Customer value to drive urgency in change management

Research & Technology Executive Council has a couple of good pointers for change management in Taking Process Excellence to the Next Level: “

To push change across the organization, leaders must create and communicate a compelling case for change and orchestrate the deep commitment of people at various levels and in various departments.

 We have discussed the sense of urgency and commitment and pointed out several effective approaches to communicate them. This article adds a new twist: Using customer value proposition to communicate the value and benefit of the change.

A compelling case for change is typically built on either an imminent threat or a perceived major opportunity, and the best test of this is whether people step forward as willing followers and whether they act with urgency. This is where viewing operations from the customer’s point of view becomes important. In building a compelling case for change, highlighting the gap between current and desired performance for customers can be a powerful way to touch people’s emotions. In this respect, the factors that motivate employees to act are often different from those that resonate with the members of the senior leadership team. Factors such as growth, profit, and competitive advantage are likely to capture the attention of executives, while other factors such as customer satisfaction and pride in their work may do more to engage employees in the case for change.”

Role of Government Regulation in Driving Innovation: Wind Power in China

The widely held belief is that regulation and government protection does not actually drive innovation. Clayton Christensen in China’s Growth Will Force an Innovation Competition with the West points out that India’s regulations for 30 years actually produced no benefits for the society.  Here is another viewpoint and a lot of interesting data from [email protected] (Wind Power in China: Lots of Turbines, Little Bluster?):

China has more than 80 wind turbine manufacturers, four of which are among the top 10 globally by market share. By the end of last year, it had 45 gigawatts (GW) of installed wind power, up 73% from 26 GW in 2009, compared with 40 GW in the U.S., according to the Brussels-based Global Wind Energy Council. And China’s government intends to raise total wind power capacity even further, to 100 GW by 2015 and 200 GW by 2020. Louis Schwartz, a U.S. lawyer and specialist in Chinese energy, says China’s officials have spoken off the record of targets that are even higher, reaching 150 GW by 2015 and 250 GW by 2020.“

The fact is that the foreigners have been pretty much shutout of the Chinese markets (Vesta has a meager 4.6% market share in China).

Before China’s wind energy market really took off around five years ago, there were roughly 10 foreign and local wind turbine manufacturers in China, according to Jens Tommerup, president of the China arm of Denmark’s Vestas, Danish firm with US$9.8 billion (RMB 63.4 billion) of annual revenue, which commands a world market share of nearly 15%.”At that point, non-Chinese manufacturers had the majority of the market,” he says. But last year, while the number of non-Chinese manufacturers remained largely the same, the number of Chinese manufacturers increased to more than 70. The foreign share of China’s wind business plummeted to 10.5% from 75% in 2005. Amid the state of flux, top foreign turbine makers are by no means suffering, even if their overall market share has declined.

The Chinese, on the other hand, have no foreign presence – probably because they are not mature and cannot compete technologically

Yet China’s turbine makers have a meager presence in world markets and nearly all their growth has been at home. In 2010, only one Chinese company among the country’s top four, Goldwind, exported wind turbines — 4.5 megawatts (MW) to Cuba, which accounted for 0.12% of Goldwind’s total new installations of 3,739.5 MW last year.

Dependence on domestic and often immature technology has caused problems:

The issue hit home after a massive disruption in February at the Jiuquan wind farm in Gansu province in northwest China. Regulators at SERC said it was the most severe accident for wind power grids in recent years. Reporters at the financial newspaper China Business News learned that most of Jiuquan farm’s wind power units did not have what’s known in the industry as “low voltage ride-through capability.” Such technology gives a power grid time to adjust itself in the event of temporary faults and maintain uninterrupted grid connection.

However, the fact is that now that the Chinese firms have had time to mature, they are going to start competing in the global market place.

Goldwind is targeting markets in the U.S., Europe, Australia and Africa and expects its overseas business to account for between 20% and 30% of sales within five years.

May be that is too ambitious:

That’s a tall order. It currently only has 9.5% of the global market share. Along with China’s Sinovel at 11.1% and Dongfang at 6.7%, other leaders included GE Wind of the U.S. at 9.6%; Enercon of Germany at 7.2%; and Suzlon of India at 6.9%, according to a report titled, “International Wind Energy Development Market 2010,” by Denmark-based BTM Consult.

