Can Lean Co-exist with Innovation?

“Lean” has come to mean an integrated, end-to-end process viewpoint that combines the concepts of waste elimination, just-in-time inventory management, built-in quality, and worker involvement — supported by a cultural focus on problem solving. Can such practical principles be applied to innovation, or would lean’s structure and discipline snuff out the creative spark that underlies the birth and development of great ideas? Can lean co-exist with innovation?

According to experts at The Boston Consulting Group (BCG) and Wharton faculty, lean and innovation can indeed complement each other, and it’s about time they came together. Lean brings structure and predictability to innovation, and sharpens the distinction between idea generation and the development process, they say. Both share a common goal: to meet customer needs in a cost-effective manner. And lean can help empower researchers and reduce uncertainty in the innovation process itself.

“There is intense pressure to cut costs, and companies waste a lot of money on product development because the processes for accelerating the best ideas and terminating low-value ideas are often weak or non-existent,” says Hal Sirkin, senior partner at BCG in Chicago and global head of the firm’s operations practice. Companies would do well, he says, to reorient themselves toward “high-impact, high-value” innovations and to “be aggressive in cutting projects that are unlikely to deliver a payback from their portfolios.”

Redefining the Individual and the Team

Hollywood animation company Pixar, the maker of blockbuster movies including the “Toy Story” series and “Finding Nemo,” is a good example of how innovation and lean practices can enhance outcomes. Pixar has combined lean and innovation to good effect, according to Kartik Hosanagar, Wharton professor of operations and information management. Working within the movie industry “where lack of predictability is the norm,” Pixar has created a set of processes that emphasizes team-based collaboration and continuous feedback loops to help overcome creative blocks and track deliverables, but without the stress that could go with a regime of control.

Pixar’s record is proof that lean and innovation can coexist. “Pixar hasn’t had a single failure as yet. All its projects have been successful,” Hosanagar says, adding that unlike the rest of the movie industry, it has never bought scripts from outside; it develops all its ideas and scripts in-house. “I discovered that much of what the industry uses is madness; what Pixar uses is a method to the madness,” says Hosanagar, who for the last year has been fascinated by the company while studying it along with Jehoshua Eliashberg, a Wharton professor of marketing, operations and information management.

Part of what helps Pixar succeed is a model of working in which the individual is as valuable to the team as the team is to the individual, says Hosanagar. To help structure fruitful interactions, Pixar has instituted a system of daily meetings where team members talk about what they have or have not accomplished each day and others provide feedback. The point is not to track people. “In a creative world you often hit roadblocks, and team-based collaboration is critical,” he explains. “People might discuss work that is clearly in an incomplete stage; they don’t have to feel embarrassed.” The process involves cross-company teams, too, where one team working on a project might get feedback from another team working on a totally different project.

Filmmaker Woody Allen drafted a similar system years ago, according to Sirkin. “When people in the movie-making business know each other well and make movies over and over together, they get much better at knowing each other’s strengths and weaknesses, and can improvise and collaborate far more effectively,” he says of Allen’s approach.

Separating Idea from Development

Coming up with good ideas is a very different process from developing and commercializing those ideas. Good ideas that don’t generate a payback are ultimately of little value to a company, says Sirkin. Lean can bring the discipline needed to develop and profit from new product and service offerings. “Most people focus on ideas but not necessarily on what it takes to bring those ideas to market, and which ideas will make money,” he says.

What will make money, of course, is an idea such as a new product or an improvement to an existing one that customers are willing to pay for, says Kim Wagner, senior partner and managing director at BCG and co-head of its biopharma R&D practice. Wagner sees lean concepts steadily making inroads into life sciences. “Listen to the voice of the customer,” she says, explaining how “a scientist with an interesting finding” could answer the question of whether it has “any tangible value” for users.

Lean’s focus on the customer can help reality-test an innovation, notes Wagner. It might seem like a great idea for a pharmaceutical company to replace a daily dosage with a once-a-week pill. But such an approach doesn’t suit the needs of elderly patients. “If you’re 75 years old, it’s hard to remember that it’s a Sunday and you have to take your pill,” she says of a once-weekly dosage regimen, adding that pharmaceutical companies have to factor that market reality into their innovation process.

