+44 (0)7766-525433

Wednesday 12th December 03:02 (UK)

Get New Directions Newsletter

Archive for the ‘Industrial Sector’ Category

Disruption in your hand

Wednesday, June 13th, 2018

You are carrying a device that has been responsible for the decimation of industries, the loss of millions of jobs and has subjected billions of people to an increased risk of fraud and bullying. This same device is also responsible for enriching our lives, bringing information and money to the billions of people living in remote and less developed regions of the world and enabling thousands of new businesses. This device is of course your Smartphone. It is a prime example of disruptive innovation.

What is disruptive innovation?

The term ‘disruptive innovation’ was coined by the academic, Clayton Christensen in 1997 to describe innovations that, at their inception, pose no threat to established businesses, due to their limited functionality. But over time, as they develop their functionality/price, they begin to nibble away at the established market, taking customers who are looking for ‘good enough’ solutions. The loss of these customers may not necessarily be seen as negative by established businesses who may well regard them as less attractive lower margin customers. But as time goes on, the disruptor takes more and more market share as its proposition grows in capability and acceptance. The result is that the incumbent, and once dominant, providers are squeezed ever more upmarket and ultimately into niche markets (see Figure 1).

Figure 1: Disruptive innovation (based on work by Clayton Christensen)

Christensen argues that disruptive innovations can hurt all companies – especially the successful, well managed companies that are responsive to their customers and open to new technologies and methods (see his book ‘The innovator’s dilemma’). For these companies tend to focus on meeting the needs of their existing customers. They ignore the market segments most susceptible to disruptive innovations, because these segments often have very tight profit margins and are too small to provide a good enough growth rate to attract established firms. The result is that these ‘less attractive’ market segments become the ‘beach heads’ for new value propositions that grow and develop in these segments before invading the ‘more attractive’ more profitable segments in the market – the ones that are the preserve of the established and dominant competitors.

The Smartphone as a disruptor

The smartphone is one of the most disruptive products to have appeared in the last two decades. It has disrupted a number of markets, including digital cameras, music and video players, portable satellite navigation, e-book readers, voice recorders, paper diaries and personal organizers and even the humble wristwatch. The subsequent growth in phone screen size is creating further disruption in the tablet and laptop markets.

The smartphone is a good illustration of the process of disruption. Consider but one of its functions, its ability to take digital photographs. The first mobile phone with a built-in camera was manufactured by Samsung and released in South Korea in June 2000. It had a 1.5-inch LCD screen, and the built-in digital camera was capable of taking only 20 photos each at 0.35-megapixels in size, but the user had to connect it to a computer to share their photos. Sharp launched an improvement on this concept in November 2000 – the J-SH04 could take photos at 0.11-megapixels, a lower resolution than the Samsung, but importantly photos could be shared using mobile data transmission. This phone therefore combined the key elements of today’s smartphone cameras – picture capture and immediate distribution.

By the end of 2004 the camera phone was riding high. It was reported that over half of the phones sold worldwide in the first 9 months of 2004 had cameras in them, and two-thirds of all the phones shipped in the third quarter were camera phones. Leading the way was Finnish manufacturer, Nokia.

The arrival of mobile phone cameras at the functional level of ‘good enough’ was illustrated in 2013 when the Chicago Sun-Times sacked its entire staff of 28 full-time photographers and replaced them with reporters using smartphones. As well as significantly reducing the newspaper’s costs, the paper was able to increase its video content. The paper released a statement saying: “The Sun-Times business is changing rapidly and our audiences are consistently seeking more video content with their news. We have made great progress in meeting this demand and are focused on bolstering our reporting capabilities with video and other multimedia elements. The Chicago Sun-Times continues to evolve with our digitally savvy customers, and as a result, we have had to restructure the way we manage multimedia, including photography, across the network.” It was reported that reporters were to be trained in ‘iPhone photography basics’.

Figure 2: Digital camera sales volumes  (Source: IC Insights)

The impact of the disruption caused by camera phones on traditional cameras was clear to see with the market leaders being squeezed into the smaller more specialist and profitable, niches such as digital SLRs.

Other victims of smartphone disruption were closer to home

Apple has benefitted from the disruptive impact of its iPhone smartphone product on the mobile phone market since it was launched in 2007. The immediate loser was Nokia which was the market leader at the time, with handsets that focused primarily on mobile telephony and secondarily on mobile computing and entertainment. But another major player, BlackBerry (originally called Research in Motion) was also hit by the move away from the traditional keyboard to touchscreens.

It is also interesting to consider why it was Apple that was the disruptor of the mobile-phone market and not IBM, whose Simon Personal Communicator introduced in 1994, was effectively the first Smartphone or Nokia, the market leader, whose Communicator series of Smartphones were successfully sold into business markets for several years before the iPhone was launched.

One key factor in Apple’s successful disruption of the mobile phone and smartphone sectors was that the company primarily targeted consumers and not businesses with its smartphone offering, unlike both IBM and Nokia. This enabled it to quickly build volume and sizeable market share. It cemented this success with its complementary ecosystem built around the iTunes App store and its partners’ offerings. This enabled it to then enter the business market taking advantage of the BYOD (‘bring your own device’) movement with its customers using their phones at work and helping to convince purchasing decision-makers of their benefits.

Dealing with disruption?

Disruptive Innovation can threaten any business. It also offers the opportunity for innovative businesses to enter new markets with the strategic potential for overcoming the existing dominant competitors. So any forward-looking organization today should have approaches and mechanisms that try and spot such potential disruptive innovations when they are still ‘over the horizon’. Indeed such disruptive innovation, used proactively, can form the core element of a powerful business transformation strategy.

Unfortunately there is no one approach that can be used to identify potential disruptions early. Businesses need to select a range of complementary approaches for ‘scanning’ the business environment for potential disruptions. They also need to develop and assess scenarios of technology, competition and market changes to determine when and how they should best respond to potential disruption. Whatever approaches they choose to adopt, it is important that they are proactive, rather than planning to react when disruptions become visible – for by then it is likely to be too late.

The one approach that business leaders should most definitely not adopt – is unfortunately the most common: to take a dominant market position for granted or to consider it has some degree of permanence. The business history books are full of companies that have made that mistake.

This article is an extract from ‘Sowing the seeds of business transformation’ by Alastair Ross,available as paperback or e-book on Amazon. It was originally published on LinkedIn on 13-6-18.

