Product innovation for the circular economy 4
3.3 Diagnostic question: Is the product and service innovation process defined?
Case example
3.3 Diagnostic question: Is the product and service innovation process defined ■ 93
progression, the level of certainty regarding the final design increases as design options are discarded. The final design will not be evident until the very end of the process. Yet, many of the decisions that affect the eventual cost of deliv- ery are made relatively early. For example, choosing to make a smartphone’s case out of a magnesium alloy will be a relatively early decision that may take little investigation. Yet, although accounting for a small part of the total design budget, this decision may go a long way to determining the final cost of the phone. The difference between the ‘budget spend’ of the innovation process and the actual costs committed by the innovation process are shown in Figure 3.9, which also indicates the generic stages of product or service innovation. Although not all companies use these exact stages and there are often rework loops involved, there is still considerable similarity between the stages and sequence of the innovation process.
Concept generation
Concept generation is all about ideas, and ideas can come from anywhere. Often the expec- tations within organisations are that ideas will emerge from the research and development (R&D) or market research departments. However, this ignores the huge potential of other internal sources of innovation. Front-line service providers, in particular, are able to provide deep insights into what customers require based on informal interactions. Similarly, while many customer complaints are dealt with at a relatively operational level, they have the potential to act as a useful source of customer opinion within the innovation process. Suppliers can also be valuable in the innovation process because of their potential to improve the quality of products and services, minimise time to market, and spread the cost and risks of innovation.
sustainable sources of energy. Some innovations focus on making products easier to recycle or remanufacture once they have reached the end of their life. Some food packaging is designed to break down easily when disposed of, allowing its conversion into high-quality compost.
3.3 Diagnostic question: Is the product and service innovation process defined?
The final design of any service or product is the result of a journey from an initial idea through to the final offering. On this journey, a design will pass through a number of (usually defined) stages. Even products and services that are normally considered purely ‘artistic’, with a large element of creativity, such as movies or theatrical productions, are actually progressed through clearly defined stages. For example, the process of developing video games follows three broad phases: pre-production, production and post-production, each of which also follows a sequence of steps, as shown in Figure 3.8.
Like any innovation and design process, the video game design process will involve some blurring of the boundaries between stages, and often significant recycling and rework (see the case study at the end of this chapter). Furthermore, all such processes tend to move from a vaguely defined idea that is then refined and made progressively more detailed until it contains sufficient information for turning into an actual service, product or process. At each stage in this
OPERATIONS PRINCIPLE Innovation processes involve a number of stages that move an innovation from a concept to a fully specified state.
Figure 3.8 All products and services are created by defined operations processes, even highly creative processes such as video game development
Design
Art production
Audio production Programming
Quality testing Game
prototype Idea
Concept Pitch
Resourcing Planning
Testing, de- bugging
Post-launch feedback
Marketing planning
Post-production Pre-production
Production Maintenance
Distribution
‘Lead users’ and ‘harbingers of failure’
A particularly useful source of customer-inspired innovation, especially for products and ser- vices subject to rapid change, are so-called ‘lead users’. ‘Lead users’ are users who are ahead of the majority of the market on a major market trend, and who also have a high incentive to innovate. Producers seeking user innovations to manufacture try to source innovations from lead users, because these will be most profitable to manufacture. These customers, unlike most customers, have the real-world experience needed to problem solve and provide accurate data to inquiring market researchers. Since these lead users will be familiar with both the positives and negatives of the early versions of products and services, they are a particularly valuable source of potential innovative ideas.
If lead users can bring insights because of their expertise, by contrast another category of customer may be valuable because of their ability consistently to make bad purchase decisions.
These customers have been termed ‘harbingers of failure’. One study5 claims that the same group of consumers has a tendency to purchase all kinds of failed products, time after time, flop after flop. As one of the authors of the study put it, ‘These harbingers of failure have the unusual property that they keep on buying products that are taken from the shelves. These star-crossed consumers can sniff out flop-worthy products of all kinds. If you’re the kind of per- son who bought something that really didn’t resonate with the market, say, coffee-flavoured Coca-Cola, then that also means you’re more likely to buy a type of toothpaste or laundry detergent that fails to resonate with the market.’
