Lessons learned from case studies on the effect (or lack thereof) of innovation in at least five corporations.
Abstract
Lesson learned from case studies on the effect of innovation in General Electric
Reverse Innovation background
GE aimed to develop the new processes of producing products. The new process is called reversed innovation.
Big picture perspective
What is the total system? What does reverse innovation do?
Reverse innovation is a term referring to an innovation seen first or likely to be used first in the developing world before spreading to the industrialized world (Wikipedia Foundation, 2010). The term was introduced by Dartmouth professors Vijay Govindarajan and Chris Trimble.
Figure 1 shows the American multinational approach to emerging markets (Govindarajan, 2010)
What are reverse innovation subsystems?
1. Original Product
The industrialized company serves the emerging economic markets with the products developed in their countries. However, the expensive, bulky products are poorly sold in the emerging economic countries.
The industrialized company serves the emerging economic markets with the products developed in their countries. However, the expensive, bulky products are poorly sold in the emerging economic countries.
2. The emerging market disruption
The local team in emerging economic countries works with global team to develop the cheap products with a probe and sophisticated software. The sales in emerging economic countries took off.
3. The new global market
The technology advances, the alternative products developed which can perform the same functions that once required the conventional machines.
What are the drivers of reverse innovation?
1. The income gap that exists between emerging markets and the developed countries. There is no way to design a product for the American mass market and then simply adapt it for the Chinese or Indian mass market. Buyers in poor countries demand solutions on an entirely different price-performance curve. They demand new, high-tech solutions that deliver ultra-low costs and “good enough” quality.
2. The emerging economics will largely evolve in the same way that wealthy economies did.
3. Products that address developing countries’ special needs can’t be sold in developed countries because they’re not good enough to compete there
Operational perspective (Jeffrey R. Immelt, 2009)
The emerging economic countries need technology related knowledge from the global companies in order to develop the low-cost products. In General Electric, the major business functions- including R&D, manufacturing, and marketing-were centralized at headquarters. While some R&D centers and manufacturing operations were moved aboard to tap overseas talent and reduce costs, they focused mainly on products for wealthy countries.
1. Reverse innovation requires a decentralized, local-market focus.
2. Most if not all the people and resources dedicated to reverse innovation efforts must be based and managed in the local market
3. Local Growth Teams (LGTs) must have P&L responsibility (this is a key hurdle for American multinationals)
4. LGTs must have the decision-making authority to choose which products to develop, how to make, sell, and service them
5. LGTs must have the right (and support) to draw from the company’s global resources
6. Once tested and proven locally, products developed using reverse innovation must be taken global which may involve pioneering radically new applications, establishing lower price points, and even cannibalizing higher-margin products.
Functional perspective
Reverse innovation involves with the shifting from Glocalization which all research and development centers are located in the industrialized countries to the reverse innovation where they are located in the emerging economic countries. Therefore, the reverse innovation performs in all functions like Productions, Sales, Services, Marketing, Research, etc.
Structural perspective
The organizational structure will be described as follows:
1. Improve the cross regions management issues where the management team Europe and America do not really understand the local market requirements
2. The shift of management power to where the growth is. The reverse innovation enables the shift of management power to the emerging economic countries which bring the full management authorities to the local market. Consequently, business will be able to be more focus on the local opportunities and problems. Specifically, the emerging economic countries need power to develop their own strategies.
3. The whole organization changes from the ground up, like new companies. The whole previous organizational “software” – its recruitment practices, reporting structures, working cultures, etc are required to be rewrite due to the reverse innovation system.
4. The measurement metrics like objectives, targets are rewrite in order to meet the local requirements
Generic perspective
The reverse innovation is analogy to the open innovation. Open innovation is a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology” (Chesbrough, 2003). The reverse innovation system leads to the exploring of new marketplace by the use of the local know-how of its own market. At the same time, open innovation obtains new innovative ideas from outside company and later lead to the creation of new marketplaces.
Continuum perspective
What are some alternative organizational structures?
The reverse innovation may not be fully implemented since some locations might not have enough capabilities to implement the system. Therefore, the company can either choose the full implementation or partly implementation. In fact, partly implementation requires the executives in industrialized countries to oversee and manage the conflicts between the local team and global business, connecting the team and the global business, connecting the team to the resources such as global R&D centers and helping deploy the innovations that were successfully rolled out in the industrialized countries.
Problem statement
The reverse innovation was against with many parties before it is adopted by General Electric. Trimble and Govindarajan (Govindarajan, 2010) show the oppositions against reverse innovation as follows:
1. Your formal responsibilities included neither general management nor production development.
2. Your responsibility was to sell, distribute, and service GE’s global products locally and provide insights into customers’ needs to help the company adapt its offerings.
3. You were expected to grow revenues by 15% to 20% a year and make sure that costs increased at much lower rate, so that margin rose.
4. You were help rigidly accountable for delivering on plan. Just finding the time for an extracurricular activity like creating a proposal for a product tailored to the local marketing was challenging.
