Until recently, it was practically unheard of for engineers working in different business units within defense contractor BAE Systems' Electronics and Integrated Solutions (E&IS) Group to compare notes, much less collaborate on new product designs. Engineers in each of the 19,000-person group's five business units typically went their own way, ignoring the new product plans in other business units, even if that meant that more than one unit would end up spending time and money designing, say, the same type of sensor.
"We didn't have a lot of insight into what our other units were doing that might be synergistic," recalls Adam Barnard, program manager at BAE's Johnson City, NY, facility. "We didn't have the ability to combine signal-processing elements from one unit with controls from another to obtain a new capability."
Then, about a year ago, in an effort to cope with intensifying competition and rising customer expectations, officials at BAE decided to take a more structured, coordinated approach to how the group innovates. The E&IS group adopted a new set of processes under which various functions within each business unit -- engineering, manufacturing, and marketing, for example -- collaborated to create new product development roadmaps spelling out key customer requirements, new products planned, required technology, and development milestones. Then, using road-mapping software from Alignent Software Inc. (Carlsbad, CA), BAE was able to see where the new product development plans from different business units would intersect. And that, Barnard says, allowed BAE to begin to use technology from one business unit in new products from another, cutting development time and cost.
"We are trying to go from an ad hoc, ill-defined process to a more defined, repeatable, quantifiable approach to innovation," Barnard says.
BAE isn't the only company pushing to get more bang from investments in new product innovation. As manufacturers begin to emerge from a prolonged focus on operational efficiency and cost-cutting, many are starting to target growth from new product innovation. At the same time, intensifying competitive pressure from low-cost offshore manufacturers is forcing their counterparts in developed countries to turn out the right new products much more quickly in an effort to avoid commodity-pricing purgatory.
As a result, manufacturing CEOs are more focused than ever on stoking the innovation engine. In a recent survey of 1,070 executives by the Boston Consulting Group (BCG) -- mostly in manufacturing and mostly in the U.S. -- 72% said innovation is among their top-three strategic priorities. Forty percent said it is their company's top strategic priority. Companies identified by executives as innovation leaders -- including Apple Computer, 3M, and Toyota -- had generated significantly better-than-average returns to shareholders over the past 10 years, the BCG research found.
"After focusing for several years on things like quality, lean, and Six Sigma, companies have rediscovered growth," says Jim Andrew, senior vice president at Boston Consulting Group and the head of its worldwide innovation practice. "Acquisitions are difficult to make pay off. But CEOs are realizing [that] organic growth through innovation now can have a big impact on the bottom line and the stock price."
It's not surprising, then, that manufacturers plan to boost their spending on innovation, including research and development as well as new product development and deployment. Forty-one percent of respondents to the BCG survey said they are increasing spending on innovation by greater than 10% this year, up from the 27% who said they planned to increase innovation spending by that much last year.
Slow Start
Despite the increased focus and spending, however, many manufacturing leaders are disappointed with the return their companies receive from innovation investments. In the BCG survey, 48% of executives described themselves as dissatisfied with financial returns from their companies' innovation investments. And, in a recent survey by AMR Research, 31% of executives said they feel that their companies' new product development and launch processes are out of control. Forty percent of executives responding to the AMR survey said that half of their new products fail.
Experts say some of the sub-par innovation performances can be attributed to the fact that many manufacturing companies in recent years have been concentrating on cost-cutting rather than innovation. In short, they've taken their eye off the innovation ball, says Robert Shelton, a principal at consulting firm PRTM and co-author of a recent book, Making Innovation Work.
This lack of sustained and coordinated focus on innovation is particularly common as companies get larger, Shelton says. "Without a constant focus, most companies at some point experience a significant pause in their ability to sustain robust levels of innovation," he says. "Innovation is often not sustained as companies grow."
On top of that, new product innovation has become a much more complex proposition in recent years. As manufacturers have increasingly pursued high-growth global markets, they have discovered that they must tailor new products to customer requirements in specific countries and regions. Thus, they must often simultaneously pursue different strains of innovation within a single product line.
That, according to Tal Ball, senior vice president for products and technology at PLM software vendor Agile Software Corp., means manufacturers must "optimize funding of new product programs much earlier versus funding more programs [for] longer."