 

How’s your innovation health?

Thursday, January 11th, 2018

Innovation is increasingly a critical competency for all businesses – in today’s global, dynamic markets. But many businesses lack effective capabilities in innovation. Our latest video on our YouTube channel looks at innovation challenges and the use of ‘best practice’ assessment to drive innovation improvement. We also overview the use of the Codexx ‘Foundations for Innovation’ (F4i) assessment solution – developed in 2006 with the support of John Bessant, then Professor for Innovation at Imperial College Business School in London. And we do all this with a light sprinkling of humour…. and why not?

Take a look:

Why great products are not enough – the story of Nokia

Thursday, January 4th, 2018

The second video in our series ‘Why great products are not enough’ covers Nokia and its fall from market dominance in mobile phones in 2005 to market exit less than 10 years later. There are key lessons to be learned from Nokia’s experience. In this video Alastair Ross reviews Nokia’s fall and analyses why and how it happened and the key weaknesses in Nokia’s business model and capabilities.

 

Cyber security – a scenario of the 2030s

Tuesday, July 11th, 2017

‘Knowledge is power’ is an old maxim attributed to Sir Francis Bacon, the Elizabethan scientist and philosopher and ‘father’ of the scientific method, writing in 1597. In today’s global interconnected world, knowledge – specifically digitally represented knowledge – truly powers our lives and our businesses. Within the last twenty years digital information has replaced many once-familiar physical assets, such as notes & coins (‘cash’), CDs, DVDs, photographs, books, the need to travel (other than for pleasure), the need to visit physical shops or offices – the list goes on.

Our digital world – the good and the bad

Our digital connectivity enables almost instant response to events through access to information transferred between computing devices and thus people and organisations. This increasingly frictionless information access powers our economy, linking businesses, suppliers and customers and people with their families, friends and social networks. However this powerful and easy exchange of information can be a double-edged sword – for information can move in any direction and sometimes when and where we don’t want it to. The increasing impact of information theft, hacking, infection and related disruption is becoming clearer with recent events showing that damage is not limited to the virtual, but can also impact physical infrastructure and thus degrade social, governmental and business processes and services.

Our values lag the new information paradigm

Our values and our business models have been slow to keep up with these changes. Illegal downloads of music and video and ‘copy and paste’ of copyrighted information from the internet is commonplace and not considered as ‘theft’ by all-too-many people – unlike the taking without paying of a physical good from a shop or a home. We still instinctively assess the value of an asset with its ease of replication. So we can relate the price of a physical product – like clothing, a mobile phone or a car – with its cost of creation or duplication. But many find this difficult to do with a digital product – since it can be copied in an instant effectively at ‘zero’ cost – surely that makes it ‘cheap’ or ‘free’? goes the justification. Our values and indeed our ways of living and working need to adapt to these relatively sudden changes in the paradigm of value.

So how do business models need to change?

It is increasingly clear that businesses will need to transform their strategies, processes and organisations to survive and prosper in this new information paradigm. To explore the potential impact of these changes, it is useful to construct and analyse plausible scenarios and use the learning to develop appropriate strategies. To construct a useful scenario, I have taken a relevant extract from my recent fiction book ‘A joy to serve the company’.
Let me set the scene: It’s the late 2030s and we’re in a car factory in the North of England run by a major Japanese automotive company. Alex Hunter is an experienced factory engineer called to a meeting with Yasuhisa Akiba, a senior leader in Corporate Excellence – known as ‘CEX’. Read the excerpt and reflect on its likelihood and what it might mean for today’s business models…….

Akiba had been standing, leaning against the wall, as he spoke to Alex Hunter who sat on the other side of the table in the large stark white-walled conference room on the top floor of the Eden Bridge administration building.

“Anyone with money can make cars, if they have the knowledge,” he’d said. “Differentiation of products and competitive advantage is founded solely on the intellectual assets owned by a company. Information is not only important; it is the key to our success. There is no way we can compete with the Chinese majors on the basis of costs – they will always have the economies of scale. PAG’s new megafactory at Dalian will have almost one hundred and fifty thousand employees and two hundred and fifty thousand robots when it is fully operational next spring. Even their European factories in Tatabanya, Prague and Koln are five times the size of Eden Bridge. We can’t compete with their scale! We must compete on the basis of innovation. And innovation is founded on our dynamic open culture and our leverage of our information assets. Far from information being a support to our business, as you claim Alex Hunter, it is the core of our business. It is for that reason that company information protection and offensive competitive analysis are so fundamental to our success.” He stared at her. She met his gaze.

“Do you understand?”

She nodded. “Yes.”

“Look at your left wrist.”

“What?”

“Tell me what you see.”

She frowned and looked down at the thin rounded metallic black rectangle strapped to her left wrist with a dark red band. “It’s just my iband,” she said with a shrug.

“’Just my iband’. You speak as if it is nothing special.”

“Well it isn’t really is it? Everyone has one these days.”

“You talk as if it is simply a common mobile communications device. Does everyone have a subcutaneous high bandwidth network implanted under their skin and linked to an implanted telecommunications module with an interface security unit?”

“Well no. Only other professionals have that sort of tech. Most people just have a basic comms module on their wrist.”

“That is right. You loosely call this device an ‘iband’, but that is simply lazy western slang for all body-mounted or implanted data processing and communication devices. Your iband is actually a company AMU7, the product of two decades of development of mobile communications and decision support technologies in the company laboratories. It was a massively expensive undertaking. Do you understand?”

Alex nodded.

“So tell me this: Why did we simply not buy it from Samsung or Huawei? Get them to develop it for us? It would have been a lot cheaper.”

“Er, I’m not sure.” She shrugged. “Maybe we should have. That sort of stuff is their core competency. Ours is making cars.”

Akiba appraised her for several seconds. “So you would have been comfortable with Huawei, a major Chinese-owned electronics company developing the technology that all our associates use to develop and share our most sensitive company information across our entire global operations. Or for Samsung, which is partly owned by Leno Investments, a major Chinese investment house, to have done the same?”
Alex Hunter felt her cheeks redden. She avoided his eyes. “Oh, I see.”

Akiba walked across to the window and stood in silence looking out. For a long time. It felt like minutes to Alex who began to feel even more unnerved. Then suddenly he turned back and faced her.