5. Head of marketing fears that a lower-price product would weaken the GE brand and cannibalize existing sales.
6. Head of finance concerns that lower-priced products would drag down overall margins.
7. The global R&D will need the explanation of why the energies of GE’s scientists and engineers- including those in technology centers in emerging markets- should be diverted from projects directed at its most sophisticated customers, who paid top dollar.
However General Electric needs to create the future rather than maintaining the past. I map the Figure 2 which shows the temporal workflow of the thinking processes of company portfolio management. There are fundamental challenges between two types of project which leads to strategic challenges.
Box 1
There is linear change in industries so the responses from the organization would be linear. In other words, there are the incremental improvements like six-sigma, operational excellence.
Box 2 and 3
The change is non-linear so the organization responses are non-linear shifts. To create future is to change the way General Electric behaves currently so all the problems and opposes against the reverse innovation are required to be forgotten.
Figure 3: The logic of the subject (Elder, 2006)
The applying the logic of subject (Elder, 2006) to General Electric reverse innovation
1. Purpose, Goal, or End in View. Whenever we reason, we reason to some end,
The General Electric reverse innovation has been designed to produce products that the developing countries can afford.
2. Question at Issue or Problem to be solved.
How to implement the reverse innovation against the oppositions from production, marketing and finance managers?
4. (Information) The Empirical Dimension of Reasoning.
Reverse innovation is recommended to be the strategic portfolio management of the General Electric.
Reverse innovation can be implemented in two types which are fully and partly implementations.
Blue Ocean strategy is fit for use for the reverse innovation.
5. Inferences.
Because the reverse innovation is the potential strategic of General Electric to explore the developing country marketplaces, it is vital that General Electric study on the reverse innovation and deploy it in order to gain market shares in the competitive markets.
6. The Conceptual Dimension of Reasoning.
Discover the capabilities in developing countries, explore the tacit needs of people in developing countries, and create the innovations from the capabilities of people in developing countries and sell in the industrialized countries.
7. Assumptions.
The applications of previous General Electric reverse innovation in China will lead to other developing countries’ successfulness.
Customer discontinuities lead to new business model. Specifically, the shift of market to people in developing countries leads to the occurrence of reverse innovation as illustrated in figure 4.
8. Implications and Consequences.
Implications and Consequences are described in the lesson learned section below.
9. Point of View or Frame of Reference.
Exploring market requirements in developing countries and setup the Research and Development centers there will lead to the successful of reverse innovation implementation.
Figure 4 Innovation loop
Lesson learned from case studies on the lack thereof innovation in General Motors
Introduction (Charles, 2010)
General Motors, an American-based automotive manufacturer with a large global presence, has long held a large share of the worldwide automotive market. Despite its market position and reputation for quality, the company has recently begun to struggle with new competitors in the Asian Pacific region, which has pushed their needs to develop new manufacturing technologies, as well as to better control costs and quality in its American manufacturing facilities.
General Motors, an American-based automotive manufacturer with a large global presence, has long held a large share of the worldwide automotive market. Despite its market position and reputation for quality, the company has recently begun to struggle with new competitors in the Asian Pacific region, which has pushed their needs to develop new manufacturing technologies, as well as to better control costs and quality in its American manufacturing facilities.
Beginning in the 1970s, several nations of the Asian Pacific region, most notably Japan and South Korea, emerged as economic powerhouses. As their manufacturing bases matured, they entered the automotive industry and began to present new challenges as well as new opportunities for General Motors. GM would need to find a successful formula for doing business in this region, as well as develop and adopt innovations that would help it improve its manufacturing operations elsewhere.
Applying active brainstorming (Kasser and Mackley, 2008) to GM’s situation resulted in the questions and answers shown in Table 1.
