2. Popular view of innovation:... the lone inventor/mad professor.

3.  innovation is critical to success  product life cycle is getting shorter and shorter  new products must me introduced ever more frequently  design-push approach must be changed to market-pull 3

4.  Options that Support Competitive Advantage  Product Life Cycles  Life Cycle and Strategy  Product-by-Value Analysis

5. Differentiation  Shouldice Hospital/Ashesi University Low cost  Taco Bell/Papaye Rapid response  Toyota/Samsung/Printex

6.  May be any length from a few hours to decades  The operations function must be able to introduce new products successfully

7. Negative cash flow IntroductionGrowthMaturityDecline Sales, cost, and cash flow Cost of development and production Cash flow Net revenue (profit) Sales revenue Loss Figure 5.1

8. Introductory Phase  Fine tuning may warrant unusual expenses for 1.Research 2.Product development 3.Process modification and enhancement 4.Supplier development

9. Growth Phase  Product design begins to stabilize  Effective forecasting of capacity becomes necessary  Adding or enhancing capacity may be necessary

10. Maturity Phase  Competitors now established  High volume, innovative production may be needed  Improved cost control, reduction in options, paring down of product line

11. Decline Phase  Unless product makes a special contribution to the organization, must plan to terminate offering

12. Costs incurred Costs committed Ease of change ConceptDetailedManufacturingDistribution, designdesignservice, prototypeand disposal Percent of total cost 100 – 80 – 60 – 40 – 20 – 0 –

13.  Lists products in descending order of their individual dollar contribution to the firm  Lists the total annual dollar contribution of the product  Helps management evaluate alternative strategies

14. Individual Contribution ($) Total Annual Contribution ($) Love Seat$102$36,720 Arm Chair$87$51,765 Foot Stool$12$6,240 Recliner$136$51,000 Sam’s Furniture Factory

15. Industry leader Top third Middle third Bottom third Figure 5.2a Percentage of Sales from New Products 50% 40% 30% 20% 10% Position of Firm in Its Industry

16. Figure 5.2b 50 40 30 20 10 0 Millions of visitors ‘93‘95‘97‘99‘01‘03‘05‘07 Magic Kingdom Disney-Hollywood Epcot Animal Kingdom

17. Figure 5.2c 35 30 25 20 15 10 5 0 Billions of dollars ‘02‘03‘04‘05‘06’07‘08 Other Routers Switches

18. 1.Understanding the customer 2.Economic change 3.Sociological and demographic change 4.Technological change 5.Political/legal change 6.Market practice, professional standards, suppliers, distributors Brainstorming is a useful tool

19. 2. What is innovation ? Innovation is not a single action but a total process of interrelated sub processes. It is not just the conception of a new idea, nor the invention of a new device, nor the development of a new market. The process is all these things acting in an integrated fashion...' Myers and Marquis (1969). Innovation = conception + invention + exploitation Source: Henry & Walker (1991) Invention & innovation

20. Table 1: World’s most innovative companies 2006 Rank Company Margin Growth 1995-2005 % Stock Returns 1995-2005 % 1Apple7.124.6 2GoogleNA** 33M3.411.2 4Toyota10.711.8 5Microsoft2.018.5 6 General Electric 5.713.4 7 Procter & Gamble 4.412.6 8Nokia0.034.6 9Starbucks2.227.6 10IBM-0.714.4 Source: Business Week April 24, (2006)

21. Firm’s develop knowledge, processes & products. Scientific & technological developments inevitably lead to knowledge inputs. Societal changes & market needs lead to demands & opportunities. Creative individuals Firms operating functions & activities Firms architecture & external linkages { { Overview of the innovation process

22. Firm related factors: Organisational heritage Experience R&D team Strategy towards Innovation Organisational structure R&D intensity Project related factors: Complementary Management style Top management support Product related factors: Relative price Relative quality Uniqueness Technologically advanced Market related factors: Concentration of Target market Timing of market entry Competitive pressure Marketing Technological viability Commercial viability Successful marketable product Factors that affect innovation

23. Linear models of innovation management

24. idea commercial product Marketing R&DManufacturing latest science and technology advances in society needs of society and the market place TECHNOLOGY PUSH MARKET PULL Interactive model of innovation Source: Rothwell & Zegweld (1985)

25. Internal research projects Current market And business model Basic ResearchNew Product Development External research project Venture investing Technology In-licensing Technology acquisition Open Innovation (Chesbrough, 2003)