“As I explained. It is not good enough to be able to just make cars. Information is critical and it must be kept secure. The AMU7 is a key tool for empowering our associates with the knowledge assets within the company – linking them with other associates, with our AIs and with our knowledge management databases. And it does so in a way that protects our information assets from external intrusion. With built-in industry-leading firewall and anti-virus capabilities. With the ability to sense other intelligent devices and autonomously launch intrusion attacks to gather information. To link you automatically to the company for vmail, voice or data sharing. To work seamlessly with personal surgical enhancements such as optical or neural implants. With encrypted signatures on external devices such as your wrist unit, so that they will only work when connected to your subcutaneous network. Indeed if the AMU7 senses an attempted connection to another network or tampering of its external seals it will auto wipe its data and destroy its key bioengineered chips.” He snorted loudly. “Your so-called ‘iband’ is a key company asset. It easily triples the productivity of an associate in their work. It also turns each associate into an active information gathering asset. Do you understand?”

“Yes,” Alex nodded.

“Let me give you an example of this. Last year the AMU7 of one of our Chinese marketing associates was able to extract a design data file on the transmission system of a new PAG coupe under development, from a PAG associate, whilst boarding a flight at Beijing airport. The latest AMU7 software AI sensed the PAG associate’s device within its monitoring range and was able to overcome its firewall and remain undetected whilst it found and extracted that file and a number of others that were of interest. Neither the PAG associate nor indeed our associate was aware of this action taking place. Our associate’s AMU7 encrypted and sent the files to our Competitive Analysis AI once it was within range of a company-approved network. The information contained within them proved to be extremely valuable as the PAG associate turned out to be a senior team leader on the new car project. It allowed us to adjust the design parameters in the development programme for our new competitive vehicle to enhance the vehicle’s performance.”

Alex frowned. “Wasn’t that illegal?”

Akiba appraised her. “Illegal? In what way?”

She swallowed. “Well, theft of information.”

“Was there theft?”

“You just said…”

“All that happened was two associates from competing automotive companies boarded the same flight. There’s nothing illegal in that, is there?”

“Well no. But that’s not the point. What about the data theft.”

“What data theft?”

Alex frowned again, with growing irritation. Akiba continued before she could speak. “No-one was aware that this data exchange had happened. Certainly no bystanders and not even the associates themselves. This was not a pre-meditated action by our associate. As I said, he was not even aware it had occurred. His only involvement was that he happened to be wearing the AMU7. So no crime occurred. It was simply the operating software on the AMU7 acting on the basis of its own capabilities. You might say that the software AI had committed a theft of data, but does the concept of ‘theft’ apply to a piece of software? I think not.”

“Surely the responsibility lies with those that designed the AMU7 software in the first place? They were the ones who programmed in this functionality.”

“But they did not programme it to take such an action. They merely gave the embedded AI certain capabilities and set its overall objectives as a company asset. The AI decided to take this action. It saw the benefits to the company in doing so.”

“But still, it stole information –“

“Did it really steal information? If you were standing at an airport and overheard someone talking about some aspect of their business that interested you and so you continued to listen and absorb what you heard, would you be stealing that information?”

“No of course not, that’s completely different.”

“Is it really? The AMU7 continually ‘listens’ for information across its bandwidth of sensors and if another device is not secured against it, then the AMU7 will capture whatever information interests it. You call it ‘eavesdropping’ in the English do you not? That is what we humans do. We listen to the conversations around us and absorb any information that we happen to find interesting. And that is simply what the AMU7 does.”

“It is a good argument, but whatever you say about its legality it doesn’t sound ethical.”

“Ethical? Now that’s a word I haven’t heard for a while.” A thin smile momentarily cut its way across Akiba’s face as stared at her, his eyes empty and cold. He was a man of middle-height, dressed in company-approved black. His appearance was nondescript. Until you saw his eyes. They were large and dark and they bored into her. She averted her gaze and begun to feel even more uncomfortable. She was sweating. The warm sun on her back, pouring through the large window in the conference room was only one reason.

Why was she here? What did he want? Was he trying to intimidate her? Was this some sort of test? She’d been summoned from the factory floor by an iband call half an hour before and told to report here. To meet a man who had flown in from Japan to meet her. With little introduction, Akiba had lectured her since then on the company and the competitors. Now he walked over to the table and sat down opposite her.

“Ethics are a luxury to be enjoyed once survival is certain. And in this global war of business, even the survival of a company as mighty as ours is not certain.” He nodded. “But Alex Hunter, I have talked enough. It is your turn now. Give me your assessment on the impact of the theft of a data file containing key information on the LC3 engine management system.”

She was taken aback by his sudden question but managed to think quickly and luckily this was an area she was familiar with. But of course Akiba would have known that.

“The LC3 management system is one of our latest control platforms for our mid-range models. And as engine management is one of our core competencies, the LC3 control architecture would be dynamite in the hands of a competitor. They could directly copy the design, with some trivial design re-engineering to mask the fact that it was a copy, and use it. In consequence, we’d suffer a significant loss of competitive advantage, as we’ve always been strong on engine performance and refinement. This would allow a competitor at one stroke to capture the results of a decade of research and development. It would cost us tens of billions of rimbies, er Renminbi, if we were to attempt to regain that lead through further R and D or a long term loss in market share if we did nothing.”

Akiba shrugged. “A satisfactory assessment. So given the serious impact of such information loss, how would you prevent it from happening?”

Alex pursed her lips. “Well, I can’t see any significant deficiencies in the way the company guards its information today; the information fortress approach with entry and exit screening of all personnel, no communications linkage with non-company systems, except for unclassified v-mail running on an isolated system; AI-based firewall and anti-virus protection around all key systems. Er, regular auditing of associate practices, massive key-based encryption protection systems on all our information systems, heavy security presence on all company sites, an endemic need-to-know culture….” She tailed off. “I’m sure there’s more, but then I’m not a security expert, that’s the job of CEX.”

“And what do you know of Corporate Excellence?”

She shrugged. “CEX is just there, in the background. I use its systems, its processes, as just another part of my company life. I pass through the body scanning machine every day, I complete my monthly information audit, I input anything I hear about competitors into the Competitive Analysis database and I keep my mouth shut about the company when I’m outside of work.”