STP | Question | Answer |
Big Picture and Operational | What was the GM’s innovation cycle plan? | GM model of implementation was not managed as a learning process so the innovation cycle plan was left behind the other brands. |
Generic | How was the GM’s innovation cycle plan compared to HONDA? | Much longer cycle time for design of new cars e.g. Honda takes 4 year cycles and GM takes 7 years cycles. Therefore, GM’s development cycle was three years longer than Honda because of spending three years of management decision making in the development process. |
Structural | What were the GM’s organization structures problems? | There are several problems as follows. First, structure of GM organization focuses on cost reduction so there is direct conflict with the intended integrated differentiation and cost leadership strategy. Second, brand management is almost inexistent at SBU level which results in lack of differentiation. Third, regional GBU do not have enough control over their regions. |
Operational | How did GM interact with its suppliers and contractors? | General Motors held seventy percent vertical integration with its global network of partnerships, alliances, and joint ventures. First, high quality audit standard made GM unable to supply from local suppliers. Second, GM supplied some automobile parts from Japanese parts and component makers so Japanese had an access to production schedules and GM-proprietary technology. This results in the advance of Japanese cars manufacturing. Last, GM failed to demand a proper return on its investments and partnerships, loyalty from its partners. |
Big picture | What was the GM’s company vision? | GM’s vision is to be the world leader in transportation products and related services with the following strategic: 1. Reduce labor expenses 2. Cut legacy costs 3. Decrease production capacity 4. New designs and marketing strategies |
Operational | What must GM do? | GM has to develop and change the organization structure and the way the innovation cycle is planned. In addition, GM has to manage the trust relationship with suppliers. |
Operational | What can improve the car production? | There several improvements that GM can adopt. First, General Motors should develop stronger relationship with suppliers and partners. Second, General Motors should increase more control on its investments. Third, General Motors should have protected its knowledge and technologies. Last, General Motors should improve its product development. |
Functional | What are the customer demands? | Customers right now prefer to get the better value of products. Like other markets, the car industries need more innovative products produced to the market. General Motors may need to focus on the 4rd generation of R&D and pay attention more on the customers’ tacit knowledge and needs. |
Temporal | When does the improvement plan need to operate? | General Motors’ improvement plan needs to be operated on a regular basis. First, the cycle time of designing new cars must be shorter in order to grow fast enough to support the market changes. Next, the joint business plan between General Motors and its suppliers, contractors need to be updated on a regular basis in order to ensure the consistency and loyalty. Last, the R&D strategy must be reviewed on a regular basis to ensure the new deliverables. |
Temporal | When does it have to be implemented? | The improvement plan can be implemented wisely after getting bailout from U.S. government. |
Quantitative | How was the GM’s financial return on investment? | In the early 80s, General Motors tried to catch up with Toyota which could assemble comparable cars with half the person hours. As Toyota assembly lines were significantly robotized, GM invested $77 billion to automate its factories. But, by the end of 80s, GM’s market share continued to decline. |
Continuum | What are the alternative solutions? | Alternative one: Keep all brands but differentiate effectively. There are some results of doing this as follows. First, it will decrease model portfolios of each brand. Second, Doing engineer organization change to make company more flexible and be able to select the right brand for the right market. Third, each brand will have a more specific market to address thus will be more competent in predicting demand which leads to lower inventory costs. Alternative two: Divest some brands but keep rich model portfolios for remaining brands and reform the company’s structure to provide each brand division with more autonomy. |
Scientific System Thinking Perspective
Why did General Motor unable to compete with the other car manufacturers?
Hypothesis 1:
The lack of innovation, continuous improvement and long term business plan makes the company less competitive in the market.
From the generic perspective, the shorter cycle time for design new cars made General Motors unable to come up with new model of cars.
From the structural perspective, the long lead time of management decision making made General Motors delay the decision making on applying new technologies into cars.
The different between organizational culture of Japanese and American companies
Table 2 the different between organizational culture of Japanese and American companies (Culture, 2006)
Culture Matrix (low, medium, high) | Japanese companies | American companies |
Social position | High | Low |
Group Orientation | High | Very low |
People relationship | Low | High |
Business focus | Low | Very high |
Communication style | Not direct | Direct |
Time management | High | Medium |
Business Planning | Very high | Very low |
The implications from the American organizational culture
Table 2 shows the different between American and Japanese organizational culture. As can be seen, American organizational culture focuses on getting the high profits in short period of time. Therefore, there is no business plan in the long run in order to come up with sustain corporate plan and product development. On the other hand, Japanese firms tend to focus on the long term business plan so the Japanese firms are more likely to continuously grow their business when the economic crisis happened.
In General Motors, car models were developed just for gaining the profits in short time but lack of the continuous assessment of customers’ requirements. In contrast, TOYOTA and HONDA have strong and long term business plan so they would be able to gain automobile market share in the long run.
Hypothesis 2:
Trust relationship with suppliers and contractors contribute greatly in the continuous improvement of products.
From the operation perspective, General Motors did the vertical disintegration of many auto parts. However, General Motors set the quality standard too high so that the suppliers could not maintain the long term relationship. In addition, General Motors lack of insight in Japanese automobile part suppliers. Therefore, the innovation confidentialities were easily exposed to the others.
Hypothesis 3:
There was no fully adopted of the open innovation in 4rd generation R&D as illustrated in Figure 6 which results in the misapprehension of the company strategies.
From the big picture perspective, General Motor was more on the cost savings on to the production plan and employee benefits. On the other hand, General Motor overlooked the customers’ tacit needs about the small and economic and hybrid car like Japanese cars due to the increase of oil price. However, in moving to the 4rd generation R&D, General Motors has to be aware of some risks as follows.
First, without the proper control over the contracts and agreements made with the 3rd party research and development, General Motors possibly lose its know-how and core-technology competency again after moving to the 4rd generation Research and Development approach like the case of Philips. Second, the change of organization structure requires the alignment and co-operation from all parties. Therefore, organization must have well-prepared change plan. Third, the development of the innovation cycle time requires the insight of technologies and applications. Consequently, General Motors may have to pay attention to the work process improvement in long run and may not only apply what the other successful done without the properly proofs since the conditions and environments may be different.
