Lean Innovation

Understanding What's Next in Today's Economy

Barry L. Cross

• Publisher: Productivity Press
• Year: 2012
• Print ISBN: 9781466515253
• eBook ISBN: 9781466588912
• Topic: Business
• Subtopic: Manufacturing
• Index: Business

Do these comments sound familiar?We would love to be more innovative, but we don't have the resourcesInnovation works in some companies; we just aren't that creativeWe get some good ideas, but nothing ever happens with themUnfortunately, they reflect the general perception and environment for innovation in many firms today. In Lean Innovation: Unde

Section
1

Preparing the Organization for Innovation

1

The Need for Innovation

Cutting the deficit by gutting our investments in innovation and education is like lightening an overloaded airplane by removing its engine. It may make you feel like you’re flying high at first, but it won’t take long before you feel the impact.¹

Barack Obama

All problems can lead to opportunities—you have heard that before (often offered as, “look at the bright side,” which could seem irritating at the time). So, instead of starting with the challenges faced by most firms today, I am going to start with a story that represents the real upside for us in today’s environment.

Let us go back to spring 2008. The problem at the time was the oil market: Oil prices were climbing quickly, crashing through artificial ceilings like the $100-per-barrel threshold. Analysts, economists, and the general public were getting concerned. As oil crested at $120 per barrel (all figures U.S. dollars), the chair of OPEC (Organization of Petroleum Exporting Countries) was in the press on several occasions, emphasizing that current prices for oil had nothing to do with market fundamentals. Inventory was strong, and in his own words, “There is no reason for the current pricing of oil” in the marketplace, and that OPEC would do everything it could to restore oil prices to their appropriate levels.² Indeed, OPEC increased supply, and that, combined with other economic factors, brought oil back to relatively reasonable levels.

Let us think about that for a minute. Here is an organization whose members basically scrape oil off the surface of the desert for a cost of about $10 per barrel, and they are worried that the price is too high. Why is that? On reflection, we understand OPEC’s larger concern in this, and that is our innate capability as a society to innovate, develop, and exploit alternatives to oil. OPEC understands that at some point, we will get fed up enough with the high price of gas, fuel oil for our homes, and derivative products (polycarbonate and other engineered plastic resins all saw pricing go through the roof during that period as well) that we will do something about it. Driving habits will change; people will carpool, take public transit, or make fewer, shorter trips. We will look at vehicles with better gas mileage. We will see an increase in the use of alternative energy sources for our homes, offices, and plants. Engineers and research-and-development (R&D) labs will be tasked with better solutions for hybrid, electric, and perhaps hydrogen or natural gas vehicles, and we will get serious about it. This would result in a world that buys less OPEC oil.

The unknown factor here for OPEC? It does not know where the tipping point is. At what price does society look at and pursue alternatives and mean it? Is it $130 or $150 per barrel? Maybe the number is higher, but we do not know how high, and neither does OPEC. It does know that it is doing quite well when oil is in the range of $80 to $100 (and in fact, lower levels favor OPEC as a supplier, as Western investment in oil supply can be a challenge at those prices,^* as the cost per barrel to develop supply is significant). As soon as that tipping point is reached, OPEC’s market is threatened, and the members price themselves out of existence, so they try to maintain some level of perceived reasonableness in pricing. With over 80% of global oil reserves and 45% of daily production,³ we can appreciate how this is a major area of focus for OPEC.

Where does that leave us? The moral of the story is that we are naturally creative, curious, and innovative. Many of us do not realize it, or believe it, but it is there. Think of an infant’s wide-eyed discovery of his or her fingers (“I wonder how those taste. Only one way to find out!”), a toddler playing for hours with Tupperware and a wooden spoon from your cupboard, or that precocious four-year-old who keeps asking, “Why?” We are all hardwired for curiosity from birth, but as we grow, our education and employment systems tend to get us focusing on efficiency, process, and delivery rather than creativity and innovation. “This is the way I want it done. This is the due date.” Customers are calling, e-mail is received (we talk more about e-mail elsewhere). We get very good at hitting deadlines and managing hectic schedules and do not take the time to be inspired. Worse yet, as we get better at executing, more tasks get piled on, or we get promoted to drive the same level of performance in a larger group.

^* From conversations with Canadian oil executives, the loose threshold is around $75 per barrel. When oil prices are above that, investment in oil-producing assets (wells, refineries, oil sands) generally makes sense. When markets are at or below $75 per barrel, companies need to be much more selective in where and how they invest.

You are creative—OPEC believes it, and they are worried about it. With that in mind, though, why didn’t we do anything about it back in 2008? Oil prices climbed above the $140-per-barrel mark. Independent economists such as Wall Street’s Robert Brusca stated that “Society can’t sustain itself at current energy prices.”⁴ Oil billionaire T. Boone Pickens invested $60 million of his own money into looking at alternatives such as natural gas and wind energy.⁵ Other than some short-term changes in our driving habits, and the odd celebrity selling a Hummer for a Prius, nothing really changed. The price of oil receded, and consumers’ concerns subsided; OPEC relaxed.