But the fact is that none of this would have been remotely possible if China did not regulate the market to allow its own industry to become strong. May be there is a place for regulation – as long as the protection is for a short time, targeted and with significant competition. We know that rivalry and scarcity are drivers of innovation – so as long as money is not given out freely, it might encourage innovation and give national companies a chance to become strong. Countries could consider outsourcing innovation when necessary, not just buy the whole system from a foreign provider.  May be the reason why Indian regulation did not work was because they did not have a large number of companies competing for contracts.  In fact, they probably regulated the number of companies…

Use of IT to support R&D management

MIT Slaon Review has results of a survey about the use of data analytics in corporations with quite a bit of useful information.

Our inquiry into how organizations are turning analytics into competitive advantage comprised conducting a survey of more than 4,000 executives, managers and analysts from around the world and from a wide range of industries. The results of our second annual survey are now in and we’ve begun analyzing the data.

Here are some key take home messages for R&D managers.

  1. Data analytics is mainly used to support decision making and resource allocation.  (Pretty obvious)
  2. The key problem in use of data analytics is integrating data from a wide variety of sources.  This is a key problem in R&D management as different the disciplines involved in R&D all use completely different jargons and tools.  The same data is called differently is engineering, project management, marketing or resource allocation.
  3. Another key hurdle is in the consistency of data. When so many different disciplines and tools are involved, it is rare that they all have data available at the same maturity / detail. Many times, organizations with mature data get punished because bad performance is noticeable, while those that do not have data get to misbehave without any problems. This actually devolves organizations to hide data!
  4. Once the information becomes available, executives need to have consistent decision making. This hard because if pet projects are shown to not add value, executives will have to kill them just like any other project. I have seen many a decision making process fail because the leaders were not willing to make hard decisions. Once information becomes available, the leaders will have to walk the talk!

INSEAD Global Innovation Index

INSEAD just announced its 2011 Global Innovation Index (Or an interview here).  Here are top 10:

  1. Switzerland
  2. Sweden
  3. Singapore
  4. Hong Kong (SAR)
  5. Finland
  6. Denmark
  7. United States
  8. Canada
  9. Netherlands
  10. United Kingdom

Here is how this index is computed:

The Global Innovation Index is computed as an average of the scores across inputs pillars (describing the enabling environment for innovation) and output pillars (measuring actual achievements in innovation). Five pillars constitute the Innovation Input Sub-Index: ‘Institutions,’ ‘Human capital and research,’ ‘Infrastructure’, ‘Market sophistication’ and ‘Business sophistication’. The Innovation Output Sub-Index is composed of two pillars: ‘Scientific outputs’ and ‘Creative outputs’. The Innovation Efficiency Index, calculated as the ratio of the two Sub-Indices, examines how economies leverage their enabling environments to stimulate innovation results.

May be US does indeed need to invest more in innovation, but US already has the largest R&D budget in the world.  May be we need to think of something new?

Dr. Naushad Forbes, Chairman of the CII Innovation Council 2011-12 and Director of Forbes Marshall commented: ‘Today the whole world is talking about innovation in all forms starting from industry to government to society. After the recent economic slowdown the focus has shifted clearly towards the developing regions not only in terms of a booming potential market but also a hot spot for frugal innovations. Measuring this shift is important to know how we are doing, the GII is a starting point to do that and unquestionably in the right direction.’

Here is the NSF Innovation Survey if you want more…

Global race on to match U.S. drone capabilities

A quick post for today.  The article Global race on to match U.S. drone capabilities in The Washington Post has quite a bit of interesting data:

More than 50 countries have purchased surveillance drones, and many have started in-country development programs for armed versions because no nation is currently exporting weaponized drones beyond a handful of sales between the United States and its closest allies.

And here is some evidence:

“In an animated video and map, the thin, sleek drone locates what appears to be a U.S. aircraft carrier group near an island with a striking resemblance to Taiwan and sends targeting information back to shore, triggering a devastating barrage of cruise missiles toward the formation of ships.”