26. Open innovation... Procter & Gamble’s web of links for innovation and new product development Source: HBR (2006)

27. 3. Types of innovation Dimensions of Innovation space What is changed? productserviceprocess Perceived extent of change discontinuous radical incremental New improved detergent Launch of ebay New manufacturing technique

29. Scope of product development team Scope for design and engineering teams Evaluation Introduction Test Market Functional Specifications Design Review Product Specifications Customer Requirements Ability Ideas Figure 5.3

31.  It is possible to enhance productivity and deliver goods and services in an environmentally and ethically responsible manner  In OM, sustainability means ecological stability  Conservation and renewal of resources through the entire product life cycle

32.  View product design from a systems perspective  Inputs, processes, outputs  Costs to the firm/costs to society  Consider the entire life cycle of the product

33.  Goals 1.Developing safe end environmentally sound practices 2.Minimizing waste of resources 3.Reducing environmental liabilities 4.Increasing cost-effectiveness of complying with environmental regulations 5.Begin recognized as a good corporate citizen

34. 1. Make products recyclable 2. Use recycled materials 3. Use less harmful ingredients 4. Use lighter components 5. Use less energy 6. Use less material

35. For Design …  Standards Authority  Food and Drug Authority/Administration  Consumer Products Safety  National Highway Safety Administration  Children’s Product Safety Act

36. For Manufacture/Assembly …  Occupational Safety and Health Administration  Environmental Protection Agency  Professional ergonomic standards  State and local laws dealing with employment standards, discrimination, etc.

37. For Disassembly/Disposal …  Vehicle Recycling Partnership  Increasingly rigid laws worldwide

38.  Product life cycles are becoming shorter and the rate of technological change is increasing  Developing new products faster can result in a competitive advantage

40. 1. Identify customer wants 2. Identify how the good/service will satisfy customer wants 3. Relate customer wants to product hows 4. Identify relationships between the firm’s hows 5. Develop importance ratings 6. Evaluate competing products 7. Compare performance to desirable technical attributes

41. Relationship matrix How to satisfy customer wants Interrelationships Competitive assessment Technical evaluation Target values What the customer wants Customer importance ratings Weighted rating

42. © 2011 Pearson Education, Inc. publishing as Prentice Hall Your team has been charged with designing a new camera for Great Cameras, Inc. The first action is to construct a House of Quality

43. © 2011 Pearson Education, Inc. publishing as Prentice Hall Completed House of Quality Lightweight3 Easy to use4 Reliable5 Easy to hold steady2 Color correction1 Our importance ratings Low electricity requirements Aluminum components Auto focus Auto exposure Paint pallet Ergonomic design Company A Company B GPGPFGGPPPGPGPFGGPPPP Target values (Technical attributes) Technical evaluation Company A0.760%yes1okG Company B0.650%yes2okF Us0.575%yes2okG 0.5 A 75% 2’ to ∞ 2 circuits Failure 1 per 10,000 Panel ranking 22 9 27 27 32 25

44. Figure 5.4 Deploying resources through the organization in response to customer requirements Production process Quality plan House 4 Specific components Production process House 3 Design characteristics Specific components House 2 Customer requirements Design characteristics House 1

45. Scope of product development team Scope for design and engineering teams Evaluation Introduction Test Market Functional Specifications Design Review Product Specifications Customer Requirements Ability Ideas Figure 5.3

46. 1. Historically – distinct departments 2. A Champion 3. Team approach 4. Japanese “whole organization” approach

47.  Robust design  Modular design  Computer-aided design (CAD)  Computer-aided manufacturing (CAM)  Virtual reality technology  Value analysis  Environmentally friendly design

48.  Product is designed so that small variations in production or assembly do not adversely affect the product  Typically results in lower cost and higher quality

49.  Products designed in easily segmented components  Adds flexibility to both production and marketing  Improved ability to satisfy customer requirements

50. 50 System Compone nt A Component B Component C 1.changing one component requires changes in all other parts of the system, because the relationships between the parts are not clearly understood 2.can be best managed through internal processes

51. 51 System Component AComponent B Component C 1.components could change without causing any change in other components 2.modular design enables to assemble system more easily, from “plug and play” components whose interfaces are well understood 3.modular architecture makes it easy for many companies to innovate components without worrying about possible impact on other parts of the system

