Managing Innovation in Product Development: An Entrepreneur's Guide
Steven J. Gordon
As the cost of new technologies plummets, even small manufacturers can turn to innovation to reduce the time it takes to get products to market, improve quality, assure consistency of that quality, and expand without adding costly personnel. Yet there are risks. New technologies may not work at all, may not work on time, and could cost more than expected to implement. What would be a hassle for a major company could cripple the entrepreneurial shop--or put it out of business.
It would be foolish, however, for the small manufacturer to ignore the benefits of technology. The trick to overcoming risk is to manage the process effectively. Effective management of innovation, in my view, involves three critical steps. First, it is necessary to plan thoroughly. "Thoroughly" means going beyond dog-eared concerns about cost savings. Second, a manufacturer should endeavor to win the support of the people who will actually use the equipment, those on the factory floor. Finally, a wise decision must be made about who will do the work: an in-house team or an outside consultant.
What follows is a discussion of each of these steps, from my perspective as a consultant to myriad manufacturers seeking innovative machinery to improve their businesses.
Strategic Versus Cost-Based Planning
Planning, for many manufacturers, often comes down to asking questions such as these: "How much will I save in labor costs over twelve months with the new equipment?" "I can't afford to spend more than $150,000, because I need a pay back in labor savings within twelve months."
The twelve-months refrain is the clue to what is wrong with this picture: the questions are short-sighted. Thorough planning means asking a different set of questions, ones that concern what the new equipment will do for the company in the future. Questions such as: "If I don't innovate, what will my competition do? What will I really be paying in labor costs years from now when workers are using antiquated machinery?" In other words, thorough planning means asking "strategic" questions.
An apparel manufacturer with whom we are currently working expects that the innovative equipment we are developing will help offset the considerable difference in labor costs, as it moves its plant from the Far East to the U.S. Yet, far from focusing on the cost-savings benefit of the new equipment, the client is most concerned that the machinery enable it to compete more effectively in the fickle, fashion-driven industry. With the plant located in the U.S., the company's design team can work more closely with the production team, assuring that styles are available when buyers want them. In a competitive, fast-moving industry, innovation for competitive reasons is what counts.
Planning strategically also makes it easier for senior executives or the owner to commit to the project, a basis for successful implementation. Finally, with parameters firmly established around strategic issues, the manufacturer is more readily able to address planning specifics, such as assessing current needs, determining the scope of the new project, and deciding how much money to spend.
Support From the Floor
With strategic planning assuring support from the top, a manufacturer must then take the equally critical step of getting support from the bottom, from the people who will actually use the equipment. In the case of another client, a leading golf ball manufacturer, the sophisticated equipment we developed for emblazoning logos onto the balls wound up being grossly under-utilized in the plant. It was grossly under-utilized because workers felt uncomfortable with it; whenever it stopped, no one would feel comfortable enough to investigate and make the necessary adjustments.
Even though it is our custom to work closely with clients, we lost sight of a critical sub-step on that job. We didn't work closely enough with the company's manufacturing floor people. While "debugging" the new equipment in our shop, for example, we only brought in the company's research-and-development people, who weren't as close as we would have expected with the factory workers. With the problem now rectified--the equipment is currently up, running, and being used--we came away with a valuable lesson: support from the floor is not just a good idea; it is vital.
Internal Versus External Implementation
With the planning done and support assured from both the top and the bottom, a manufacturer's next step involves making a wise choice about who will do the work: an in-house team or an outside consultant.
On this issue, the answer isn't clear-cut. An attempt at analyzing costs of either approach probably won't get you the right answer. While an outside consultant might appear to cost more, doing the job internally has hidden costs, mainly associated with freeing up highly paid people to do the work. In addition, most companies do not have an accurate accounting of the real costs to create an internal automation development group and growing a close-knit new team with the right skills and experience. The pricey outsider could actually wind up costing less.
In either case, other concerns must also be addressed. Insiders might be too attached psychologically to their former roles to bring the necessary degree of creativity to what is, by definition, a creative job. With consultants, there are the typical quandaries about how much control should be apportioned to the outsiders and to your own people, and whether the outsiders might use information from your company when working with competitors.
In offering guidance on this complicated issue, I suggest that the manufacturer form an internal group if the innovation involves a core technology, one that will require continuous development over 10 to 20 years. Using that approach, the company could leverage internal resources by turning to outsiders for specific aspects of the job, especially those requiring a high level of creativity or knowledge of a specific technology. If the majority of the engineering effort will be completed in a few years or less, then an outside group should be considered even though ongoing internal support will be required.
Following the Prescription
When following this prescription, keep a few points in mind about the internal team. Choose people who possess what is, admittedly, an illusive quality: "creativity." Look for breadth and depth of skills, but keep in mind that "creative" people differ in skills and temperament from those who make for good manufacturing or quality-assurance employees.
With the team assembled, get out of the way. Encourage the team to "own" the project, taking full responsibility for results. Make sure that members of the team devote their talents to the project, by removing them from operating responsibilities such as fire-fighting.
As for consultants, the usual checklist applies. Make sure their companies are stable. Forge contracts that spell out who is in control. Try for non-disclosure clauses that limit the risk that confidential information will be given to competitors, but accept that consultants must rely on accumulated expertise to service many clients. Spell out steps for documenting the work to be done, and for dealing with problems once the job is finished.
So, don't fail to innovate. Rather, innovate wisely. Plan strategically. Get support from the top and the bottom. Evaluate how best to implement: with insiders or outsiders. Using these steps, a small manufacturer will be in command of a crucial process--manufacturing innovation--that will pay dividends for the company for years to come.
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