Ideas management
Obtaining new product or service ideas (or indeed any innovative ideas) from employees can also be a rich source of innovation. For example, the 3M Corporation has been highly success- ful in generating innovations by introducing formal incentives to encourage employee engage- ment. Employee-sourced ideas were traditionally done through 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. The scheme could lose credibility unless employees could track their ideas to confirm that they ‘didn’t just disappear’. However, the advent of ‘ideas management’ software 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 Figure 3.9 The stages in a typical innovation process and the design funnel effect – progressively reducing the number of possibilities until the final design is reached
Low level of certainty
regarding the final offering High level of certainty
regarding the final offering Concept
generation Concept
screening Preliminary designs
Evaluation and improvement
Prototyping and final
design
100% Percentage of final service/product cost
committed
Percentage of innovation costs (budget)
incurred Start of the
innovation activity Finish of the
innovation activity
3.3 Diagnostic question: Is the product and service innovation process defined ■ 95 all the way through 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 focus ideas on specific organisational targets and objectives, which it is claimed improves both the quality and quantity of ideas when compared with ‘open’ suggestion schemes.
Concept screening
Concept screening is the first stage of implementation where potential innovations are consid- ered for further development. It is not possible to translate all concepts into viable product-ser- vice packages. Organisations need to be selective. For example, DuPont estimates that the ratio of concepts to marketable offerings is around 250:1. In the pharmaceuticals industry, the ratio is closer to 10,000:1. The purpose of concept screening is to take initial concepts and evaluate them for their feasibility (can we do it?), acceptability (do we want to do it?) and vulnerability (what are the risks of doing it?). Concepts may have to pass through many different screens, and several functions might be involved. Table 3.1 gives typical feasibility, acceptability and vulnerability questions for marketing, operations and finance functions.
During concept screening a key issue to consider is deciding how big the innovation should be and where it should focus – innovation to the customer offering as opposed to innovation to the process of delivery. The vast majority of innovation is continuous or incremental in nature.
Here the emphasis is on steady improvement to existing offerings and to the processes that deliver them. This kind of approach to innovation is very much reflected in the lean and total quality management perspectives. On the other hand, some innovation is discontinuous and involves radical change that is ‘new to the world’. Discontinuous innovation is relatively rare – perhaps 5–10 per cent of all innovations could be classified as such – but creates major chal- lenges for existing players within a market. This is because organisations are often unwilling to disrupt current modes of working in the face of a barely emerging market, but by the time the threat has emerged more fully it may be too late to respond. Clayton Christensen refers to this problem as the ‘Innovator’s Dilemma’, which supports renowned economist Joseph Schumpet- er’s idea that innovation should be a process of ‘creative destruction’.6
Preliminary design
Having generated one or more appropriate concepts, the next stage is to create preliminary designs. For service-dominant offerings, this may involve documentation in the form of job instructions or ‘service blueprints’. For product-dominant offerings, preliminary design involves
Evaluation criteria
Marketing Operations Finance
Feasibility Is the market likely to be big enough?
Do we have the capabili- ties to deliver it?
Do we have access to finance to develop and launch it?
Acceptability How much market share could it gain?
How much will we have to reorganise our activi- ties to deliver it?
How much financial return will there be on our investment?
Vulnerability What is the risk of it failing in the
What is the risk of us being unable to deliver
How much money could we lose if things Table 3.1 Some typical evaluation questions for marketing, operations and finance
defining product specifications (McDonald’s has over 50 specifications for the potatoes used for its fries) and the bill of materials, which details all the compo- nents needed for a single product. At this stage, there are significant opportu- nities to reduce cost through design simplification. The best innovations are often the simplest. Designers can adopt a number of approaches to reduce design complexity. These include standardisation, commonality, modularisa- tion and mass customisation.
Standardisation
Standardisation in product or service design is usually an attempt to overcome the cost of high variety by formally restricting it. Examples include fast-food restaurants specifying exactly how a prepared dish should look by providing a picture to its chefs; call centres providing on-screen scripts for operators to answer callers’ questions; and although everybody’s body shape is dif- ferent, garment manufacturers produce clothes in a limited number of sizes (the range of sizes is chosen to give a reasonable fit for most, but not all, body shapes). Controlling variety is an important issue for most businesses, and is often built into the design of a product or service.
For example, many aspects of service in global hotel chains are specified in standard operating procedures (SOPs). The Marriott hotel chain says that the company’s prosperity rests on such things as its ‘66 Steps to Clean a Room’ manual.7
Commonality
Common elements are used to simplify design complexity. If different services and products can draw on common components, the easier it is to deliver them. An example of this is Airbus, the European aircraft maker, which designed its aircraft with a high degree of commonality using fly-by-wire technology. This meant that ten aircraft models featured virtually identical flight decks, common systems and similar handling characteristics. 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. In addition, 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. Similarly, Hewl- ett-Packard and Black & Decker use common platforms to reduce innovation costs.