Figure 5: the open innovation in 4th generation R&D (Chesbrough H. W., 2006)
Lesson learned from case studies on the effect of innovation in Google
Company background (MOON, 2007)
Internet search had not always been this popular or profitable. When Larry Page met Sergey Brin during a tour for incoming Stanford Ph.D. students in the summer of 1995, the search options for would-be web surfers were limited. Most search engines returned results based on the number of times the search term occurred in a particular webpage; although search algorithms of this kind had an obvious logic, they nonetheless tended to yield dozens of meaningless results. Even AltaVista, generally considered the best search engine at the time, had a reputation for spotty performance.
At Stanford, Page became convinced that links held the answer to divining the relevance of a given webpage. Specifically, the more links that led to a webpage, the more popular and relevant that webpage was likely to be. Much like academic papers gained credibility when they were cited in other academic papers, WebPages could be ranked according to the extent to which other websites, particularly prominent or reputable websites, linked to them.
By 1997, Page had developed a “PageRank” system that determined the relevance of a webpage using this methodology and, in partnership with Brin, had incorporated the system into a search engine called BackRub. Page explained:
In a sense, the Web is this: anyone can annotate anything very easily just by linking to it.
But the early versions had a tragic flaw—you couldn’t follow links in the other directions.
BackRub was about reversing that. It seemed kind of cool to gather all the links of the Web and reverse them (Battelle, 2005).
The logic of the original idea of the Google founders
Page and Brin started the idea of searching algorithm by comparing with the academic papers. Specifically, they thought that if there are more links to the websites particularly prominent or reputable websites linked to them, the websites will be more popular and gain high ranking. This idea is analogy to the academic papers. In other words, the academic papers will be more popular and gain credibility if they are cited by other academic papers. This logic of thinking is illustrated in the figure 7.
Figure 6: The logic of thinking of the Google founders
Google advertising
Application of Active brainstorming to the successful of Google Advertising
STPs | Questions | Answers |
Operational | What initiate the web advertising idea? | The increase of broadband services and the features of internet applications. |
Functional | What functions is the web advertising performing? | Real-time text and links to the commercial websites. |
Big Picture | What was the web advertising market situation? | Even though there was an increase of the e-commerce business, the web advertising could not be able to gain much profit. |
Big Picture | What must the web advertising companies do? | The web advertising companies may need to create proper business model to capture value from customers because the underlying commercial websites, sponsors, customers are there already. |
Big Picture | What were on sponsor mind regarding the web advertising? | The sponsor thought that the online web advertising could not be able to provide much of value proposition to their business. Therefore, they prefer other media advertising methods than the web advertising one. |
Structural | How can the web advertising value capture be improved? | The methods of value capture can be improved in many ways. First, mapping and matching the sponsors with customer demands by offering the online software applications for free to gain a number of users’ profiles such as users’ interests, preferences, and other data. Second, map the right sponsors’ products to the right users’ profiles. Last, offer the advertisements via the free online applications. |
Continuum | What are some alternative web advertising payment structures? | Google offered many payment collection methods from their customers such as payment per click, online bidding specific search keywords and phrases without going to the sales representatives. |
Operational | What should be the payment methods for the sponsor? | The sponsor tends to be demand the easier and quicker method of payment so the online credit card payment is being used. |
Generic | What is this similar to? | The concept of Google Advertising is similar to the Internet in terms of offering free services to gain more users and charge them later in the different forms. |
Temporal | When does the payment by sponsors need to be received? | Since sponsors initially might feel hesitate to pay for the online advertising, Google offered the free advertisement posting and collected money from sponsor after clicked by the Internet users. |
Degree of Innovation
Before Google could be able to launch its innovation to market, the critical points to consider is the degree of innovation since there are many examples that the products could not be sold. The table below shows the matching of the Google Web Advertising to the degree of innovation in which Google is categorized in “Start-up Business”. This Degree of Innovation leads to the proper value capture of the advertising as showed in Table 3.
Table 3: Degree of Innovation of the Google web advertising (Heany F, Spring 1983)
Degrees of Innovation | Google Web Advertising |
Market established? | Yes, as described in the functional, big picture and operational system thinking perspectives, Google Web Advertising’s underlying technical supported architectures and the commercial website are existed. |
Business servicing market? | No, there were less advertising services in the market. |
Customers know features? | Yes, the Internet ended users are familiar with the Internet applications and features because there are many online applications and business transactions in the Internet already. |
Change in Product | Major, the user interfaces of online advertising and the places are totally changed such as embedding the advertisements in the free social network applications. |
Change in Process | Major, the processes in advertising, collecting money are totally changed from the past. |
Google products and innovations
The innovative product creation processes
Lesson learned from case studies on the effect of innovation in Procter and Gamble
Introduction
“Connect and develop” has been introduced in Procter and Gamble as a new Research and Development Strategy in 2006. From 1980 to 2000, the 2nd generation Research and Development could not bring solid R&D productivities in the company. In addition, Eli Lilly launched the “Open Innovation“. Therefore, Procter and Gamble CEO decided to move to the “Open Innovation” which later resulted in the brought-in 50% of new innovations from outside the company. This change led to the double increase in the company share price compared to the year 2000. Procter and Gamble now deploys the Connect and Develop Program in website as illustrated in the figure 8.
