Supply Chain Management: From Vision to Implementation

Chapter 15: Collaborative Innovation

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Chapter 15: Learning Objectives

1. Explain why innovation is needed. Discuss the perils of complacency and the characteristics of learning.

2. Describe two generic continuous innovation strategies, give an example of each strategy, and discuss their advantages and disadvantages.

3. Identify the characteristics of an effective continuous improvement program. Describe the features of a culture of innovation.

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Chapter 15: Learning Objectives

4. Define collaborative, SC innovation. Identify and discuss the role, pros, and cons of diverse collaborative innovation initiatives. Explain when and why a company would employ each initiative.

5. Discuss the importance of establishing the infrastructure to support long-term collaborative innovation. Explain the role of both executive governance and SC advisory councils.

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The Dynamics of Success

Sooner or later, something fundamental in your business world will change.

– Andrew Grove, Intel

I absolutely, all the time, remember that complacency is the enemy of innovation.

– Howard Stringer, Sony

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The Dynamics of Success

Economic globalization and technological innovation have converged to drive unyielding and unpredictable change.

Companies must continuously scan the environment for trends and disruptive technology before they can change the rules of competition with an industry.

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Complacency Leads to Decline

History suggests that sustaining outstanding performance beyond 15 to 20 years is rare even for the best companies.

Success breeds bureaucracy and complacency, creating policies and procedures that discourage innovation.

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Company Life Cycle

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Complacency Leads to Decline

Once a company becomes complacent and vulnerable to competitive threats, it is difficult turn things around.

Culture and structural inertia prevent managers from adopting to evolving rules of a changing competitive game.

Successful companies are tempted to use scale and resources to postponed real change.

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Complacency Leads to Decline

Continued success requires constant learning.

Constant learning requires companies to cultivate a culture that embraces innovation and continuous improvement.

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Innovation Strategies

Let’s be clear on the meaning of innovation. It’s a lot more than invention. Innovation is the intersection of invention and insight. It is the fusion of new developments and new approaches… innovation is focused less on things and more on ideas, collaboration, and expertise.

- Samuel Palmisano, CEO, IBM

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Transformational Innovation

Transformational innovation relies on strategic breakthroughs in process and product technology.

High risk, high reward strategy

Allows innovators to change the competitive rules.

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Transformational Innovation

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Incremental Innovation

Incremental innovation relies on creating a systematic capability for continuous improvement.

Relies on employees from every level to continuously improve the product and process.

Productivity gains and consistent innovation raise the competitive bar.

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Incremental Innovation

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Hybrid Innovation Strategy

Pursuing an incremental improvement strategy does preclude the adoption of strategic breakthroughs.

Attitudes, skills, and technical competence needed to pursue continuous improvement prepare a company to quickly assimilate breakthroughs.

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Hybrid Innovation Strategy

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Innovation Strategies

Enhancing an organization’s innovative capacity requires sustained investment, a culture of trust and collaboration.

Specific skills required to promote innovation include: Communication Coaching Project Management

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Newmont Gold Instituted program for innovation:

Pet Project Program

Completed projects included: Inventory reduction through consignment Supplier reduction Alliance formation program Procurement card Supplier “report card” program Zero-based work duties Backup transportation for bulk commodities

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Newmont Gold Approval Process1. Every member of the group is responsible for submitting at least

one “pet” idea. 2. The compiled list is refined and reduced to a Top 20 list using

the assessment matrix.3. Each individual selects a pet project to lead based on interest and

expertise.4. Each individual enrolls team members who share an interest and

passion for the project.5. The team submits a proposal with milestones, responsibilities,

and a completion date.6. Proposals are reviewed by group leaders who then submit

prioritized list.7. Final list is reviewed by the Materials Director to provide

coordination and assure resource availability.

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Newmont Gold Assessment Matrix

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Newmont Gold Proposal Form

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Newmont Gold Results

Streamlined operating processes

Shortened replenishment lead times

Reduced total inventory costs by 18%

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FrameworkS at Johnson & Johnson

The goal of FrameworkS is to facilitate:

1. Effective understanding of the marketplace

2. Improve definition of customer expectations

3. Identify new opportunities for growth

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FrameworkS Process

1. Executive Committee identifies and explores pressing issues facing the company.

2. Executive committee establishes a FrameworkS team. Team members drawn from the executive committee, senior

corporate staff, and the management board of the distinct operating companies.

3. FrameworkS team conducts detailed research on the topic.

4. Findings discussed and evaluated at a multi-day meeting.

5. Implementation plans created.

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FrameworkS and Leadership

One FrameworkS project addressed the need to foster new management skills.

Result of this project was Johnson & Johnson’s Standard of Leadership, which identified five clusters of competencies managers are expected to develop.

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J & J Standards of Leadership

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FrameworkS Results

Creation of new businesses

Entered new markets

Established new programs to build necessary managerial skills

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Innovation at 3M

3M’s culture fosters an environment of innovation.

3M has made operational excellence a quest equal to its drive for organic growth.

