimately, its performance—is still being felt in the organization’s business today. Even in the face of formidable pressures, Emerson announced record financial results for 2008 and 2009 and it continues to be one of the most reliably innovative “earning machines” in the U.S. economy.
Few companies can claim to have a specific innovation war room somewhere at headquarters. But what every company can and should do is organize a serious, high-level strategy forum to start rethinking and innovating its business model from the customer backward. One of the fundamental questions the company must ask is, “How do we get the sales curve moving upward in a market where customers are no longer buying?” Our response to that question would be identical to a slogan IBM is now using: “We need to stop selling what we have and start selling what they need!”
Sound like a daydream? Not to us. We’ve actually seen innovation infrastructures similar to this one in more companies than you might think. So when we ask you how many “innovation managers” you have in your own organization, this is the kind of innovation management we are talking about. Take a good look around your firm. Who exactly is in charge of managing innovation as a core corporate function?
Five components of strategic renewal
In some of our keynote speeches and strategy workshops, which we call “The Innovation War Room” and “Innovate Like Edison,” we teach companies to deconstruct their business strategies and models into five components: who they serve, what they provide, how they provide it, how they make money, and how they differentiate and sustain an advantage. We show them how to radically rethink each component using the “Four Lenses of Innovation,” a methodology outlined in our upcoming book The Office of Innovation.
We get the strategy teams to:
Challenge deeply held orthodoxies about who their customers are, how they interact with them, how they define their products or services, and how they configure the value chain
Harness emerging trends and discontinuities to substantially change the way things are done in their industries
Leverage core competencies and strategic assets in novel ways to generate new business growth
Understand and address deep customer needs that are currently unmet
Summary
There are three ways to react to an economic crisis. One is to ignore it and hope the whole thing just blows over. (Good luck!) Another is to run around in a panic-induced, cost-cutting frenzy that could seriously impair your company’s long-term growth potential. The third and smartest way is to recognize the impending threat the economic crisis poses to your top and bottom lines, and quickly adapt your company’s business strategy and model to the new market conditions.
Is this what your organization is currently doing? Perhaps. But what if you’re struggling to radically rethink and reinvent what you do, and how you do it, as economic circumstances rapidly change? If so, ask yourself, “Does my firm have an office of innovation?” If not, isn’t it time your top leadership team appointed one, and fast?
Monday, May 31, 2010
Lean and inventory misconceptions
Lean and inventory misconceptions
April 10th, 2007 | By: Martin Arrand
I was interested to find an article in this month’s Logistics & Transport Focus headed “No more lean times: why inventory is not waste and warehouses add value”. The author, Steve Sordy, has chosen a title that is a kind of teasing of the more dogmatic of lean devotees – British culture has little patience for zealots of any stamp, and prefers to deal with them with dry irony.
Sordy makes some good points about value-adding activities that can occur in warehouses, such as late customisation, reformatting and returns processing. You could argue he muddies the waters a little by considering activities that could equally happen in stockless distribution centres, but overall it was a good summary.
Where I part company with the article is its assumptions – widely held misconceptions – about the role of inventory in lean supply chains.
Muda: the seven wastes
Inventory is indeed, as Sordy states, one of the seven forms of muda or waste identified by Toyota forty-odd years ago. Since Taichi Ohno and colleagues made that formulation, western popularisers such as Schonberger in the USA and Dan Jones in the UK have promulgated the idea that lean enterprises should be aiming for zero waste – and that means zero inventory. (Zero Inventories was for example the title of an early book on lean/JIT by Robert Hall in 1983.)
The New Romantics
But there is a difference between practical lean methods and “Romantic Lean”, that form of proselytising and sloganeering that is designed to win hearts and minds from the boardroom to the shop floor. Lean methods seem very counter-intuitive to people at all levels the first time they encounter them – reducing batch sizes for example, when there are long set-up times, or allowing machines and workers to idle if the downstream processes are blocked. So there is a need for this kind of advocacy. The danger is, of course, that people get confused by oversimplification.
Inventory in Pull systems
If there is a defining characteristic of lean production it is Pull. In manufacturing, pull means that production at any point is controlled by the status of the process downstream. The first and still most well-known way of doing this is Kanban.
In Kanban each process centre has a stock of material waiting to be worked on (a WIP queue). Each time a material is take from the queue, a Kanban card is sent to the upstream process authorising production. No process is allowed to start work on a job without a card. The number of cards are limited.
As the preceding description makes clear, holding inventory is actually an integral part of the lean pull process. Far from inventory being zero, it has become instituted in the system. In fact one of the ways of understanding pull is to think of it as a “make-to-stock” system, whereas push (e.g. traditional MRP) is a “make-to-order” system.
Furthermore, Little’s Law (Throughput = WIP / Cycle Time) shows that zero inventory really means zero throughput.
This means that lean manufacturing’s pull system leads to higher stock holding than push processes? No. In fact it leads to lower WIP and shorter cycle times, for reasons that are too complicated to explain here.
Don’t mention the “T” word
Sordy concludes that “only unnecessary inventory… is waste” and goes on to describe inventory holding decisions as “principally a series of trade-offs”. This is where the debate gets decidedly sticky.
It is true that it is important to understand the trade-offs, and it is true that only unnecessary inventory is waste. The problem is, what assumptions should we make when evaluating the trade-offs and what do we mean by unnecessary?