Figure 7 Procter and Gamble Connect and Develop website (Gamble, 2010)
Research and Development Generations
Research and Development processes and practices have been developing from time to time. Currently, there are four generations of the R&D practices available for companies to adopt which can be described as follows.
2nd generation R&D had been adopted by western MNCs in the end of 1960s and 1970s and later adopted by Japanese MNCs in 1970s and 1980s. This model was created under the built-in of the external customer (Business) and internal customer (R&D management). In addition, the funding is funded by Business and Business cannot use outside knowledge.
3rd generation R&D had been adopted by western MNCs by the 1980s and 1990s. In addition, it was later adopted by Japanese MNCs in 1990s. The partnership between General Management and R&D management is established. R&D is sourced mainly inside the company. The balanced R&D budget is required for the planning of short, middle and long term needs of the business. However, the cost of R&D become too high for the company compared to the return from the sales.
4th generation R&D has been adopted in the end of 1990 and 2000s by some MNCs which includes Procter and Gamble. The innovation contains both continuous and discontinuous. In addition, there is the welcoming of new ideas from outside the company or the external companies. Therefore, this leads to the existence of top Research Institutes worldwide. There are some organization changes. For example, the creation of Chief Knowledge Officer (CKO) and Chief Innovation and Knowledge Officer(CINO). Therefore, there is an increase of innovation (patents) business worldwide.
From 1980 to 2000, Procter and Gamble applied the 2rd generation R&D in the organization but the R&D productivities had leveled off. In addition, the cost of R&D was climbing. On the other hand, Procter and Gamble’s main competitor – Eli Lilly started using the “Open Innovation” so the company CEO decided to apply the practice by bringing 50% of innovations from outside and introduced the “Connect and Develop” program which can be seen in the figure of the S-Curve of the R&D generation on how one generation took over the others.
Figure 8 R&D's S-Curve from 2nd to 4th generation
Applying the Connect and Develop to Swiffer Dusters’ smart (Gamble, 2010)
Ideas are everywhere
As our Swiffer brand was seeking to expand its lineup with a breakthrough dusting product, we discovered a high-potential offering already on busy store shelves in Japan. We immediately saw benefits over our own prototype- and although the manufacturer was one of our top competitors in Asia, we opened a dialogue.
Ideas need acceleration
In the duster product we discovered in Japan, we saw potential for an immediate win- and further innovation. Its dusting technology was truly breakthrough: material with thousands of soft, fluffy fibers that trapped and locked dust, capable of flexing to fit into household nooks and crannies.
A clear customer benefit
The Swiffer Dusters advantage
From talking with consumers, we knew they wanted an easier, more effective dusting tool- with breakthrough benefits. Compared to dry clothes or feather dusters, Swiffer Dusters capture more dust and common household allergens from cats, dogs and dust mites.
A growth opportunity
Extending the Swiffer portfolio
From Swiffer Dusters’ origins as a local Japanese product, we’ve expanded Dusters and the surface-care category to include 360-degree dusters, extended-reach handles and our Swiffer Dust & Shine spray. An immediate hit with consumers, Swiffer Dusters are now sold in 15 global markets.
Creating mutual benefits
Sharing in Swiffer Dusters’ success
For our Japanese partner, we quickly gave their technology global distribution, plus greater brand presence and sales potential- unlocking an opportunity for both of us to increase global market presence. Dusters have solidified Swiffer’s position as a household name in cleaning ease- and helped it become one of P&G’s billion-Dollar Brands.
Innovation comes full cycle
Over half of the innovation we’re bringing to market includes ideas or technologies from outside P&G. Connect+ Develop enables us to improve consumers’ lives in small but meaningful ways- and bring those innovations to life faster, more economically and more sustainably.
Procter and Gamble organizational culture
Everyone is an innovator (Gamble, Everyone is Innovator, 2010)
“Through innovations large and small, we touch and improve the lives of consumers everywhere. Because innovation is the engine of our growth, we make it everyone’s responsibility at P&G.”
Attitudes of innovation (Jr, M. H. (2010))
1. Passionate about solving problems
2. Playfulness and curiosity
3. Ability to switch roles(yin and yang)
· Cynicism and belief
· Deep doubt and unshakable confidence
4. What if these “weird ideas ” are true
· Try them out!