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3M’s 10 Commandments

1. Give people time to follow their dreams. 3M gives its people 15 percent of their time to devote to their research ideas. The website notes, “3M innovation is practical observation, coupled with imaginative research. At 3M, innovation is given time to grow.”

2. Make it a part of the expert’s job to share their knowledge. 3M expects its best engineers and scientists to openly share their knowledge to help colleagues with their own projects. Art Fry, co-inventor of Post-it Notes, points out, “The 3M dedication to innovation is always a team effort.”

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3M’s 10 Commandments

3. Results must be measured. While personal initiative is encouraged and supported, goals must be defined and progress tracked. 3M’s most famous measure is for 30 percent of all sales to come from products introduced in the past four years.

4. Anticipate customer needs. According to Desi DeSimone, "The most interesting products are the ones that people need but can't articulate that they need."

5. Recognition is necessary. Not only are success stories part of 3M folklore but 3M sponsors its own “Oscar” night with eminent innovators being inducted into the Carlton Society—3M’s Hall of Fame.

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3M’s 10 Commandments

6. Be honest and know when to say no. Managers listen to every idea. As a result, 3M tries a lot of little ideas, keeps the ones that work and discards the ones that don’t.

7. Promote a career not a job. 3M rarely resorts to layoffs to cut costs because a creative culture only persists if creative people feel secure with their future.

8. Internationalize your management team. International experience broadens perspectives, helping managers understand worldwide customer needs. Up to 75 percent of 3M’s top managers have at least three years of international experience.

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3M’s 10 Commandments

9. Keep spending on research and development. 3M has made it a habit to raise its R&D budget each year—even in slow economic conditions. 3M’s R&D budget has exceeded $1 billion in recent years.

10. Wall Street isn’t always right. Wall Street emphasizes quarterly earnings; 3M focuses on basic, long-term decisions. A culture of innovation is built over the long haul.

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Collaborative Innovation

Collaborative innovation exploits expertise and diffuses results throughout the supply chain.

Collaborative innovation provides two advantages:

1. Makes use of talented people from all companies along the chain. 50% of money making ideas come from customers,

suppliers, or competitors.

2. Allows the cost of innovation to be spread among chain members.

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Collaborative Innovation Initiatives

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Suggestion Programs

Suggestion programs often go beyond cost and quality, targeting cycle time reduction, tailored services, and new product development.

Savings are often shared with the partner providing the suggestion, providing incentive for technical collaboration.

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Collaborative Training

Supply chain leaders often provide training to valued channel members.

Helps defray costs or provide technical expertise to channel members that would otherwise not have access to training.

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Collaborative Problem Solving

Companies with an innovative mindset view problems as an opportunity to learn.

Collaborative problem-solving provides diverse perspectives and expertise to a common problem.

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Collaborative Pilot Projects

Innovation involves a tremendous amount of experimentation and risk.

Great supply chain companies improve their odds by establishing an efficient approach to validate groundbreaking ideas and test new programs. Often this involves trusted partners.

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Collaborative Process Improvement

Process improvement allows supply chain partners to dramatically improve their own capabilities.

Great supply chain companies assist suppliers by sharing engineering talent.

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Honda’s BP Process

Honda pioneered and popularized sharing of engineering talent with its BP program.

Best Position - achieve global competitiveness Best Productivity - improve the process Best Product - improve quality and deliver Best Price - decrease cost Best Partners - build a synergistic long-term

relationship

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Honda’s BP Process

Honda lends suppliers engineering talent for a period of three months.

The goal is to help suppliers learn the skills needed to become more competitive and more self-reliant.

BP is based on Deming’s Plan-Do-Check-Act model.

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Plan-Do-Check-Act

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Honda’s BP ProcessPLAN Identify supplier

opportunity Overview BP process Establish arrangement

Full-time project leader Dedicated War Room 50/50 savings sharing Project schedule

DO Situational Analysis I BP Training Supplier Orientation Project Selection Baseline Performance Situation analysis II Set Improvement Goals Generate Ideas Develop Action Plan Implement Plan

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Honda’s BP Process

CHECK Gather Performance

Data Compare

“Before/After” Present Results Celebrate Results

ACT Close Performance

Gaps Repeat BP Process Share BP Process

w/Suppliers

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Honda’s BP Process Results

30% improvement in quality

50% improvement in labor productivity

Supplier employees capable of applying the BP process to other areas.

Honda receives 50% of the savings achieved by the project.

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Organizing for Long-Term Collaboration

Executive Governance Councils 1. Maintain ongoing executive level awareness of

business initiatives.

2. Coordinate supply chain activities throughout the company.

Supply Chain Advisory Councils Bridge strategic distance between a company and

its supply-chain partners.

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SC Governance to Promote Collaboration

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A Return to the Opening Story

Based on what you have now read and discussed:1. Explain how the results achieved by the SC

task force could actually lead to complacency.2. If you were Doug, where would you focus your

efforts to (a) keep complacency at bay, (b) drive constant innovation, and (c) make SC thinking part of Olympus’s culture?

3. What cultural and structural barriers is Doug likely to encounter as he continues the SC journey?