“Well I’m going to talk to you about what happens ‘in the background’ as you call it, Alex Hunter. About some of the messy work – things that some might call unethical,” he gave a tight smile, “– that go on to ensure that people like you can simply do your job. I’m going to tell you about what lengths the company is prepared to go to, and indeed has gone to, many times in the past, to protect its knowledge and assets from outside, and inside, interference and to seize information and assets from our competitors. And in doing so I’m going to destroy a lot of beliefs you may have held about the company; in fact it will never look or be the same to you again after this meeting.”

She suddenly felt light-headed. “Just a moment, Akiba-san, before you start,” she cleared her dry throat. “I may not need to hear this at all. What obligation will hearing this information place on me?” She swallowed. “What I’m asking, is do I really need to know?”

“It’s really very simple Alex Hunter. You do need to know, because you’re going to work for us.”

——————————————————————————————————–

Excerpt taken from ‘A joy to serve the company’ by Alastair Ross.

Available in paperback and Kindle here.

Image sources: Alastair Ross and Pixabay.com. 

Product development – are you good enough?

Wednesday, November 23rd, 2016

innovation-sign-free-image-shield-223326_1920

The challenges of managing R&D

Product development is a critical function for product-based businesses. The ability to develop new products with features and functionality that are valued by customers and users, to bring them to market quickly, cost effectively and at acceptable quality and then to support and enhance them during their lifetime has always been a complex undertaking.

Today’s additional requirements to serve a global market, to exploit new technologies to meet ever higher customer expectations, to consider the opportunities for complementary digital services and to compete against new low cost, but increasingly high value, rivals from China and other emerging economies simply add to the challenge.

To achieve business goals for profit and growth from new and existing products, there are major responsibilities placed on the Research & Development (R&D) function and its management team. The R&D function has two fundamental goals:

  • To develop, bring to market and support new value propositions
  • To do this in an effective and efficient way

In delivering new value propositions to the market, R&D management needs to be able to link research and technology possibilities with customer needs. It needs to have deep insight into the wants and needs of the users of its products and technologies. It needs to understand the unmet needs of users who are not yet its customers and where future growth can come from. It needs to be able to innovate to formulate technologies and product concepts that best meet these unmet needs, select the most promising and bring them to market.

 Effective and Efficient R&D

Being effective is a key requirement for R&D – to focus on the ‘right’ technologies, to select the ‘right’ product concepts and to get the ‘right’ balance between investment in new products with support and enhancements to existing products. But in addition, R&D efficiency is a key requirement. In developing new products there are critical resources which have to be efficiently used if the business is to realise the promise of its R&D potential:

  • Time – particularly time to market
  • People – particularly key research and development skills
  • Intellectual Property (IP) – how to exploit and protect it
  • Knowledge of the requirements of Customers and Users
  • Relationships with suppliers of technologies, components and services
  • Competitive analysis – of existing, as well as emerging and potential, rivals
  • The capabilities of internal functions – such as Marketing, Sales and Manufacturing – that provide the key resources across the value chain

Measuring R&D performance

To consider how well an R&D function is meeting these goals, there are some key outcomes that can be reviewed:

Is R&D creating value propositions that the market wants? 

A key measure here is the % of revenue from products launched in the last three years. If the % of revenue contributed by new products is low, then this indicates that the new product portfolio is not meeting user requirements in ways that are superior to the firm’s existing products – or rival products. This metric can be complemented by surveys among existing customers and also non-customers. In-depth understanding of user requirements (including unmet needs) and application knowledge are critical here. In meeting user needs, there is a balance to be struck between developing a new product and enhancing an existing one – or by providing a service-based solution. Increasingly digital services are playing a key role in meeting customer requirements. R&D operations now need to consider how to create ‘platforms’ that bring together hardware, software and service elements to meet user requirements in effective and reconfigurable ways that enable fast time to market.

Does R&D bring new products to market quickly? 

Key measures here are: How does the firm’s time to market compare to rivals? Has time to market reduced over the past 5 years? A fast time to market enables a company to met emerging customer needs before rivals – and thus achieve a higher profitability whilst there is less competition. A focus on getting a ‘core product’ to market fast – and then follow with enhancements is an effective approach. Lessons can be learned here from the ‘Lean Startup’ movement regarding the use of the ‘Minimum Viable Product’ (MVP) approach. With the increased in servitization, user needs may be met by a software/digital service solution that is ‘wrapped around’ an existing product platform. Service-based solutions can be brought to market much faster than product-based ones. R&D Management need to decide how this service element is provided – internally or through partners.

Is R&D on-time to market? 

Predictability is important – to fit with customer needs but also to align with the plans of internal support functions such as Manufacturing and Sales. Is R&D meeting defined project timescales? Failure to do so results in internal costs to replan and realign internal resources – with likely impacts on other products – and also can result in customer opportunities being missed.

 Is R&D delivering quality products?

How well are new products meetings their target performance? What is the level of their reliability, measured by field failures and returns? Trading quality for a fast time to market is a short-term solution. New technologies will have inherent risks which need to be identified and addressed – through rigorous trial and testing – prior to their use in new products.

Are products being developed by R&D within budget?

This is key to R&D delivering across its portfolio of planned and existing products. If new products overrun their development budget, the shortfall is typically met by reducing the planned budgets on other products or projects. R&D management need to consider how to get the best ‘bang for the buck’ from their budget – which requires a strategic view of their product portfolio and key decisions to be made on ‘make v buy’ policy, in-house development v external, new product v enhanced existing product and product v service solution.

Assessing your R&D operation

An effective way to ensure that your R&D operation is ‘fit for purpose’ is to assess it against best practices and also to determine how well defined practices are deployed in daily work (e.g. is FMEA applied effectively, is application expertise embedded in concept development,  are design reviews regularly held?).

An outside view can be powerful in such assessments – bringing an independent eye and experience from other businesses and sectors. Codexx has performed a number of assessments of R&D operations in Western and Eastern Europe, China and the USA, making use of our licensed PROBE benchmarking solution for R&D and our F4i (‘Foundations for innovation’) assessment for innovation practices.

We also worked with the Universities of Exeter and Aalborg between 2010-13 to study the ‘journey’ of new products from concept to market, covering 43 UK and Danish technology-based businesses, using a best practice model of the innovation journey. We have subsequently used this model to help companies assess their product development practices and performance.

