‘Our consumers tell us the number one reason why they don’t buy Jones Soda is because they can’t find it,’ says Jonathan Ricci, CEO of Jones Soda.
When Jones Soda tried to launch its range of drinks in Seattle, it found it difficult to get prod- ucts into the established retail outlets, such as supermarkets and convenience stores, as these were dominated by the big soft drink brands.
Rather than give up, they looked at the other types of stores to which their target customers liked to go – snowboarding shops, tattoo par- lours and music retailers – and provided them with chillers and a supply of drinks. In these retailers there was no competition, and the brand quickly built up enough sales and cus- tomer loyalty that the main distributors then wanted to get in on the action.
Source: 100 Thoughts (2010) HSBC, London.
Innovation in action
Source: Newscast Online/Alamy Images
Process design and innovation
● high capital investment;
● clear determination of capacity, one routing for all products, limited volume flexibility;
● low product complexity;
● low added value;
● strong impact of changeover times;
● small number of production steps;
● limited number of products.
(Fransoo (1994) and Wallace (1998)) A good example of such an industry is the food packaging industry. These are products we handle every day as we prepare and eat food. For example, a great deal of success has been achieved by a few packaging innovations. In the beverages sec- tor, innovations such as Tetrapak, PET bottles, and in-can systems (such as the Guinness ‘In-can-system’), have achieved numerous awards, market share improve- ments and improved profitability for the firms involved. In all of these cases, signifi- cant investment in production process technology was required and major manufacturing changes were introduced.
Process innovations are an important source for increased productivity and they can help a firm gain competitive advantage. In the food industry, process innova- tions often are associated with the introduction of new plant, equipment or machin- ery. The introduction of a cost-reducing process often is accompanied by changes in product design and materials, whilst new products frequently require the
Figure 5.4 Typology of industries
Source: Taylor, S.G., Seward, S.M. and Bolander, S.F. (1981) Why the process industries are different, Production and Inventory Management Journal, vol. 22, no. 4, 9–24.
Low volume High volume
Custom differentiated differentiated Commodity Job shop Aero space
Industrial machinery apparel Machine tools
Drugs
Speciality chemicals Automobile Tyre and rubber
Steel products Major chemicals Paper
Food Oil
Steel
Flow shop Forest products
Process
development of new equipment. In practice, product and process innovation are interwoven and any distinction between them is arbitrary. Yet, virtually every book on technological change has compared innovations in products with innovations in processes (Simonetti et al., 1995).
The relationship between product and process innovation
In a major review of the constructs of product and process innovations, Simonetti et al. (1995) conclude that 97 per cent of innovations incorporate product and process innovation attributes.
Process innovation can be defined as new activities introduced into a firm’s pro- duction or service operations to achieve lower costs and/or produce higher quality product (Reichstein and Salter, 2006). This, then, may be why it is often regarded as the Cinderella activity compared to the more glamorous product innovation. It is true that many of its activities and improvements may go unnoticed. Changes in the production process of a cereal box that reduces costs by 10 per cent would not be noticed by end consumers; but certainly it would be noticed by the firm. In a major study examining the sources of process innovation, Reichstein and Salter (2006) found that ‘the presence of R&D activities is associated with process innovation’
(Reichstein and Salter, 2006: 677). Further, in industrial economics, a number of studies have attempted to theoretically model the factors that shape the propensity of firms to undertake product and process innovations. Some recent models suggest that firms will favour product innovation where there is a high level of product differen- tiation and competition is intense. In contrast, process innovation will be undertaken where products are less differentiated and there is less competition in the industry.
Clearly, the industrial context will shape decision making and Porter’s taxonomy of technology strategies illustrates this. In this framework, process innovation often is associated with the attempts of firms to achieve cost leadership in their market seg- ment or to focus on cost reductions in the production of existing products. Table 5.2 shows a classification of product and process interdependence (Hullova, et al., 2016).
Managing the manufacturing: R&D interface in process industries
To be successful at innovation, firms need to be able to capture value from their innova- tive functional products and then they must be able to manufacture them in a competi- tive cost structure. In process industries, this is even more important and is dependent on the relationship between firms’ manufacturing and innovation activities. Research by Storm et al. (2013) examined the firm’s raw material innovation, innovation of pro- cess technology and product innovation. They found that process innovation provided the most likely route to achieve that highly sought-after prize of product flexibility.
Stretch: how innovation continues once investment is made
Process industries are characterised by large fixed items of capital equipment. Hence, this causes a problem for firms of how to create change once these plants are built.