Kimberly Watson-Hemphill, vice president at Dallas-based George Group Consulting, isn’t going to be surprised if the top management at the next company she encounters needs insight about its own product development pipeline. “If you ask companies how many projects they have in process, many don’t even know,” she says.
Watson-Hemphill, who co-authored the book Fast Innovation: Achieving Superior Differentiation, Speed to Market, and Increased Profitability (McGraw-Hill, 2005) with Michael George and James Works, says that it seems all too obvious that companies shouldn’t spread their innovation resources too thin, but in practice it happens frequently. “[Companies] have their top [product or service] priorities, but then they have a bunch of underlying things that are just sitting there sucking time away from the resources,” she says. “You have people working on 10 different projects when they have capacity to work on just one or two.”
Her colleague Stephen Wilson of George Group sees in such situations not only a disconnect with internal processes, but also symptoms of being out of touch with customers and the seeds of mistimed, or late, arrival in the marketplace with new offerings. “If you invest upfront in processes to understand the customer, you get a better sense of product or service differentiation, and that’s what is going to secure your gains against commoditization,” he says.
Companies that invest in innovation but are late to market fail to capture the initial gains of market share “where a lot of the profit is made,” says Wilson, and they may be better off not making that investment in innovation in the first place. “Better never than late,” is Wilson’s advice to such companies.
Process Innovation and ‘Rightsourcing’
Ravi Aron, Wharton professor of operations and information management, says innovation is not always about products and services, but actually needs to be first introduced in processes. “Process innovation makes an organization ready for product innovation,” he says. For new offerings to be successful, Aron notes that companies need to appreciate the significance of two components of their processes — the “innovation pivot” and the “complexity pivot.” Process innovation addresses those two pivots and readies the turf for product innovation, he says.
As an example, Aron cites a large, U.S.-based financial services company that outsourced some of its operations to India a couple of years ago; the move helped it ramp up service lines through process innovation. The company discarded its earlier work flow patterns that were designed to handle product-based transactions, replacing them with process-based innovation that allowed transactions to be handled by customer profile.
In other words, customers with multiple requests across product lines no longer had to make a separate call for every product they were interested in; the customer support executive dealing with them would take requests across the range of offerings. For example, a customer seeking a bank loan from a financial services company might also want a credit card or a home mortgage, or to open a savings account or invest in a retirement fund. “They were essentially capable of 360-degree processing of any transaction that came to them,” says Aron of the revamped customer support staffers. The company was able to expand its range of offerings without necessarily increasing staff complements by a corresponding measure — the process innovation brought scalability in operations.
Aron says that while offshoring has helped many companies free up process complexity to make way for product innovation, it is not always the best option. He points to a recent research paper co-authored by himself and Wharton doctoral students Lyle Ungar and Annapurna Valluri, which examines the nature of work complexity and its suitability for offshoring and outsourcing.
The paper, titled “Rightsourcing: The Optimal Sourcing Mix of Complex, Information-Intensive Services: Theory and Evidence,” is motivated by a survey conducted by Wharton’s Fishman-Davidson Center for Service and Operations Management and Unisys Corp. The authors demonstrate that a process called ‘rightsourcing’ permits firms to optimize operational efficiency and deliver high quality service to consumers even when the underlying processes are highly complex.
The paper is clear that not all processes can be outsourced to reduce complexity. It says that processes that require agents (employees) to understand the market context and to execute the process efficiently could be sourced in-house. But what can be offshored, according to the authors, are those processes “that require judgment-intensive work that is not context-sensitive.” They say that complex processes that can be described in terms of rules of execution can be automated through a service utility and designed to necessitate human intervention only for exception-handling.
The researchers show in their paper that partitioning tasks to reduce complexity has worked well at firms such as Pipal Research, a customized research services firm based in Chicago with offices in Mumbai, India. “These firms have adopted a model of partitioning task types and allocating them to multiple sourcing options and integrating these with technology to deliver high-quality research solutions,” they write.
Speed to Market
Companies that have worked out their scalability and product positioning issues have to next “start working on speed to market,” says Dan Chow, who leads the Fast Innovation practice at George Group. “There are plenty of ideas that die on the vine because [companies] could never get them out the door,” he says, adding that companies that take two to three years to bring new products out are at an obvious disadvantage to those who can do it in six months. Speed to market can be a sustainable and highly differentiated characteristic of the business model. Speed can put your competition in a constant state of reaction, creating competitive advantage.
Chow points to the case of Compaq versus Dell, in which he says the former “was actually the leading innovator” and developed PCs that “were far superior to others” in the market. But Dell, he says, was able to compete on customization and speed with its focus on “having better knowledge than anybody else in the marketplace on what customer needs are” and delivering on them faster than others. That combination, Chow says, is critical in an industry where product life cycles are getting increasingly shorter.
Getting aligned quickly to changing ways of doing business is equally important for moving products to the market faster. Wharton professor of legal studies and business ethics Kevin Werbach cites Google as one firm that has an inherent advantage over rivals as more and more products are sold on the Internet. “Google has no legacy, and they basically have one software-based program running on a global network on tens of hundreds of thousands of servers,” he says. “They can iterate much more quickly than others, as they are directly connected to their installed base [of customers].” Microsoft, by contrast, has to get its next version of Windows “to millions and millions of users who have to adopt it and install it,” Werbach says.
Getting Innovation to the Marketplace Faster
“Keep it simple” is not one of the simplest lessons companies learn, as Watson-Hemphill discovered on a consulting assignment with a U.S. maker of mobile hydraulic cranes. The company was concerned that although many of its models were big winners, others were money losers. Watson-Hemphill found that the company carried a staggering inventory of raw materials, chiefly steel parts of varying thicknesses. “The engineering experts ordered what they wanted,” she said. “If you do that, you optimize the very small at the expense of the greater good.”
Watson-Hemphill’s prescription was tough to swallow, but she called for a “reuse strategy,” which translated into making do with a smaller range of steel thicknesses for all the crane models — and ensuring that everybody accepted the fewer raw material choices. Inventory carrying costs fell dramatically, and the company was able to still meet customer needs with fewer variations in its models.
Processes don’t necessarily stifle the spirit of innovation, Watson-Hemphill says, adding that in recent years cost pressures have driven industry away from “research for research’s sake.” It’s important to measure the rate at which products in the development pipeline make it to market, because that also highlights any congestion in the process. She cites Little’s Law, which is explained in Fast Innovation: The Law of Lead Time, also known as Little’s Law after MIT professor and mathematician John D.C. Little who first propounded it in 1961, expresses the average lead time of a process as the number of things in process divided by the average completion rate of processes. What Little’s Law demonstrates is that the higher the number of active projects on hand, the longer it will take for all of them to be completed. The key lesson, Watson-Hemphill says, is to slash the number of projects in process by cherry-picking those with the greatest chances to succeed. This allows innovation to get out into the market, versus everything working on multi-year timeframes and never getting launched.
The warning signs for a doomed product launch are all too clear in the development stage if you look for them, says Watson-Hemphill. Case in point: One client recently told her, “We don’t have time to do it right, but we have plenty of time to do it over.”