Drones or Unmanned Aerial Vehicles (UAV) are popular because of low cost and low risks:

Military planners worldwide now see drones as relatively cheap weapons and highly effective reconnaissance tools. Hand-launched ones used by ground troops can cost in the tens of thousands of dollars. Near the top of the line, the Predator B, or MQ9-Reaper, manufactured by General Atomics Aeronautical Systems, costs about $10.5 million. By comparison, a single F-22 fighter jet costs about $150 million.

Efforts are underway to extend UAV beyond land:

In recent conflicts, the United States has primarily used land-based drones, but it is developing an aircraft carrier-based version to deploy in the Pacific. Defense analysts say the new drone is partly intended to counter the long-range “carrier killer” missile China is developing.

Here is how arms races start:

China’s rapid development has pushed its neighbors into action. After a diplomatic clash with China last fall over disputed territories in the South China Sea, Japan announced that it planned to send military officials to the United States to study how it operates and maintains its Global Hawk high-altitude surveillance drones. In South Korea, lawmakers this year accused China of hacking into military computers to learn about the country’s plans to acquire Global Hawk, which could peer into not only North Korea but also parts of China and other neighboring countries.

Here is an example of arms proliferation (through resale of technology):

In 2009, the United States also objected to an Israeli sale of sophisticated drones to Russia, according to diplomatic cables released by the anti-secrecy group WikiLeaks. A smaller co-production deal was later brokered with the Russians, who bristled when Georgia deployed Israeli surveillance drones against its forces during the 2008 war between the two countries.

Here is another path for proliferation: From low cost producers / trailing players to defray costs of accelerated development:

“The United States doesn’t export many attack drones, so we’re taking advantage of that hole in the market,” said Zhang Qiaoliang, a representative of the Chengdu Aircraft Design and Research Institute, which manufactures many of the People’s Liberation Army’s most advanced military aircraft. “The main reason is the amazing demand in the market for drones after 9/11.”

And as a response, US also has to start exporting its technologies:

Vice Adm. William E. Landay III, director of the Defense Security Cooperation Agency overseeing foreign military sales, said at a Pentagon briefing last month that his agency is working on pre-approved lists of countries that would qualify to purchase drones with certain capabilities. “If industry understands where they might have an opportunity to sell, and where they won’t, that’s useful for them,” Landay said.

China’s Growth Will Force an Innovation Competition with the West

One key point for R&D managers in [email protected] article  Clayton Christensen: ‘China’s Growth Will Force an Innovation Competition with the West’:

But because China is growing so fast, they are now starting to feel the impact of their policy on population control. Wage rates are going up at a very fast rate… I don’t know who else can join them, but this will force China to not just knock off designs from the West. They’ll have to compete on innovation as well, because other countries can take the low end.”

I think this can be a very important driver of long-term R&D strategy.  We have discussed how  necessity is the mother of innovation. When companies compete in low cost markets, they have generate new innovations – which in turn improves their competitive position in the high value market (what is normally called frugal engineering or reverse innovation).  However, this article points out the next frontier – challenge from the BRIC countries in high cost  market.  Are we ready for that?

2011 Global R&D Funding Forecast

Here is link to the 2011 Global R&D Funding Forecast: from the R&D Magazine: “

Global Spending Following cuts in total R&D spending by most advanced economies during the global recession in 2008 to 2009, R&D spending growth resumed, albeit at reduced levels, in 2010 and is again forecast for 2011. Rapid growth in R&D spending in emerging Asian nations only slowed slightly during the recession and is forecast to continue growth that is several times that of the advanced economies.

US has a third of the global R&D spending, even though others are growing much faster. Here are some takeaways:

  1. In addition to outsourcing R&D, many organizations are building new R&D facilities in offshore locations.
  2. R&D Collaboration is increasing between developed and developing nations, with all parties gaining from it.
  3. R&D gap between developed and developing countries are narrowing as measured by patent filings.  Even though developed nations continue to file for new patents, developing nations are fast accelerating their rate of patenting.
  4. And some good news – academic innovation and R&D is accelerating.  May be because many strong students went back to academia when they could not find jobs in the great recession…
A lot of interesting data.