 

The core of this article is an excerpt from the forthcoming book ‘Sowing the seeds of business transformation’ by Alastair Ross, to be published in 2017.

 

What does Brexit mean for UK business innovation?

Tuesday, July 12th, 2016

London in fog picture

Alastair Ross, Director, Codexx Associates Ltd
Professor Jeremy Howells, Kellogg College, University of Oxford

 

Peering through thick clouds

The initial impact of the Brexit referendum result has been the start of a period of volatility in the UK exchange rate, stock market and political governance. It has also created uncertainty for business as the eventual relationship with the EU and the nature of access to the single market is not known and will not be known for several years. Business does not like uncertainty for it makes it hard to predict future conditions and thus difficult to plan with any certainty.

What does this mean for a UK-based business in the medium to longer term and specifically where and how it should refocus its innovation efforts? The short answer is no-one knows for certain. The more useful answer is it depends on a number of factors, specifically on how they develop over time and the conditions which they eventually stabilise at. Considering a number of potential scenarios based around the development of these key factors is a useful way to consider and develop business plans.

So what are those factors and how should an organisation’s innovation agenda be modified based on their development? In this short paper we are considering innovation at the individual business level and in its broadest sense – the improvement in customer value and internal efficiency resulting from the systematic capture, development and implementation of new ideas. The results could be new or modified products and services, new ways of working, new market positioning or indeed a new business model.

 

 Uncertain conditions favour agility

The current situation takes us back to the situation of late 2008 and early 2009 after the financial crash. Codexx worked with a large progressive engineering company which had been hit hard by the resulting recession and recognised the need to fundamentally change their cost structure to better align to market conditions. Thus the company sought to exchange fixed costs for variable costs, in their workforce and through the use of suppliers. Essentially they were seeking to improve their agility – their ability to respond quickly to a market or customers – to grow capacity in required areas when there was an increase in demand and to be able to trim it easily – and without touching their core employees or facilities – when demand dropped off.

The Brexit situation has some similarities in that both situations resulted in uncertainty. However the impact of Brexit will be particularly felt by UK-based companies due to the major changes that lie ahead in key areas such as:

  • The UK pound exchange rate
  • UK stock market level
  • The nature and degree of access to the single EU market
  • People movement between the UK and EU

Since these are the key drivers to the future form and nature of the UK business model and competitiveness – and their end points will not be known for between 2-5 years, what can businesses do now? Businesses need to establish the capability to respond quickly to whatever economic and market scenarios eventually become reality – and in the meantime continue to operate effectively.

 

A new innovation agenda

Innovation is effectively about building tomorrow’s business – through the development of new products and services, new ways of working and new business models. An organisation has a constant challenge in focusing time, energy and resources on innovation – as the daily business needs this attention now and management priorities and rewards favour this. With Brexit, management has to dedicate increased focus on innovation as it is highly unlikely that the business environment for UK firms in 5 years’ time will be the same as today.

In many ways Brexit is an opportunity for businesses – as it provides a clear ‘burning platform’ for change and innovation. ‘The world is changing’ – well at least the market and supply-side conditions certainly will – and this provides a clear spur for innovation. So what sort of items need to be considered for the innovation agenda for UK-based businesses?

  • In the short term, trim waste to free up resources and reduce costs to offset increases in costs of imported parts and services due to the fall in the UK pound. This calls for a refocus on Lean thinking and process innovation. In the medium term, there may be opportunities for switching to UK suppliers.
  • Seize short term market opportunities in the single market that currently prevail with a cheaper pound making exports cheaper. This calls for a specific focus over the next 2+ years whilst the current single market access remains. There is a strong relationship between innovativeness and export performance and growth so there are opportunities here in the longer term for businesses that are seeking to sell innovative products and services.
  • Improve the codification of expert knowledge so that services and processes can be effectively delivered with less-skilled personnel. This is to recognise, in the short to medium term, that some of the skilled personnel available from EU countries outside the UK may not be available after the UK formally exits the EU. In the longer term, with, for example, an Australian based points immigration system, it may call for wider global search and recruitment practices. Even if the skills loss scenario is not realised, such codification will improve business efficiency and better leverage higher skilled personnel for higher value work.
  • Investigate the potential for new international markets that you have no presence in, looking at how you can reduce your costs and risks of entry by using partnership. This is in preparation for taking opportunities with the UK having the ability to negotiate new international trade deals but also potentially to offset any reduced access to the EU single market.
  • Prepare for a potential  restricted single market where the UK is faced with tariff barriers and thus products and services will be more expensive to EU buyers. This means an increased focus on value – developing new innovative offerings which can command a higher price – and preparing for increased price pressure by reducing non value-adding costs. In certain instances, certain products and materials, such as food products, may become cheaper in the medium term outside the EU. In the longer term accepting trading terms to, the European Economic Area (EEA), would mean continued access and compliance to EU trade rules. Outside the EEA, would mean trading on WTO general tariff rules and what access could be gained to individual countries or trading blocs, such as the Trans Pacific Partnership.
  • Don’t lose sight of the home market, where post EU exit there will likely be price advantages for UK-based businesses and also a likely period of goodwill to ‘home’ producers with a focus on ‘Buy British’, particularly if there is restricted access to the EU single market.
  • Review your requirements and sources of research funding. In the medium term if the UK remains in the wider EEA it can access current EU Horizon 2020 funds and other research and innovation funding. However, this will depend on the UK agreeing to continue to allow free immigration access to EU passport holders.  If this is not accepted by the UK government, then much will depend on how the UK shapes its own UK innovation policy and at what funding levels. Alternative sources of research funding may well be needed.

A silver lining?

Overall the next few years will be turbulent and challenging for UK-based businesses. However, there may well be a silver lining in this cloud – where the tough conditions drive businesses to increase their focus and level of innovation – to effectively improve their competitive health and thus better prepare them for market success – whatever challenges the future business environment will hold.

Director’s blog: Using practice sharing to catalyse innovation

Thursday, May 12th, 2016

the director's blog on innovation - logo with text

 

Catalysing innovation by showing a better way

One effective approach to triggering innovation is seeing ‘a better way’ – that is a superior way of working (aka business practice) that is relevant to your business. Benchmarking has been a long-established approach for doing this by comparing your business against another in a structured way. Indeed, as part of Codexx – and previously when I worked at IBM – I have led multiple benchmarking-type assessments in business areas such as production, R&D, supply chain and innovation. These benchmarking assessments were effective approaches to comparing business areas based on models of best practice and performance and thus identifying practice shortfalls – thus driving focused improvements.