But, experts say, the biggest reason many manufacturers are underperforming on innovation is simply that they fail to manage it as they would any critical business process. Believing that innovation -- particularly new product innovation -- is essentially a creative process and therefore unmanageable, many organizations have not put in place the types of formal business strategies, metrics, organizational structures, or partnering programs needed to truly optimize innovation. This is particularly true of small and medium-size manufacturing organizations. According to a recent survey conducted by AMR Research, 61% of SMB manufacturers said they either had no formal new product development and introduction process or that they were just in the process of implementing one.
"Basically, many organizations think of innovation as a random, ad hoc series of spontaneous events that are difficult if not impossible to manage," says BCG's Andrew. "In fact, innovation can and should be managed as a rigorous process that is repeatable and that can be managed with a set of metrics that provide visibility to management as far as how the process is operating."
So what does it take to treat innovation as a rigorous and repeatable process? Or, put another way, why are some companies able to consistently out-innovate their competitors?
Top-Down Culture
The first step, experts say, is to tie innovation directly to your company's business strategy and its core competencies. Is your company in an upbeat market with loads of growth opportunities just waiting to be grabbed? Then it might make sense to focus your innovation efforts on quickly producing important but incremental improvements in your existing products. Or maybe your company is starving for growth opportunities. In that case, it might be best to swing for the fence and go for breakthrough new product innovations that have the potential to reorder and reinvigorate your market.
Responsibility for aligning innovation with a business's strategy lies not with the R&D or engineering departments, but with top management.
"Leadership from the top is critical to enabling innovation," says PRTM's Shelton. "And a leader isn't someone who says, 'Bring me a bunch of good ideas.' A good leader sets the context for what, how much, and what types of innovation are needed. The leader says where to invest on innovation and what kinds of returns are expected."
That's exactly the role that Chairman, President, and CEO George W. Buckley plays at 3M, one of the country's legendary industrial innovators. Buckley has stated that he expects 70% of 3M's growth each year to come from internally developed new products. And he makes it clear that he expects 3M's engineers and developers to aim for breakthrough new product innovations.
"If you look at a chip manufacturer or an airplane manufacturer, you know they're going to develop new chips or airplanes, but we're going to come up with something totally new to the world. Something that didn't exist before," says 3M's Larry Wendling, vice president in charge of the company's corporate research laboratory.
To make sure its innovation efforts align with company strategy, 3M employs a highly structured set of processes that ultimately is controlled by the company's top line-of-business and research and development executives. On an annual basis, each line of business at 3M is required to identify high-level trends in business and society that are changing their markets. They then develop roadmaps indicating what new market opportunities will arise as a result of those trends. Then, each business unit collaborates with the company's R&D group to decide which of those opportunities to pursue, based on 3M's existing technology expertise and its investment strategy, Wendling says.
The Corporate Technology Operations Committee -- made up of the top R&D executives from each of 3M's six lines of business plus Wendling and Jay V. Ihlenfeld, 3M's senior vice president for R&D -- looks for opportunities to combine existing 3M technologies to address market opportunities identified by the lines of business. The committee also makes recommendations to CEO Buckley on what 3M's innovation investment strategy should be. Using this process, 3M recently decided to enter the market for RFID-enabled supply chain track-and-trace solutions, and Buckley has ordered the formation of a team to rapidly create a product plan, Wendling says.
Besides ensuring that innovation investments are driven by business strategy, it's top management's job to foster a culture of innovation, experts say. Innovation -- particularly the pursuit of breakthrough new products -- is often a high-risk proposition. Unless it is clearly demonstrated that innovation achievements will be rewarded and that the occasional well-intentioned failure won't result in career-damaging punishment, individuals and organizations won't push themselves to become world-class innovators.
"The CEO and the executive committee have to work extraordinarily hard to convince the organization that they believe innovation really matters," says BCG's Andrew. The CEO, for example, must spend his or her own time focusing on innovation. "They have to convince the organization -- not just tell it -- that innovation is important," he adds.
3M is one manufacturing company that goes to great lengths to sustain a strong innovation culture. The company has a dual ladder program, which guarantees that top contributors in science and engineering receive compensation and titles on a par with those pursuing management careers, Wendling says. In addition, the company has several programs that recognize and reward individuals for outstanding innovation contributions. Many of the programs acknowledge not just outstanding technical innovation but also the recognition and satisfaction of customer needs.
Wendling says 3M has had to consider what motivates scientists and engineers. "The things that motivate them are doing something technically significant and having it recognized by their peers and management," he says.