Some guidelines (Jr, M. H. (2010))
1. Positive attitude
· Challenge seen as an opportunity
2. The best management is sometimes no management
3. Innovation means selling, not just inventing new ideas
4. Innovation requires both flexibility and rigidity
5. Incite and uncover discomfort
6. Treat everything like a temporary condition
Table 4 the Innovation attitudes and guidelines criteria and organizational Configurations map
Innovation attitudes and guidelines criteria | Organizational Configurations (Levels(High, Medium, Low)) | |||||
Flexibility | Market Bundle | Professional | Bureaucratic | Procter and Gamble | ||
Passionate about solving problems | High | High | Med | Low | High, company encourages the entrepreneurship. | |
Playfulness and curiosity | High | Med | Med | Low | Med | |
Ability to switch roles | High | High | Low | Low | High, employees mandatory change roles every 3 years | |
What if these “weird ideas” are true – try them out! | High | High | Med | Low | Med | |
Positive attitudes | High | High | High | Med | High, It is embedded to the recruitment processes. | |
The best management is sometimes no management | High | High | Med | Low | High, the company prefers employees to manage themselves by having entry level as manager. | |
flexibility and rigidity | High | High | Med | Low | High, employees mandatory change roles every 3 years | |
Treat everything like a temporary condition | High | Med | Low | Low | High, employees mandatory change roles every 3 years | |
Procter and Gamble company type
Procter and Gamble is the market-driven company where the marketing and CBD (Customer Business Development) are the leader of the company. Table 4 shows different organization type in the relation to the innovation attitudes and guidelines criteria. As can be seen, even though Procter and Gamble is the multinational companies where there are rules and regulations being well-established, the company is classified as the Market Bundle organization type. Therefore we can derive the hypothesis that Procter and Gamble has the innovative organizational culture which is the mandatory in the consumer products market where the competition is fierce so that is why Procter and Gamble is able to survive for 145 years in the business.
Lesson learned from case studies on the lack thereof innovation in Phillips
Applying OARP to problem identification of the conversion from technology-driven to market-driven in Phillips
Observation
In 2000, Phillips incurred net loss of USD$3,206 million from the decrease sale growth. Before 2003, Phillips was the technology-driven company where the company emphasis more on the Research and Development than the market. Therefore the outside contract research work where it is closed to the consumers was limited.
Assumptions
The shift of company focus from technology-driven to market-driven would help Phillips resolve the gain the market share back.
Open innovation or the shift to 4rd generation R&D could resolve the profit loss issue by applying the success story of Procter and Gamble’s Connect and Develop.
Risks
There are several risks that we need to consider. First, since Phillip is the electrical company, the core competency or company’s core technology may be lost to the outside R&D institutes. Second, new technologies needed may be disruptive for the internal R&D organization. In other words, there might be some roadblocks on the organization change which takes some time until it comes back reliably such as the hiring and firing the internal staffs, the creation of new management plan for new technologies.
Second, the company may need to be aware of the backup budget for new business areas such as the disruptive and radical innovations. In addition, the external R&D might be more expensive than the internal in some circumstances.
Last, there might be the problem on the knowledge management in terms of the R&D evaluation and transfer.
Real Problem
The root cause of problem is the wrong focusing on the business model strategy. Phillips focuses on the technology but not the market. In other words, some markets like developing countries may not require the advance product features but they require the good enough and cheap products. That’s why Phillips overlooked several potential business opportunities. In addition, more market opportunities can be obtained from the outside organizations like outside R&D institutions.
Applying FRAT to the answer of the conversion from technology-driven to market-driven in Phillips
Functions
Phillips should be able to bring in the innovative products, new business model and new market from outside. In addition, Phillips should be able to change organization structure to gain the R&D cost reduction.
Requirements
Phillips would be able to reduce R&D cost and obtain better market share. In addition, the innovative products are continuously introduced to consumers.
Compare and contrast of organizational culture in technology and market-driven companies in different System Thinking Perspectives (STPs)
STPs | Market-driven | Technology-driven |
Operational | Focus on the customers’ need and capabilities. | Focus on the advance of technology development. |
Operational | A lot of collaborations with suppliers and partners. | Less collaboration from outside. |
Big Picture | Quickly adapt to changes in the market | Stick to the current core technologies. |
Implications
From the operational perspective, the market-driven approach is more likely to gain better advantage in the market since it focuses on the customers’ needs and easier to obtain knowledge from outside in order to improve the company’s market strategy. On the other hand, from the big picture perspective, technology-driven companies stick only to the core technologies and the features development which they may not fit with the market requirements.
Cases review on the success story of moving to 4rd generation R&D
The lists of successful Clients using the InnoCentive (Lakhani, 2009) which is one of the method derived from 4rd generation R&D. In fact, InnoCentive has worked with over 80 clients, including:
Procter and Gamble, Eli Lilly & Company, Janssen, Solvay, Rockefeller Foundation, GlobalGiving, Corona, Neah Power, SunNight Solar, Oil Spill Recovery Institute and Asset India
Answer
Phillips can do this by changing the company focus from technology-driven to market-driven. In addition, Phillips should change the R&D approach from 3rd generation to 4th generation.