However, benchmarking comparisons cannot be so easily applied to more focused business areas as there may not be a relevant best practice model in place or a database to compare against. In this case a more tailored approach is required, that I will refer to as ‘practice sharing’. This approach is less focused on numeric performance comparison – and more on key practices. However unlike an unstructured visit to view another company – ‘industrial tourism’ – this is a structured approach.

 Benchmarking continuum

Introducing practice sharing

I recently led a practice sharing programme between two major industrial businesses – one based in Denmark, the other in Germany, focusing on the development of specialist production equipment. This was by definition a niche area that was key to both businesses’ competitiveness. This programme had its beginnings in 2009 as part of a re-engineering programme that Codexx was supporting for the Danish company’s production maintenance organisation covering eight factories. To help in overcoming resistance to change and to ‘open the eyes’ of the maintenance managers to the opportunities for improvement we included a ‘benchmarking’ element as part of the re-engineering programme. Because maintenance benchmarking tools in the market were overly focused in specific areas (such as cost or lean) and did not provide the wide enough view that was needed, we developed a best practices framework based on the ISO 8 Management Principles.

We used this to perform assessment visits to the maintenance organisations in aerospace, automotive, plastics and white goods manufacturers across Europe. These visits provided benefits for both our client and the companies being visited who received a comparative report and the opportunity to visit our client. Importantly the assessment team comprised the maintenance managers who used the framework to perform the assessment, supported by Codexx. This structured approach ensured that key relevant practices were reviewed and compared and the comparative practice scoring was used to define an improvement path and monitor progress using a number of subsequent self-assessments. The programme achieved its objectives of catalysing the maintenance managers to seek opportunities for applying new practices as part of the re-engineering programme.

 

Developing the approach

This success led to the Danish company deciding to utilise a similar approach, with the support of Codexx, to review their development of production systems, working with a major German company in 2013, with whom they has an existing commercial relationship – but who were not a competitor. We called this approach ‘practice sharing’, rather than ‘benchmarking’ to make the approach less formal and more in the spirit of learning rather than an audit – which helped in gaining the support and involvement of the German company. Codexx developed a practice sharing framework, again based around the ISO Management principles, using a similar structure and assessment approach to the maintenance programme.

This framework was tested with the China-based operations of both companies and then finalised. We then performed a practice sharing assessment in 2014. This was considered valuable by both parties and a subsequent practice sharing programme focusing on another area of production systems was performed with the same Germany company in 2015-16. The approach in these practice sharing programmes was similar:

1. A business area of interest to both parties was identified and a commitment to perform a practice sharing assessment was made.

2. A practice sharing framework was developed.

3. Each partner self-assessed itself against the practice sharing framework.

4. A 1-day practice sharing visit was made to each company, facilitated by Codexx. This included presentations on the development of the company, a tour of its operations and then a review of the self-assessment. The agenda was allowed to flex substantially to take account of interest areas that emerged.

5. A report of the practice sharing findings and outcomes was produced by Codexx and shared with both parties.

6. Each company took forward specific follow-up internal actions and agreed collaborations.

What are the benefits from practice sharing?

Based on my experience of working with this approach since 2009, I have seen the following benefits:

  • The approach provides a structure missing from an ad hoc visit that helps align and focus the discussion on relevant practice areas.
  • The self-assessment provides a clear and objective picture of current practices including areas for improvement which helps in focusing the discussion.
  • The programme provides a catalyst for improvement for each party.
  • It’s a time-effective and cost-effective process.
  • It’s not complex and is transparent to the participants and other users.

What’s needed for effective practice sharing?

  • Win – Win: Unlike benchmarking where your company is being compared to a model of best practice, with the comparison performed by an external assessor, practice-sharing requires a partner. To engage the partner, there needs to be the potential for benefits for both parties: the practice area to be examined needs to be relevant and each party needs to consider that they can learn something from the other.
  • A structure: A practice sharing framework is needed to provide a structured comparison and independent facilitation to ‘run the process’ with the goal of maximising and capturing the outcomes from the practice sharing. Both companies also need to agree to respect confidential information that might be shared in the programme.
  • Flexibility: The assessment visits need to be flexible and adapt to the interests of the participants. As a facilitator, I had to strike a balance between directing the discussion back to relevant areas whilst allowing deviations from the agenda that were clearly creating value. This is key, as the framework is in effect a ‘working hypothesis’ of what are the important practices. The reality will undoubtedly be somewhat different and thus the session has to seek to accommodate potentially valuable emergent discussions.
  • The right people: Both parties need to assemble a team of specialists in the area of interest that can participate effectively both technically, inter-personally and language-wise (for international comparisons, it is likely that English will be the common language).
  • The right attitude: Both parties need to be open and ready to ‘tell it as it is’, covering both strengths and weaknesses in their own practices. This is not a competition – it’s a collaboration.

I’d be interested in readers’ own experiences in this area – contact me here.

Alastair Ross

Director
Codexx Associates Ltd

 

Business transformation – think like a farmer, not a scientist

Monday, December 7th, 2015

by Alastair Ross, Director

Business Transformation sign with lots of comments

Business Transformation.  What is it?

Does it even exist in the real world outside the rarefied environment of the CEO’s vision, the consultant’s presentation or the academic treatise?

If it does exist, how can it be achieved?

These are important questions at a time when the need for major change in businesses is ever more pressing, faced with an environment that is full of new challenges and opportunities.

In my career I have worked both inside large businesses and outside them as an external consultant. During this time I have experienced the wide continuum that is ‘business transformation’:  from the all-too-common hype to the reality of major change projects that drive step-change performance improvements through the application of new business practices.

What I have learned is that ‘business transformation’ is not achieved by one mythical ‘big bang’ programme, despite the (over) promises of advisors, consultants and CEOs. Business Transformation is not like a chemical reaction where you bring together key business elements and catalyse them with a strategy to create – in a flash of light and a cloud of smoke – a new business model. Instead it is something apparently more mundane. It’s like farming.

