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Innovation Management #1→ [New Product Development]
-Why does innovation matter? Look at Long term success; product & services consume, attributes we expect;
features/services evolve/changes over time
The challenge: Creating & Sustaining Growth
-90% of all firms are unable to sustain an above-average growth rate for more than a few years
-80% of venture capital funded start-ups fail
-75% of new products launched by established firms fail
Corporate Mortality is very high
-Average life expectancy of all firms, regardless of size, in Japan and much of Europe =12.5 years
-The average lifespan of a multinational organization – Fortune 500 or equivalent – is around 45 years
-S&P index of 90 major U.S. firms created in the 1920s
-Original List Tenure: 65 years
-1958 – 61 years
-By 2019, Average tenure (S&P 500): 12 years
PREPARATION for next wave in industry; Corporate longevity
Innovation: The structure of mature industry
-Gorillas (big players/Dominant), Monkey (mid-size, smaller), Chimp
(smallest firm, unique niche segments/attributes)
-Linking Strategy & Innovation: Perceived value to customer and delivered
cost; cust. Intimacy, PPC curve→ innovate pushes FWD
-Innovate process, lower delivered cost (ie Amazon) OR innovate on product/service
& make more valuable
**A dominant design changes the nature of competition
within the industry →Product lifecycle (rate increases over
time) VS Product innovation (1st) (rate decreases over time),
Rate of process innovation increase (appeal 2nd;
manufacturing process, secure supply for components, drive
down costs=meet market demand) As product normalizes
day-to-day, SCALE processes=consistency, Last: Innovate
on service (3rd)[ie Apple]
**Product innovation (1st), Process innovation (2nd), Service
innovation (3rd- once reach mkt saturation/plateau; maintain
rev)
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-Innovation Yields Dominant Design: Once unique features become commonplace (ie Iphone glass screen)
-Almost always, the pace of technological innovation outstrips the ability of customers to absorb it [At certain
point, other facts more important to the market than increased performance]
-Nature of Markets & Innovations (Disruptive Innovations–Reading)
-Disruptive Innovations:
What Happens:
● Incumbent technology keeps getting better
● Customers use technology, up to a point
● Overshooting customer needs enables disruption
● Disruptive innovations offer different values and product/service attributes
Disruptive Innovation Unfolds:
● Usually, lower performance than incumbents
● Targets current customers/segment who don’t need full performance & not being served-LEAST
demanding (Generally lower performance, but cheaper, colors, etc)
● Adopted by low-end market first; lower profit margins
● Performance attributes that customer do value improve at such a rapid rate that new technology can later
invade incumbent’s space
“Low End”- Disruptive Innovation
● Usually, lower performance than incumbents
● Targets current customers who don’t need full
performance
● Adopted by low-end market first; lower profit
margins
“New market” Disruptive Innovation
● Offers a product for a new or emerging market
● Targets customers not served by existing
incumbents
-Ex: Razor–Dominant design disrupted Circa 1900;
Harry’s Low cost, innovative on market
-Innovation Project Types (Spectrum): →
-What are Breakthroughs & How do you recognize them?:
● Characterized as disruptive change in product technology and the processes used to make it
[Breakthrough: ie Printing Press, Lightbulb]
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● Significant different technology than anything that’s out in market currently
● Products come to life that customers didn’t know they even needed
● Development activities typically last several years
● High risk, high reward with no guarantees
-What are Platforms and How do you recognize them?: Next generation of a product line; represents integration
of new product functions and features, as well as development of new MFR process
● Platforms Leverage prior development & the assets accumulated from those activities, which are most
critical or most costly to replicate; EXTENSIBLE
○ Physical product architecture (BMW 3 S)
○ Operating system (Apple)
○ Component (Leica lens – Panasonic Lumix camera)
○ Process technology (microassembly – Gillette razors)
○ Brand positioning (John Deere – lawn equipment)
● Platforms must be extensible
[Platforms: ie iPhone IOS, Bluetooth, camera lens]
-What are Derivatives & Maintenance and How do you recognize them?: Derivatives: Incremental change to an
existing platform or manufacturing process (small changes, add feature); ADD Features to EXISTING
● Result is an added feature or reduced cost
● Example is a faster laptop with a faster version of the same microprocessor chip
● Less demanding in scope & require less resources
Maintenance: Refers to the simplest type of project and includes bug fixes/maintenance issues of existing
products/processes. [Fix issue/bug/defect OR doing something to keep feature functional (smallest & easiest)
-2 Major Links Between Innovation and Operations:
Every Competitive Advantage is Transitory
● Even the best (i.e., most targeted, most efficient, etc.) operations will – someday – become
outdated/unnecessary/etc.
● Innovation in its various forms (product, process, service, business model, etc.) creates new operations
Creating innovation is an Operation itself- New Product development is a Process
● Many organizations have units whose job is to develop innovations => new product/service development
● New Product Development is a Process!
Essential NPD Management Systems: 3 Critical Management Systems
1. Constructing the Right Project Portfolio
2. Managing the development process effectively [Apply
Little’s Law & WIP]
3. Launching the product, capturing & reapplying lessons
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NPD is governed with “Matching” Dynamics– We try to match:
-Creative capacity with market demands
-Pace of innovation with Launch Rhythms
-Short term Operating Goals with Long term Strategic interests
-Matching Creative Capacity to Market Demand is initially TOUGH!-- Reduce Queue (arrival rate), Increase
service rate
ISSUE #1: How do we reduce funnel LENGTH?
● Reduce Queue (Arrival Rate)
● Reduce Processing Time (Service Rate)
NPD & Little’s Law→Reduce WIP=Reduce TPT
Issue #2– Management Attention & Influence in NPD
-The Product Development Funnel: 1) Concept Generation, 2)
Select concept– design/test, 3) Full production
Key challenges: How to reduce # options, how quickly
*Fewer ideas need to make it through [as time progresses]
NPD Performance (△ below)
1. Speed/time to mkt
2. Development cost
3. How well product/service meet customer desired
specification
*McKinsey Study– “Better Expensive Than Late”
Design for Manufacturability (DfM):
-Traditional Approach: “We design it, you build it” or “Over the
wall”
-Concurrent Engineering:“Let’s work together & simultaneously
ENGINEER & PRODUCE”
-Sprints, Swarms, Hacks: Design–Prototype–Launch–Repeat
Q’s:
*Who’s in charge & over WHO*