We will circle back to this story in the last chapter, but recognize for now that society, like most of our companies, is subject to Newton’s first law of motion (also known as the law of inertia). We tend to stay the course, whatever that course is.

The next question is: Can an organization stay the same and survive?

Okay, that was a soft, easy pitch right over the plate, and you nailed it. I speak on innovation on a regular basis, and executives and managers respond overwhelmingly “No” or “Not for long” when I pose that question. The barbarians are at the gate. Competition is too strong. Investors are impatient. Top employees will leave if we are not challenging them. We know all the reasons. Innovation and “managing change,” however, are not easy targets for most of our firms.

Let us consider three firms:

• Company A understands that it needs to change and be innovative on an ongoing basis to be competitive. This is a continuing process for the company, and part of its culture, having evolved through a number of versions of itself over a company history of 75 years. It has fond memories of where it came from but appreciates that the customers of that company are long gone, as will their current customers be if they stand still.
• Company B appreciates the need for innovation, but the economy and industry factors are not right at this time. It does not believe it has the resources to innovate and is focusing on managing today’s business. It is too busy serving today’s customers; it is not inclined to worry about tomorrow’s customers until tomorrow gets here.
• Company C would also like to be more innovative but does not possess the skill set necessary to drive “what’s next” in its business. It recognizes this, however, and that concern is what keeps leadership awake most at night.

It sounds like Company A is doing just fine. It recognizes the need for innovation and works hard at it. We respect Company B’s position, and in some cases would say that it is right—sometimes we just have to worry about getting the job done today and lay low for a while until things get better. Company C seems like the obvious candidate for innovation guidance or input.

In reality, all three firms would benefit from a fresh perspective on innovation, and even leadership at Company A would agree. They recognize that to be successful, they need to look outside the firm, benchmark their capabilities, seek best (and worst) practices, and most important, acknowledge the challenges they face in developing new or improved products and services on a continuing basis.

I work with an international electronics company on a regular basis. These are good people in an innovative company already, but like Company A, the company keeps at it with training, education, speakers, consultants, and benchmarking. These tools are all embedded in the makeup and drive of the firm.

Company B represents a significant opportunity, and likely an example of many of the readers of this book. A challenge we all face from time to time is the overwhelming pressures in our daily work environment, where it seems we cannot get anything done. There is too much going on, too much complexity, too many meetings or phone calls to focus on where we go next.

Another company I spoke to a few times works like Company B. It had a massive business transformation plan launching that year and wanted me to facilitate its executive training in support of the plan, but it could never find time in the calendar to make the training (or even the conference calls they were asking for) fit the schedule. Meetings and business travel were getting in the way of its core initiative.

What if I was to say to Company B’s chief executive officer (CEO), “You have enough people to get everything done. You have enough resources to drive the next phase of your business. Your challenge is that the firm is wasting resources (people, space, time, money) doing things that don’t matter.” Company B’s CEO would likely smile and hire another consultant. Company B, and organizations like it, can focus on tomorrow’s customers while supporting today’s.

This is a very real situation, and the genuine opportunity that started this chapter; our evolution through this book, starting in Chapter 2, will be to show firms that they have adequate resources but are not effectively using those resources. Once this is illustrated, I show how to free up the resources and then get the firm driving toward an effective innovation culture. In fact, it is difficult economic times like we have witnessed in the last several years that present opportunities for proactive and agile organizations to create and strengthen their innovative advantage.

Let us take a step back first, however. Is innovation really necessary for a firm to survive? This is not the same as “Can your firm stay the same and survive?” For fun, let us look at the exception that proves the rule: the Toronto Maple Leafs hockey club. Year after year, the team sells out its stadium and has attendance statistics near the top of the National Hockey League. Yet, year after year, it also struggles to make the playoffs, and if it does make the “second season,” it bows out in the early rounds. In a bizarre marketing move in 2007, it celebrated its 40th anniversary of winning their last Stanley Cup (or put another way: “Hey, it’s been 40 years since we’ve won the league championship! Let’s have a parade!”). It is the richest franchise in hockey, able to afford to do whatever it wants yet really does not do anything different year after year.^*

For most of us, it is different. We have to grow, to refresh, to adapt, to change, or our customers go away, investors leave, or competitors take our business. If we are not innovating, where will our growth come from?

A...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• Acknowledgments
• Introduction
• SECTION 1 Preparing the Organization for Innovation
• SECTION 2 Driving Innovation
• SECTION 3 Embedding Innovation for Long-Term Growth
• Appendix 1: Fearless Predictions and Things to Create or Kill
• Appendix 2: More Thoughts on Lean
• Index