Tests
There are some measurements here such as the increase of Phillips’ share price, the brand image improvement and the increase and expansion of market shares to other product types.
Today’s Phillips innovation processes
Overall, Phillips leverage on its suppliers and partners a lot more that in the past. Phillips collaborates with partners and suppliers with complimentary competency and technology and established the clear interface and control points. In fact, Phillips right now has coordinated with the research agencies such as A *Star.
Compare and contrast of the Innovation Funnel and Product Stage Gate to Phillips’
Since Phillips has changed its R&D and company strategy to be 4th generation and market-based strategy, Phillips come up with new innovation planning processes as illustrated in figure 10 and 11.
The Innovation Funnel
Figure 9: The development funnel [S.C., 1993]
Figure 10: The Phillips Innovation Processes (Phillips, 2010)
Figure 11: The Phillips Innovation Process (Phillips, 2010)
Mapping and Matching between Phillips innovation processes and Innovation Funnel.
Innovation Funnel | Phillips Innovation Processes |
Capabilities assessment and forecasting, Market assessment and forecasting Business strategy Development Goals and Objectives | Figure 11 – Know-How Generation (Explorations,. Feasibilities, Deployment) |
Project Portfolio Planning | Figure 10- High Impact Innovation Initiative |
Project management and execution | Figure 10- Product development and delivery Figure 11- Market introduction(Planning , Preparation, Launch and evaluation) |
Post-project Learning and Improvement | Figure 11- Planning cycle |
Capabilities Strategy - considering core competencies - Technological base/stage cycle - Technological integration | Figure 11- Architecture & Standard Design Creation, Product Realization |
Product/Market Strategy -Clarifying position and priorities on new market/existing markets derivative product/new concept, Financial contribution | Figure 10 – the link between technology and consumer need, Applied Research, Understand of technology and Understand of Consumer need. |
Applying the Bundling and bungling in Phillip technology
Phillips introduced the ambient lighting Television as the integration of normal Television features with Phillips’ ambient lighting technology. This initiative proposes the better feeling to the T.V. program audiences. Thus, it leads to new experience of watching Television as illustrated in figure 12.
Figure 12 Perfect: Ambient illumination should come from behind the screen, as seen here with this "Ambilight" TV [Loehneysen, 2009]
Discussion
Lesson learned from the General Electric’s reverse innovation
STPs | Lesson learned |
Operational and Temporal perspective | To create innovation is to do it in the non-linear way. The innovation of business is about something new to the market, something that totally changes the business model and how people work. Instead of doing it in the incremental way such as what we have in the operational excellences which are found in many organizations, the reverse innovation came from the non-linear thinking. Therefore, the future customers will less probably be the same as current ones. In other words, the future innovation may involve the customer discontinuities. |
Functional perspective | If the organizations want to be the leading firms, they have to focus on the opportunities and innovation. There is one example on the Tata motor which is the India car company who developed the cheapest car. While the companies like Ford set up its global automobile platform in India and catered to the niche premium segments in India, Tata introduced the Tata Nano for the price conscious consumer in India in 2009. In addition, Tata plans to launch Tata Nano in Europe and U.S. subsequently [4]. This implies the shift in leading firms since Ford cannot compete with Tata motor that can produce cheaper car to India markets due to its focus on local market opportunities and innovation of low-cost car. |
Operational perspective | No benchmarking, no gap findings are required anymore on the organization strategy development. The current organization strategy development may no longer require the benchmarking or gap findings since the total customer and market are totally changed. The old way of benchmarking the similar industries may not work out. The new strategy like “Blue Ocean Strategy” needs to be introduced so that the business will be able to adapt the new market and customer types. |
Big picture perspective | Strategy is not about applying the best practices but it is about creating new best practices. By applying the best practices from other successful companies in the past may be possible to be survived in the current business crisis. The Glocalization is best practice being used in the past but the customers from the bottom of the pyramid are the next market to focus due to its mass purchasing power. While designing and researching products in the industrialized countries work quite well in the past, it creates a lot of trouble managing the emerging economic countries in terms of understanding their needs. Therefore, even though there are many debates and arguments, the reverse innovation is introduced in the world market. |
Operational perspective | Do the things differently to your competitors, if you want to be in their business In the business world, you have to dare to be different since you can only gain the small market share when you sell the same products as your competitors. The next step to compete each other is to reduce the cost and increase more features which will not work in long run. There are many benefits of creating new market such as creating new dominant design which totally changes the current de-facto product standard. This result in the priceless benefits gained from doing things differently to your competitors. |
Temporal perspective | Future is now Investment to the R&D reflects the future where the company will be positioned. If you do not reinvent yourself, you will die definitely. |
Lesson learned from the effects of innovation in Procter and Gamble
Sometimes the internal knowledge is not enough so we have to bring it from outside The world keeps on changing so the current best practices are not enough to draw new process steps in the organization. Therefore, benchmarking and getting the knowledge from outside are the better ways. |
The innovative deliverables come from the culture As can be seen that Procter and Gamble encourage everyone to be leaders and the entrepreneur, the company work and communicate in the innovative manner so that everyone need not to follow the old initiatives and current practices but employees always explore new methods and innovative products to serve their company. |