5 Reasons Why Government Should Spend More on Innovation

MIT Sloan Management Review has 5 Reasons Why Government Should Spend More on Innovation: “

  1. US is not in the top five countries in research spending
  2. US was ranked 40/40 in the ITIF ranking on improvement in innovation capacity
  3. Innovation generally requires technology development (not just business models)
  4. Government fuels innovation at universities and education
  5. All other governments seem to be pushing innovation.  Only in US it is controversial.

Interesting commentary.  Not quite sure what to do about it.  Just increasing funding may not be a comprehensive solution.  When I was in grad school, most students there were immigrants. As cultures get wealthy, do the loose the fire and desire to work hard?…

Is Your Company Choosing the Best Innovation Ideas?

Article first published as Is Your Company Choosing the Best Innovation Ideas? on Technorati.

There is an interesting article in the MIT Sloan Management Review about innovation pipelines and how to manage them (Is Your Company Choosing the Best Innovation Ideas?

A new innovation: LED light bulb that can also be used as a flashlight (From Tech-on)

As we have discussed in the past, even though every manger wants to have their organization become more innovative, getting those ideas is tough.  From innovation bazaars to the quirky way, a lot of different ways exist to access innovation.  However, once we get those ideas, what should we do with them?  The article has an example of a large multinational company that solicited ideas from their employees and got twentyfive thousand!

I analyzed proposals for innovative ideas solicited from more than 50,000 employees at a large multinational corporation operating several hundred sites in more than 60 countries (see “About the Research”). It is difficult to know how many employees eventually submitted ideas, how many proposals they sent in and how many different managers were involved in evaluating all of the submissions, in part because of the large number of operating locations and also the number of different IT platforms in use.4 I began with 25,000 idea proposals, which could be traced to approximately 6,000 different employees worldwide. 

Here is the trouble – how to sort through these ideas?

Sifting through ideas to find the best one may seem like it would be a mundane task compared with the creative side of the process; perhaps that is why there is little or no data on what organizations spend on the idea selection part of large innovation campaigns. 

More importantly, it is expensive to do these evaluations! The company in question invested almost six many years into evaluating innovative ideas over just two years.  That is equivalent to having three employees dedicated full-time just to evaluate innovative ideas:

More than 200 lower-level managers and about 80 midlevel managers were involved in evaluating roughly 20,000 of these ideas over the course of about two years before the selection process was terminated. Since each idea required anywhere between 10 and 20 minutes of total evaluation time (including reading and reporting on the proposal, conferring with colleagues and so on), and since some ideas had to be evaluated repeatedly, this group of ideas required total manager assessment time of between 5,500 and 11,000 hours (or 715 to 1,430 workdays); that does not include any time needed for implementation. 

Clearly, these evaluations have to be distributed and manged carefully.  The article goes into suggest six biases that need to be taken into account to ensure the process bubbles up the truly innovative ideas.

  1. Geographical and organizational bias: Ideas suggested in the country, division and site are preferred by respective managers.  If an idea comes from a particular site, the evaluators from that site are 10-50% more likely to give it a positive grade.  Some countries and cultures tend to be more innovation friendly than others.
  2. Length of the proposal: In this particular company, 250 words was the sweet spot for the proposal.  Both shorter and longer proposals had a lower likelihood of being selected.
  3. Tone of the proposal: A proposal that talks positively about the impact on the company business is more likely to be selected (regardless of the actual benefits)
  4. Size of the organization: Larger organizations are more likely to select innovation ideas (there is other research that supports this)
  5. Hierarchy: Less hierarchical organizations are more likely to select ideas for innovation.  We have seen related evidence from other angles as well.