For transformation is achieved by the hacking-away of the stifling undergrowth of conventional thinking, the planting of seeds of new paradigms and practices, and the hard graft of execution in the office, on the factory floor and out in the field. Transformation is realized across many harvests of change – not simply one ‘bumper harvest’. Sometimes the yield from a harvest is poor, the crops of change wither and die and new approaches are needed. Transformation requires the hardy farmers of change as well as its clear-eyed visionaries and sober-headed analysts.

Business transformation requires a bold and unique vision of how the organisation can generate value in a significantly new way – effectively a new business model – and this vision needs to be bought into by leaders and champions in the business. Communicating this new vision across the organisation – repeatedly – serves to catalyze improvement activities and provide a focus for innovation programmes. Then comes the hard grind of execution.

The reality is that most business transformation programmes fail to realize the initial vision. Most commonly the business fails to sustain the transformation programme long enough to yield the planned results. Management is typically impatient for results and performance metrics in most businesses do not encourage the long-term outlook required for successful transformation.

Finally it is worth remembering that businesses that are successful in the long term continually transform themselves – developing new business models – just as a farmer will continually develop their land, introduce new methods and plant new crops. Business Transformation requires long term thinking, it is an ongoing journey of innovation,  not a single destination.

Continuous Improvement – the quiet giant of innovation

Wednesday, December 2nd, 2015

Continuous Improvement image

A BBC article (here) recently gave media prominence to a well-established business approach, namely incremental or Continuous Improvement. It cited the example of how Sir Dave Brailsford applied Continuous Improvement approaches in his role as performance director of British Cycling to benefit from ‘marginal gains’:

Brailsford believed that if it was possible to make a 1% improvement in a whole host of areas, the cumulative gains would end up being hugely significant. He was on the look-out for all the weaknesses in the team’s assumptions, all the latent problems, so he could improve on each of them. (Source: ‘Should we all be looking for marginal gains?’, BBC)

Brailsford made small improvements in cycling aerodynamics, in maintenance methods, in rider health and other areas identified by analysis as being small areas of weakness. These small improvements aggregated together transformed the competitiveness of the British Cycling team and subsequently Brailsford used a similar approach in the Team Sky cycling team. The result?

Team GB used to be also-rans in world cycling. Indeed, one pundit described the operation as “a laughing stock”. But in the last two Olympics, Team GB has captured 16 gold medals and British riders have won the Tour de France three times in the last four years. (Source: ‘Should we all be looking for marginal gains?’, BBC)

A short history of Continuous Improvement

Continuous Improvement (CI) is a type of innovation (defined as creating value from ideas) that sits at the unsexy end of the spectrum of business innovation. It receives few column inches in innovation blogs, individual projects do not result in earth-shattering changes and few of the project instigators will receive individual rewards. It is noteworthy only for its aggregated impact – of using new ideas to increase customer value or internal efficiency (by a little at a time). Toyota is often considered, incorrectly, as the parent of CI as part of its Toyota Production System (TPS), which later became known as Lean. But its conception was much earlier, primarily in the work study movement of the early twentieth century, fathered by Frederick Taylor and resulting in Taylorism. Toyota wrapped the resulting hard mechanics of time & motion study with its own philosophy of waste elimination and high workforce engagement.

Toyota sets the performance bar

Toyota’s ability to generate an average of 10 implemented improvement ideas per employee per year places it in the premier league for continuous improvement; most western firms struggle to get into the lowest league with typically 0.1 implemented ideas per employee per year. Toyota’s approach to CI lies in its combination of a specific methodology and a work philosophy that defines a unique organisational culture: ‘Toyota views employees not just as pairs of hands but as knowledge workers who accumulate the wisdom of experience on the company’s front lines.’ (Source: ‘The contradictions that drive Toyota’s success’, Harvard Business Review, June 2008) This is a powerful view and one that is all too often missing from business organisations.

Whilst industrial firms will have established CI programmes, focusing on shop floor teams, they vary significantly in their effectiveness. In my work with Codexx I have assessed a number of industrial CI programmes and typical weaknesses that occur include: Limited training in the use of CI methods, lack of defined goals and focus areas for CI, weak processes for reviewing and selecting ideas and limited workforce engagement (i.e. most ideas come from a few people). However for businesses that get it right, CI programmes can deliver significant financial benefits year on year and create a working culture that energizes and engages the workforce.

What about services?

Service businesses often lack robust capabilities for CI, although this is changing as Lean thinking continuous to permeate this sector. Allianz Insurance plc launched a major and ongoing innovation programme in 2006. At its core is a Continuous Improvement system.This uses departmental teams meeting regularly to identify and implement improvement opportunities. Each department team defines three key goals for their team and then, using a short weekly or bi-weekly meeting, they seek to solve problems that have been identified during the previous week and put on a departmental whiteboard by team members. Idea exploration and selection is performed by the team through a discussion. Implemented solutions are then recorded in the firm’s ideas management system. In total there are about 400 teams working in this way with the support of 100 trained innovation champions. Since its start the programme has yielded 38,000 implemented ideas with benefits measured at £19m (1).

Making difficulties visible

A challenge for service firms in Continuous Improvement is the difficulty of ‘seeing’ problems. In industry, a production process is physical, parts and products move through process steps involving people and machines. In a service business, the ‘product’ is information or an experience and is not always physical. This is especially so in Knowledge Intensive Services such as design, accountancy, law and management consulting where the ‘product’ is information-based. Why does this matter? It matters because ‘making difficulties visible‘ is key to Continuous Improvement. This is why a key mantra in Toyota is Genchi genbutsu or ‘Go See’. In other words: Don’t rely on reports or information from others, go and see the situation for yourself. In a services environment, walking into the location where work is performed provides limited value, particularly in information-based work, for there is little to see: what does a law firm’s office filled with people, desks, computer screens and paper (oh yes) tell you about the services performed there? Very little. This is why process mapping and visual management methods are key to making processes and their performance visible in a services environment. In my re-engineering work with professional service firms, the power of collaborative process mapping cannot be underestimated.