Entrepreneurship is important When employees work as if they are the owner of the company, they will spend all their efforts in making everything better. Consequently, the encouraging to employees to work as the entrepreneur is vital as it creates more productivities and better product qualities. |
Customer-centric strategy is vital for products and services companies Customers keep on changing their minds and favorites as the technologies and business models change. In the 4rd generation R&D emphasis on the customer-based product design and development which is wise. |
It is better to get the product requirements and initiatives directly from the customers In 4rd generation R&D, consumers have to right to request for new products and initiatives. Many companies follow these practices in order to develop the products that can be sold. In the end, the companies that adopted this approach are the winner in the market. |
Change is vital for all companies We cannot deny that the companies that are capable to adapt to changes can survive longer time in the industries. Many companies that have long histories stick to the continuous products development so they can still gain competitive advantage in market. |
Lesson learned
System Thinking Perspectives | Lesson Learned |
Functional | Focus on the users and everything will come after As can be seen from Google company’s vision as to get the thing better, Google focuses mainly on users. Therefore the Google products are clear, simple |
Operational | It is better to do one thing really really well As there are many competitors in the market, doing the same thing with same features would not be able to beat the other competitors. |
Operational | It is better to develop fast products better than slow The faster and better products will attract users to use the products. Therefore, in order to gain competitive edge in market, it is better to find the technology gaps and the customers’ need and derive the initiatives and the fixes from that. |
Big picture | Great today is not the great for tomorrow The continuous improvement is vital in business today as more and more technology is produced. The better today may not be the better thing for tomorrow. Therefore, the future product planning and assessing processes are crucial for the companies. |
Generic | 360-degree of information getting is important Business nowadays not only relies on the internal capabilities, it requires the emphasis on the outside technology and business models. Consequently, there is a need to |
Operational and Temporal | Offer its for free and then derive the value back later The more users on using your products or services, the more popularities the product are. This can be called the “Network Effect” where people emphasis on numbers of users using the services and the availabilities of products. Thus, it is a need to invest by offering free products and services and design the business model to capture the value later. |
Lesson learned
STPs | Lesson Learned |
Functional | Innovation is crucial in the competitive market General Motors paid little attention on the innovations because it only focused on the cost reduction which was a wrong direction in today’s business. As Professor Rosabeth Moss Kanter (Harvard Business Review, 2009)at Harvard Business School eloquently puts it, “Where others see merely bankruptcy, I see a bankruptcy of ideas. The issue for GM is not just financial failure; it is a failure of imagination.” |
Functional | Be simpler so that everyone can understand General Motors created many production lines so the customers confused on what models are proper for their needs. On the other hand, Toyota and BMW produced simpler models and production lines so that the salesperson could be able to clearly explain to their customers. |
Functional and Temporal | Ensure that you are ready for any changes all the time General Motors was unable to decrease the design cycle time. Therefore, compared to other car brands, General Motors was too slow to capture the change of customer demands. This results in one of the gap that General Motors have to improve. |
Functional and Operational | Innovation is the key to beat rivals in the market GM totally misunderstood that reducing production cost would make it win in the competitive market. On the other hand, it was innovation that made Japanese car firms won and sustains the market share until now. |
Functional and Operational | Trust is important when you work If you grow, your suppliers, partners are expected to grow together. By the increase of coordination among the business partners would lead to the stronger relationship and trust. Trust is very important for the business nowadays since the ideas, licenses, and Intellectual properties are key factors for the business. In other words, if the company could not be able to maintain the relationship with its business partners, it would be likely that the partner will sell the company’s know-how to the rivals. |
Lesson learned
System Thinking Perspectives(STPs) | Lesson learned |
Generic | Keep on benchmarking what competitors are doing The competitors sometimes have better methods of doing things so it is advised that the company keeps on benchmarking what competitors are doing and apply what is fit for the company to use. |
Big picture and Continumm | Sometimes outside sources know better than inside sources Some unique knowledge we sometimes cannot either develop inside or it may require a lot of investment. Therefore, the company needs to segment the products whether they are better to be developed inside or outside. |
Operational | Cooperation among business suppliers, partners are vital To gain competitive advantage in the market, the co-development among suppliers and partners are vital since in the long term, suppliers and partners will be getting more and more understanding on the products. Specifically, the better relationship results in the confidentiality and quality products. |
Functional | The applications of cross functions results in better products Although the products are categorized and developed separately, it is required that the co-development of product across categories is conducted. |
Big Picture | Market is the first priority Technology is still important but it might be useless when we produce the products that consumers cannot either afford or use. Therefore, the focusing on market is nowadays the first priority compared to the others. |
Summary
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