Listening to the Voice of the Customer

Lean approaches can help organizations take customer satisfaction to new levels. Ravi Aron, a senior fellow at Wharton’s Mack Center for Technological Innovation who does extensive research on healthcare companies worldwide, cites the case of Bumrungrad International Hospital in Bangkok as an example. The hospital goes “well beyond” quality benchmarks in its industry, and owes that to “continuous and constant process improvements” on a range of metrics including recovery rates, time to recovery, length of stay and other patient satisfaction criteria, he says. “It goes beyond medical care to hospitality services, learning from feedback it collects from patients, physicians, clinicians and supporting staff.”

Bumrungrad uses technology in innovative ways to maximize patient satisfaction, including continual electronic updates of patient records. Aron offers an example of how the hospital uses technology in administering medicines, avoiding the “spaghetti process that is prone to errors” and is common across the industry. A Swisslog pharmacy robot aggregates daily dosages for each patient into little rings that go on conveyor belts, get checked by RFID (radio frequency identification) and then by a nurse before they are handed over to patients. “It blew my socks off when I saw it,” he says.

Lean is put to best use in process improvements like those at Bumrungrad, Aron says, and to a relatively lesser degree in product improvements that have longer gestation periods. “Lean is a natural fit for process innovation,” he says. “Lean rarely comes into play in the first stage of product innovation,” and really begins its journey when an organization attempts to “hear the voice of the customer.” The third stage, where it orchestrates product innovation with delivery through constant improvements across its supply chain, “is where lean enters with a vengeance,” as Aron puts it.

Orchestrating Supply Chain Efficiencies

Companies adopting lean concepts learn to integrate their suppliers more actively and earlier in the product development process. “Rather than waiting and testing out your products independently, you might integrate your suppliers — certainly of key components — so that they are already working on delivering it while you are figuring out the details of your innovation,” says Sirkin. Even within the organization, lean has to be an enterprise-wide effort involving the functions of R&D, production, sales and so forth. “You need virtually every part of the company to make an idea come to life,” Sirkin says.

Lean and its sharp customer focus can help companies explore innovation in areas that otherwise may have been overlooked, says Wagner. For example, a pharmaceutical company may decide to continue exploring treatments for hypertension even if half a dozen drug brands dominate that market, she says. Guiding that decision would be certain segments in the patient population that are not adequately served by the drugs currently available, and are willing to pay for alternative treatments that work for them.

Companies that embrace lean methodologies will reduce the risks inherent in their development processes, Wagner says. This is especially critical for pharmaceutical companies, where the drug development process is risky, expensive, and extremely time-consuming. “To shorten this process, many companies front-load activities or do them in parallel,” she explains. “But when development efforts fail — as so many do — these activities end up wasting resources.” Instead, companies should focus their efforts on the activities that increase the technical or commercial probability of a product’s success. “This not only helps the team ‘fail fast’ and move on to the next opportunity, it also limits the amount of extra effort wasted on unsuccessful programs,” she says.

In attempting to reduce waste and speed up processes in the product development process, pharmaceutical companies are also learning to de-layer their organizational structures. Wagner notes that many pharmaceutical companies tend to have very deep structures, with up to a dozen levels between the head of research and the researcher “at the bench,” adding to costs, delays and other inefficiencies. Managers need to look at all the layers to see what value each adds to the product. “If you cannot articulate what value is added at each level of the organization, then you have to question why that level exists,” She says. The de-layering exercise also “empowers scientists and makes the organization a much more exciting place to work. Productivity goes up.”

Empowering Researchers for Stronger Innovation

At companies that have wedded themselves to inflexibility and regimented processes through Six Sigma programs, lean philosophies can liberate researchers and empower them to redouble their innovation efforts, says Hosanagar. He points to 3M Corp., the maker of innovative products such as Scotchgard, Post-it Notes and Scotch tape, which over the last four years has de-emphasized Six Sigma and the data-driven methodologies it brings to reduce process defects. It’s a word of caution for those taking the notion of variability reduction to its extreme, he says. “Six Sigma clearly has its role in an organization, but excessive adherence to it will kill innovation; people are not going to deviate from the norm and you won’t have innovation.”

Hosanagar goes back to how Pixar marries the structure that lean brings with the freedom creative professionals crave. “They have worked out a golden solution: Nurture creative freedoms and yet reduce waste with the same process,” he says. “They are able to create a situation where projects that are likely to be doomed are eliminated early on.”

Much of what lean represents might seem like a no-brainer, says Sirkin. Yet it is an opportunity for companies that don’t have lean development processes, he says. “Why the focus on lean now? In a downturn, cash-strapped companies are under a lot of pressure to cut costs,” he explains. “The more stress there is on the system, the more people look for ways to relieve that stress, to increase their profitability. It’s all about competition.”

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