Getting Innovations to Market
While strategic leadership and cultural change can go a long way toward inspiring innovation, they won't necessarily take wasted motion out of the innovation process or get new products to market more quickly. One key to achieving those goals, innovation leaders are discovering, is to reuse existing intellectual property wherever possible. Rather than spending time and money developing every new product from scratch, experts say, deploy processes and systems that can be used to explore whether at least part of the solution has already been developed, perhaps in a different business unit of the company. It often has.
"Manufacturers need to focus on reusing existing IP in future products," says Joe Barkai, a program director at Manufacturing Insights (Framingham, MA). "Many companies are very poor at that right now. They tend to reinvent the wheel over and over."
Until fairly recently, there was a lot of wheel-reinventing going on at defense manufacturer Northrop Grumman's Navigation Systems Division (NSD). The $700 million operation, which makes navigation systems for aircraft, underwater vehicles, and spacecraft, has been around in one form or another for over 50 years and has a wealth of innovation firsts to its credit, including development of the first internal navigation system. Like many defense manufacturers, however, NSD stored design files and other critical new product development information on paper in file cabinets. That made it awkward and time-consuming to determine what ready-made intellectual property already existed at the Woodland Hills, CA, company and what needed to be developed from scratch.
In recent years, however, the company has automated the collection, storage, and retrieval of product design and other IP information, a move that has made it easier for engineers working on new products to quickly determine what potentially useful designs already exist inside the company, says Charles Volk, vice president and chief technologist at NSD. The division is using Goldfire Innovator, a knowledge management system from Invention Machine Corp. (Boston) that allows engineers to search through design documents for specific characteristics and analyze the feasibility of reusing the designs.
Although it took a good deal of training to help engineers become comfortable with using the system, it has helped Northrop Grumman shorten new product development cycle times.
"We are under a great deal of pressure to cut cycle times in a very intense market," Volk says. "By and large, the company that is first with a design gets to feed first at the trough. In my 30 years in this business, the pressure to turn out new systems is more intense now than ever."
Constant Assessment
Another way to make innovation processes more efficient is to make sure you are developing new products that appeal to real and specific customer needs.
"It turns out one of the hardest things is to continuously generate new, refreshing ideas based on where you are in your customer's value chain," says Paul Loftus, North America managing partner of Accenture's industrial practice. "Too many companies rely on product-centric, internally focused engineering groups to chart the next generation of products, and they miss what the customer is really valuing."
In order to avoid that pitfall, many leading manufacturers are relying on cross-functional teams to brainstorm new product ideas and also forcing engineers out of the R&D lab and into the field where they can rub shoulders with actual customers. 3M, for example, has long required new product engineers to observe customers using the company's products. The company's invention of masking tape in the early 1920s, in fact, was inspired when an engineer watched as workers on an assembly line attempted to apply two-tone paint jobs to cars using newspaper and glue.
"If the expert can see what the customer is doing, he is going to make the unnatural connections we're looking for," Wendling says. "And those often result in products that didn't exist before."
Finally, experts say, a key to improving innovation processes is to continually assess how well they are working. Today, while manufacturing organizations studiously measure most key processes -- from finance to production -- most use only a few metrics to assess the efficiency of innovation processes. According to the Boston Consulting Group's innovation survey, 63% of companies regularly use just five or fewer metrics to assess their innovation processes. And the majority of the measures that are in place look only at the outputs from innovation processes, such as the number of new products produced or sales from new products.
"Metrics is the most overlooked aspect of managing innovation processes," says PRTM's Shelton. "In other areas, metrics is well understood. But, in the innovation space, it is not as well developed a practice. People have the idea that innovation is a function of creativity, and that means you can't measure it," he says. "But it is a business process and, like all business processes, it benefits from the right metrics."
Rather than just focusing on innovation outcomes, Shelton says, manufacturers should measure the resources that go into innovation processes and the efficiency of the processes themselves. Such measures could include assessments of a company's new product idea generation and its success meeting new product development deadlines. Manufacturers should also tie those metrics to incentives such as compensation, Shelton says.
There's no doubt that making the leadership, cultural, automation, and other changes needed to become an innovation leader won't be an easy transformation. But it is possible, even for companies that today are relatively small and unknown.
"Consider Nokia," Shelton says. "Not long ago it was a little company making rubber boots and electric switching gear for Eastern European governments. When their markets disappeared, they decided to go after the mobile phone industry, where they succeeded through innovation. And the rest is history."