Continuous Improvement needs ‘Know Why’ not ‘Know How’

‘Know How’ is a common term used to describe expertise and is thus considered a ‘good thing’. However it is a bad thing when it becomes a barrier to innovation, which is not uncommon. Let me explain further. Much of work is repetitive to a degree with work comprising common activities and sequences of tasks. ‘Know How’ is sufficient to perform such work, as the procedures to be performed and the steps to be followed can be learned and represent the required ‘Know How’. The underlying reasons for why the work is designed in this way are not necessarily understood or indeed do not need to be to perform the work. But ‘Know Why’ is key to making significant improvements in how this work is performed as there needs to be understanding as to why the work is designed in its current form. Indeed much waste exists in working methods because steps and procedures in place were relevant to a situation that does not apply any more. For example, in a major insurance client, some activities in an internal process related to an IT-workaround which had not been required for many years….the people performing the work simply had not been told. The disciplines of questioning, investigation and analysis to enable ‘Know Why’ – a deep understanding – of the work area under focus provide a strong foundation for Continuous Improvement.

Marginal gains x high participation = something big

One of the biggest challenges in driving innovation in an organisation is how to fit it in around the daily business. Innovation is about creating ‘tomorrow’s business’ – a organisation’s focus is on delivering ‘today’s business’ and employees are measured and rewarded on this. So finding time for innovation is always challenging. A related challenge is that the term ‘innovation’ can be intimidating to employees. Many people (incorrectly) associate innovation with the need for creativity and radical ideas and thus feel that they can’t contribute. AXA Insurance Ireland ran an innovation programme in the early 2000s (2). AXA’s analysis of those improvement ideas implemented in the first few years of the programme showed that 80% of them related to small process or service improvements or waste elimination. This helped employees realise that indeed they could participate effectively in the programme by seeking improvements in how they performed their daily work. This helps engage employees in innovation as a regular part of their work – as demonstrated at Allianz Insurance. CI thus provides a good foundation for commencing a programme of innovation in an organisation. So whilst Continuous Improvement might not make as much noise as other forms of innovation, don’t underestimate the power of marginal gains multiplied by high participation in your organisation.

Notes:

1. Source:‘High engagement innovation at Allianz Insurance plc’.  2. Source:‘Experiments in innovation at AXA Insurance Ireland’

both case studies in ‘Innovating professional services – transforming value and efficiency, Alastair Ross, 2015, published by Gower.

Customer-focused redesign of internal service functions

Monday, November 2nd, 2015

Customer Service

Introduction

It is all too easy for internal support functions, such as IT, R&D or HR, within organizations to lose sight of their purpose and their customers over time, resulting in poor service and inefficiency. For such functions do not operate in an open market where customers are the final arbiter and can take their business elsewhere. The result can be costly and poor internal support, which adversely impacts the performance of the entire organisation. So how do organizations ensure that internal services are provided effectively and efficiently?

Such a question was asked in the European operation of a global engineering company as part of a major transformation programme driven by the business challenges resulting from the 2008 economic crash. The function in focus was a production support function, responsible for the development, maintenance and enhancement of production lines and new production technologies for multiple factories in Europe and internationally. This function was key to the business as it provided important core competencies in new production technology platforms and automation. Codexx was asked to perform a review of the function as part of the transformation programme. The specific remit was to clarify current task responsibilities and interfaces, determine key problem areas and identify required improvements. This was a sizeable organization of more than 200 engineers and technicians, centred in northern Europe, but with teams also based in Eastern Europe and China.

D21 - 1

A customer-focused approach
We took a customer focused, service-led approach to the review, rather than focusing on the existing organisational structure. We did this as we considered the delivery of these services as the fundamental mission of the function. If we had aligned our approach with the existing departmental structure, we would have limited our thinking. We defined four key services provided by the function and focused our review on how well these services were delivered. We then identified five key internal customers, such as the factories and the R&D function, and then interviewed them to get their views as to the key measures of success for the services provided to them.

Assessing organizational effectiveness
To review the effectiveness of the existing organisation and to point the way towards structural improvements, we asked each department within the function to determine the % of their workload spent on each of the key services and their key challenges in performing this work. We also asked each department to identify the % of their time spent working with each of the other functional departments and also their customers. This helped us identify any misalignment in the current organisational structure.

We then assessed the quality of the service delivered and the efficiency of delivery for each of the four services using workshops with the key internal customers. In these workshops we identified the key service touch points or ‘moments of truth’ to determine how well the function was serving each customer. This provided a very clear ‘voice of the customer’ which was very specific in their requirements and issues.

D21 - 3

Identifying service breakages
We then held workshops with the key functional departments to feed back these customer views on their service performance and to identify the root cause ‘breakages’ within the department’s operation or processes that was causing the identified issues. We reviewed each department’s effectiveness at working with other functional departments and identified opportunities for improvement. We also worked with each department to get their assessment on the effectiveness of the currently defined business processes, including how well they were documented and deployed. We found that whilst the organisation was progressive in its use of process management, with a defined set of business processes, there were weaknesses in how well these processes were actually ‘lived’ in daily business.

Defining improvements
Our approach was deliberately collaborative and we engaged 80 managers and employees in the review – covering both those in the function and those who were customers of the function’s services – so that we could be sure that we had a good feel for the function’s service requirements, its performance and key underlying challenges.

This enabled us to identify key ‘breakages’ in the existing function, such as weaknesses in the function’s role in the critical NPI (New Product Introduction) process, weaknesses in the strategy and definition of production technology platforms and challenges in providing sufficiently responsive production support. In developing improvements we maintained our service-led customer focus. We were also guided by visioning work we performed with the function’s management team that identified increasing trends of globalisation of production, increased cost focus and speed to market – which the function had to meet if they were to maintain a viable future within the organisation (for outsourcing of internal services was increasingly an option to be considered).

We asked fundamental questions (see first diagram) about how best the required services should be provided, to meet internal customer needs and to do so in a way that was affordable. Based on this and the findings from our stakeholder and internal assessment, we identified 7 key improvement projects. These covered improved internal processes – particularly in the definition of completion criteria at key stages – also improvements in the platform development approach and organisational changes to provide improved and ‘joined-up’ services to production customers. We then worked with the functional managers to define an implementation programme.

Conclusions
Internal service functions should be able to demonstrate effective service delivered in an efficient manner. If this is not the case, they need to be re-engineered or outsourced. A customer-focused service-led approach can be effectively used to assess the performance of an internal support function and to define any improvements required. Due to the high engagement of internal customers in such an approach, it is much easier to get their support for any required changes.

Energizing Change

Copyright © Codexx
All rights reserved