Modularisation
This is a method of balancing two opposite forces: standardisation and customisation. It involves designing standardised ‘sub-components’ of an offering that can be put together in different ways. For example, the package holiday industry can assemble holidays to meet a specific customer requirement, from pre-designed and pre-purchased air travel, accommodation, insur- ance, and so on. Similarly, in education modular courses are increasingly used that allow ‘cus- tomers’ choice but permit each module to have economical volumes of students. Dell, a pioneer in computer manufacture, used the same logic for products, drawing together interchangeable sub-assemblies, manufactured in high volumes (and therefore lower cost), in a wide variety of combinations. In a similar way software engineering often involves modularisation to bring some degree of order to the development of large and complex pieces of software, which can often involve a large number of programmers. Here modularisation allows the sometimes thou- sands of lines of code to be broken up and organised by the tasks they perform.
Mass customisation
Flexibility in design can allow the ability to offer different things to different customers. Nor- mally, high variety means high cost, but some companies have developed their flexibility in OPERATIONS PRINCIPLE
A key innovation objective should be the simplification of the design through standardisation, commonality, modularisation and mass customisation.
3.3 Diagnostic question: Is the product and service innovation process defined ■ 97 such a way that customised offerings are produced using high-volume processes and thus costs are minimised. This approach is called mass customisation. For example, Paris Miki, an upmarket eyewear retailer that has the largest number of eyewear stores in the world, uses its own ‘Mikissimes Design System’ to capture a digital image of the customer and analyse facial characteristics. Together with a list of each customer’s personal preferences, the system then recommends a particular design and displays it on the image of the customer’s face. In consultation with the optician, the customer can adjust shapes and sizes until they have chosen the final design. The frames are assembled within the store from a range of pre-manufactured components and the lenses ground and fitted to the frames. The whole process takes around an hour.
Evaluation and improvement
The purpose of this stage in the innovation process is to take a preliminary design and see if it can be improved before the offering is tested in the market. A number of techniques can be employed at this stage to evaluate and improve the preliminary design. Perhaps the best known is quality function deployment (QFD). The key purpose of QFD is to try to ensure that the eventual innovation actually meets the needs of its customers. It is a technique that was developed in Japan at Mitsubishi’s Kobe shipyard and used extensively by Toyota, the motor vehicle manufacturer, and its suppliers. QFD is also known as the ‘house of quality’ (because of its shape) and the ‘voice of the customer’ (because of its purpose). The technique tries to cap- ture what the customer needs and how it might be achieved. Figure 3.10 shows a simple QFD matrix used in the design of a promotional USB data storage pen. It is a formal articulation of how designers see the relationship between the requirements of the customer and the design characteristics of the offering.
Figure 3.10 A simple QFD matrix for a promotional USB data storage pen Strong relationship
Medium relationship Weak relationship
Size Robustness Attach to key ring Capacity Print logo Price
Importance to customers
Whats
Hows
1 2 3 4 5
5 = Maximum 1 = Minimum
4 3 2 7 6 10
‘Whats’ vs ‘Hows’ ‘Hows’ vs ‘Hows’
Strong positive Positive Negative Strong negative
12 43 5 Technical evaluation
5 is best
Competitive score
Casing matl. Flash chip Profile Finish Connector
At this stage in the process, both creativity and persistence are needed to move from a potentially good idea to a workable design. One product has commemorated the persistence of its design engineers in its company name. In 1953 the Rocket Chemical Company set out to create a rust-prevention solvent and degreaser to be used in the aerospace industry. Working in their lab in San Diego, California, they made 40 attempts to work out the water displacing formula, so they called the product ‘WD-40®’, which literally stands for Water Displacement, 40th attempt. Originally used to protect the outer skin of the Atlas Missile from rust and cor- rosion, the product worked so well that employees kept taking cans home to use for domestic purposes. Soon after, the product was launched with great success into the consumer market.
In fact, it’s not just persistence that is important in the innovation process – failure itself may be beneficial if organisations can spot potential. Sometimes, when a design fails, it represents an opportunity to rethink the concept itself. For example, Pritt Stick, the world’s first glue stick, was originally intended to be a super-glue, but product testing proved unsatisfactory. Henkel changed the product concept and successfully marketed the product as ‘the non-sticky sticky stuff’. Similarly, a group of chemists working for the pharmaceutical giant Pfizer developed a new drug called ‘Sildenafil’. Originally intended to help individuals with hypertension (high blood pressure) and angina, clinical trials of the drug proved unsuccessful, though doctors noticed a side effect of penile erection. Seeing the potential of this ‘failed’ innovation process, Pfizer marketed the drug as Viagra, for erectile dysfunction. In just two years, sales of Viagra had topped $1 billion and the product dominated the market.