52.  extended circle of company stakeholders - customers, NGOs, local and regional governments  not only superior quality, but also environmentally friendly, aesthetically appealing new products  designed for X, where X can be quite large and multi-faceted set  after-sale service plays an increasing role – and brings increased turnover and profit 52

53.  Product life cycles are becoming shorter and the rate of technological change is increasing  Developing new products faster can result in a competitive advantage

54. InternalShared InternalCost of product development Shared LengthyRapid and/ or Existing LengthySpeed of product developmentRapid and/ or Existing HighShared HighRisk of product developmentShared EXTERNAL DEVELOPMENT STRATEGIES Alliances Joint ventures Purchase technology or expertise by acquiring the developer INTERNAL DEVELOPMENT STRATEGIES Migrations of existing products Enhancements to existing products New internally developed products Figure 5.6

55.  By Purchasing a Firm  Speeds development  Issues concern the fit between the acquired organization and product and the host  Through Joint Ventures  Both organizations learn  Risks are shared  Through Alliances  Cooperative agreements between independent organizations

56.  First definition is in terms of functions  Rigorous specifications are developed during the design phase  Manufactured products will have an engineering drawing  Bill of material (BOM) lists the components of a product

57.  Engineering drawing  Shows dimensions, tolerances, and materials  Shows codes for Group Technology  Bill of Material  Lists components, quantities and where used  Shows product structure

58. Figure 5.8

59. 59 The diagram illustrates a bill of material for product A. Product A is made of assembly B, components C and D, and material E. Assembly B is made from components F, G, and H (as well as other assemblies or products). Purchased parts are normally identified as materials (items E, F, and G) but can be any product, assembly or component that depending on workload you choose to buy-out or manufacture.

60. 60 QuantityID#DescriptionUnit PriceTotal Cost 16TU8Back$5/Unit$ 5.00 45DRLegs$5/Unit 20.00 12PCSeat$10/Unit 10.00 51”Nails$0.50/Unit 2.50 Total Project Cost $37.50

61.  Assembly drawing  Assembly chart  Route sheet  Work order  Engineering change notices (ECNs)

62. 62  Shows exploded view of product  Details relative locations to show how to assemble the product Identifies the point of production where components flow into subassemblies and ultimately into the final product

63. Lists the operations and times required to produce a component SetupOperation ProcessMachineOperationsTimeTime/Unit 1SawCutting of wood 2PlaneSmoothen cut wood 3HammerPut nails in wood to hold pieces together.25 1.1 2 2.5

64. Instructions to produce a given quantity of a particular item, usually to a schedule Work Order ItemQuantityStart DateDue Date ProductionDelivery DeptLocation 157C1255/2/085/4/08 F32Dept K11

65.  A correction or modification to a product’s definition or documentation  Engineering drawings  Bill of material Quite common with long product life cycles, long manufacturing lead times, or rapidly changing technologies

66.  Service typically includes direct interaction with the customer  Increased opportunity for customization  Reduced productivity  Cost and quality are still determined at the design stage  Delay customization  Modularization  Reduce customer interaction, often through automation

67. Figure 5.12

69.  Concept created by Jan Carlzon of Scandinavian Airways  Critical moments between the customer and the organization that determine customer satisfaction  There may be many of these moments  These are opportunities to gain or lose business

70. The technician was sincerely concerned and apologetic about my problem He asked intelligent questions that allowed me to feel confident in his abilities The technician offered various times to have work done to suit my schedule Ways to avoid future problems were suggested Experience Enhancers Best Only one local number needs to be dialed I never get a busy signal I get a human being to answer my call quickly and he or she is pleasant and responsive to my problem A timely resolution to my problem is offered The technician is able to explain to me what I can expect to happen next Standard Expectations Better I had to call more than once to get through A recording spoke to me rather than a person While on hold, I get silence, and wonder if I am disconnected The technician sounded like he was reading a form of routine questions The technician sounded uninterested I felt the technician rushed me Experience Detractors

71.  High levels of customer interaction necessitates different documentation  Often explicit job instructions for moments-of-truth  Scripts and storyboards are other techniques

72.  Be especially discreet when talking to the customer through the microphone.  Provide written instructions for customers who must fill out forms you provide.  Mark lines to be completed or attach a note with instructions.  Always say “please” and “thank you” when speaking through the microphone.  Establish eye contact with the customer if the distance allows it.  If a transaction requires that the customer park the car and come into the lobby, apologize for the inconvenience.