Sordy gives an example that inventory might be held because responsive manufacture “is an unaffordable option for many manufacturing processes that have significant changeover times”. The error in reasoning here is not the trade-off between stock and productivity, but that changeover times should be regarded as fixed. The lean view of batch inventory as waste leads us to reduce changeover times to change the terms of the trade-off. It was exactly this type of thinking that led Schonberger to ban the word “trade-off” (with unsuccessful results it must be said).
Behind the slogans of lean
Lean is not just about pull or Kanban. Neither is it about the seven wastes. As originally presented by Ohno, Shingo and Monden, it was in fact less of an overarching system than a general approach (an holistic view of the manufacturing process) together with a set of solutions to specific problems that had presented themselves over the years at Toyota. It was left to the consultancy and Business School synthesizers (the lean gurus) to give this the name “lean” and lend it some understandable shape (for example Womack and Jones’s five “Lean Principles”).
If you think about problems in a lean way (“lean thinking”?), it’s possible to see the trade-offs very differently. Little’s Law may mean we can’t attain zero inventory, but it also tells us that reducing cycle time and inventory together will maintain throughput – and reducing cycle time and inventory are both desirable outcomes, because they provide a more responsive service and lower costs.
April 10th, 2007 | By: Martin Arrand
I was interested to find an article in this month’s Logistics & Transport Focus headed “No more lean times: why inventory is not waste and warehouses add value”. The author, Steve Sordy, has chosen a title that is a kind of teasing of the more dogmatic of lean devotees – British culture has little patience for zealots of any stamp, and prefers to deal with them with dry irony.
Sordy makes some good points about value-adding activities that can occur in warehouses, such as late customisation, reformatting and returns processing. You could argue he muddies the waters a little by considering activities that could equally happen in stockless distribution centres, but overall it was a good summary.
Where I part company with the article is its assumptions – widely held misconceptions – about the role of inventory in lean supply chains.
Muda: the seven wastes
Inventory is indeed, as Sordy states, one of the seven forms of muda or waste identified by Toyota forty-odd years ago. Since Taichi Ohno and colleagues made that formulation, western popularisers such as Schonberger in the USA and Dan Jones in the UK have promulgated the idea that lean enterprises should be aiming for zero waste – and that means zero inventory. (Zero Inventories was for example the title of an early book on lean/JIT by Robert Hall in 1983.)
The New Romantics
But there is a difference between practical lean methods and “Romantic Lean”, that form of proselytising and sloganeering that is designed to win hearts and minds from the boardroom to the shop floor. Lean methods seem very counter-intuitive to people at all levels the first time they encounter them – reducing batch sizes for example, when there are long set-up times, or allowing machines and workers to idle if the downstream processes are blocked. So there is a need for this kind of advocacy. The danger is, of course, that people get confused by oversimplification.
Inventory in Pull systems
If there is a defining characteristic of lean production it is Pull. In manufacturing, pull means that production at any point is controlled by the status of the process downstream. The first and still most well-known way of doing this is Kanban.
In Kanban each process centre has a stock of material waiting to be worked on (a WIP queue). Each time a material is take from the queue, a Kanban card is sent to the upstream process authorising production. No process is allowed to start work on a job without a card. The number of cards are limited.
As the preceding description makes clear, holding inventory is actually an integral part of the lean pull process. Far from inventory being zero, it has become instituted in the system. In fact one of the ways of understanding pull is to think of it as a “make-to-stock” system, whereas push (e.g. traditional MRP) is a “make-to-order” system.
Furthermore, Little’s Law (Throughput = WIP / Cycle Time) shows that zero inventory really means zero throughput.
This means that lean manufacturing’s pull system leads to higher stock holding than push processes? No. In fact it leads to lower WIP and shorter cycle times, for reasons that are too complicated to explain here.
Don’t mention the “T” word
Sordy concludes that “only unnecessary inventory… is waste” and goes on to describe inventory holding decisions as “principally a series of trade-offs”. This is where the debate gets decidedly sticky.
It is true that it is important to understand the trade-offs, and it is true that only unnecessary inventory is waste. The problem is, what assumptions should we make when evaluating the trade-offs and what do we mean by unnecessary?
Sordy gives an example that inventory might be held because responsive manufacture “is an unaffordable option for many manufacturing processes that have significant changeover times”. The error in reasoning here is not the trade-off between stock and productivity, but that changeover times should be regarded as fixed. The lean view of batch inventory as waste leads us to reduce changeover times to change the terms of the trade-off. It was exactly this type of thinking that led Schonberger to ban the word “trade-off” (with unsuccessful results it must be said).
Behind the slogans of lean
Lean is not just about pull or Kanban. Neither is it about the seven wastes. As originally presented by Ohno, Shingo and Monden, it was in fact less of an overarching system than a general approach (an holistic view of the manufacturing process) together with a set of solutions to specific problems that had presented themselves over the years at Toyota. It was left to the consultancy and Business School synthesizers (the lean gurus) to give this the name “lean” and lend it some understandable shape (for example Womack and Jones’s five “Lean Principles”).
If you think about problems in a lean way (“lean thinking”?), it’s possible to see the trade-offs very differently. Little’s Law may mean we can’t attain zero inventory, but it also tells us that reducing cycle time and inventory together will maintain throughput – and reducing cycle time and inventory are both desirable outcomes, because they provide a more responsive service and lower costs.
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