73. Scope of product development team Scope for design and engineering teams Evaluation Introduction Test Market Functional Specifications Design Review Product Specifications Customer Requirements Ability Ideas Figure 5.3

74.  Benefits: 1. Reduced complexity of products 2. Reduction of environmental impact 3. Additional standardization of products 4. Improved functional aspects of product 5. Improved job design and job safety 6. Improved maintainability (serviceability) of the product 7. Robust design

75.  Particularly useful when there are a series of decisions and outcomes which lead to other decisions and outcomes

76. 1.Include all possible alternatives and states of nature - including “doing nothing” 2.Enter payoffs at end of branch 3.Determine the expected value of each branch and “prune” the tree to find the alternative with the best expected value Procedures

77. (.6) Low sales (.4) High sales (.6) Low sales (.4) High sales Purchase CAD Hire and train engineers Do nothing Figure 5.14

78. (.6) Low sales (.4) High sales Purchase CAD (.6) Low sales (.4) High sales Hire and train engineers Do nothing Figure 5.14 $2,500,000Revenue - 1,000,000Mfg cost ($40 x 25,000) - 500,000CAD cost $1,000,000Net $800,000Revenue - 320,000Mfg cost ($40 x 8,000) - 500,000CAD cost - $20,000Net loss EMV (purchase CAD system)= (.4)($1,000,000) + (.6)(- $20,000)

79. (.6) Low sales (.4) High sales Purchase CAD (.6) Low sales (.4) High sales Hire and train engineers Do nothing Figure 5.14 $2,500,000Revenue - 1,000,000Mfg cost ($40 x 25,000) - 500,000CAD cost $1,000,000Net $800,000Revenue - 320,000Mfg cost ($40 x 8,000) - 500,000CAD cost - $20,000Net loss EMV (purchase CAD system)= (.4)($1,000,000) + (.6)(- $20,000) = $388,000 $388,000

80. (.6) Low sales (.4) High sales (.6) Low sales (.4) High sales Purchase CAD $388,000 Hire and train engineers $365,000 Do nothing $0 $0 Net $800,000Revenue - 400,000Mfg cost ($50 x 8,000) - 375,000Hire and train cost $25,000Net $2,500,000Revenue - 1,250,000Mfg cost ($50 x 25,000) - 375,000Hire and train cost $875,000Net $2,500,000Revenue - 1,000,000Mfg cost ($40 x 25,000) - 500,000CAD cost $1,000,000Net $800,000Revenue - 320,000Mfg cost ($40 x 8,000) - 500,000CAD cost - $20,000Net loss Figure 5.14

81.  Know when to move to production  Product development can be viewed as evolutionary and never complete  Product must move from design to production in a timely manner  Most products have a trial production period to insure producibility  Develop tooling, quality control, training  Ensures successful production

82.  Responsibility must also transition as the product moves through its life cycle  Line management takes over from design  Three common approaches to managing transition  Project managers  Product development teams  Integrate product development and manufacturing organizations

83.  look for unsatisfied needs, new ways of delivering value to their customers  create new business models for new products  technological and business intelligence  competently work with intellectual property 83

84.  Design process must incorporate such disciplines as  innovation management  team work  creativity  knowledge management 84

85.  Christensen, C.M., “The Innovator’s Dilemma”, Harvard Business School Publishing, Boston MA, 1997  Christensen, C.M., Raynor, M., “The Innovator’s Solution”, Harvard Business School Publishing, Boston MA, 2003 Even the best managed companies, focused on their best customers and most profitable markets, often fail in competition with far less technologically sophisticated products. 85

86.  sustaining: focus on better product that can be sold with greater margin  disruptive: brings to the market simpler, more convenient, cheaper product that at the beginning appeals to new or unattractive customers 86

87. 87 Christensen 2003, p.33

88.  moving up the trajectory into successively higher-margin tiers of the market and shedding less-profitable products at the low end is something that all good managers must do  innovator’s dilemma – each company prepares its own disruption  start of the innovator’s solution: the company has to be prepared to disrupt itself, before anybody else does it 88

89.  focuses on the low end of the mainstream market (minimills, discount retail stores, Korean car makers)  there are customers happy to purchase a cheaper product with less (but good enough) performance  it is possible to create a business model making money at lower price per unit sold. 89

90.  technological excellence is necessary, however often not sufficient for the innovation’s success  technical skills must be combined with business and managerial ones  information and communication technologies, can support design process/innovation 90