The table below lays out some of the authors recommendations.  Here are mine:

  1. Develop a standard form for all innovative idea submission across the entire company.  This form can be structured to remove some of the biases pointed out above.
  2. Ensure the form is short enough (250 words or less) so each form gets equal attention.
  3. Ensure the form asks specific questions about business benefits.  Not only will this remove biases related to the tone of the proposal, but it will also force the innovator to think about the practical aspects of its innovation
  4. Set up a standard set of evaluation questions (checklists) for all evaluators.  This should eliminate geographical and cultural biases.
  5. Ensure evaluation checklists is short so that many different perspectives can be obtained.
  6. Distribute evaluation beyond managers to technology experts.  In addition to getting more valuable evaluations and  reducing management work load, this will help build employee networks and foster collaboration.

What Really Happened to Toyota?

MIT Sloan Management Review has an article (What Really Happened to Toyota?) that adds a bit more color to my post about Toyota from yesterday (Toyota’s quality improvement changes aren’t enough).  The article points out two root causes of the problems at Toyota.  The first being rapid growth and inability to manage the growth or a culture that could  not support growth while maintaining traditional values.  However, the most of the root cause analysis is the increased complexity.

Product complexity The other root cause of Toyota’s quality problem can be linked to the growing technical complexity of today’s vehicles.For a variety of reasons — stricter government regulations on safety, emissions and fuel consumption, and rising customer demand for vehicles with “green” and luxury features — cars are becoming increasingly sophisticated both in terms of how they are designed and how they are manufactured. A typical auto sold in the United States or Europe has more than 60 electronic control units and more than 10 million lines of computer code — a fourfold increase over what was common a decade ago.17 In effect, cars have become computers on wheels.

The article does not point out the a key contributor to increased complexity – the asynchronous changes in electronics that control cars and the mechanical elements of the car.  The interactions between elements of mechanical systems are much more complex and in many cases indeterminate.  Everyone is getting used to the  Moore’s law and resulting increase in capacity / features.  Consumers start expecting similar improvement in their cars, and that is where the trouble starts.

Lead time between exterior design approval and start of sales was compressed to less than 20 months. Accelerated design cycles strained the company’s development and production systems and pushed human resources to the limit, creating the conditions for quality failures. Although Toyota’s Lexus and Prius models accounted for less than 25% of its sales in 2010, they were among the most technologically complex products and were involved in more than half of the number of recalls.

When new mechanical elements are introduced (such as regenerative breaking), it takes a long time to figure out what impact these elements might have on other elements (such as brake pads).  Many times these interactions are unknown and extensive testing is needed before they can be discovered / delineated.  Unfortunately, the competitive pressures do not permit companies to have slow product development cycles.  If one does not come up with new features, the competitors will. However, the growth targets clearly complicated the problems:

To be sure, other auto companies, not just Toyota, have had to come to grips with the issues of product complexity. The competitive pressures to produce vehicles that are safe, clean, fuel-efficient and comfortable are industrywide. But for Toyota the challenges were even more intense, complicated by the already considerable challenges associated with global growth, including rapid expansion of manufacturing capacity and the proliferation of hybrids and other technologically advanced new models. Between 2000 and 2007, Toyota’s North American sales increased from 1.7 million units to 2.9 million units, and the company’s offerings grew from 18 to 30 models. 

Clearly, other companies also have the same problems, but the Toyota culture of long apprenticeship could not absorb this rapid pace.  The Toyota culture was embedded in every aspect of company’s product business.

The combination of rapid growth and increased product complexity has had major implications for Toyota’s supplier management system and its overall performance. Around 70% of the value added in Toyota’s vehicles comes from parts and subassemblies produced by its suppliers. So the consequences of the growth and complexity were felt across the company’s supply chain. First, Toyota personnel were stretched increasingly thin as the company’s growth accelerated. In response to the growth, Toyota had to delegate more design work to outside contract engineers and take on new suppliers because the internal engineering resources and existing supplier base couldn’t keep up with the demands.

The company had to move away from the long apprenticeship model:

A high-level Toyota executive publicly acknowledged in 2010 that, facing internal manpower shortages, the company had no choice but to use a large number of new contract engineers to boost engineering capacity. In his view, that contributed to the increases in quality glitches. The company came to use outside engineers for as much as 30% of its development work globally. That meant hiring contract engineers overseas; it also gave rise to a new policy of hiring temporary engineers in Japan, which challenged the company’s established ways of doing business. Toyota engineers had been accustomed to communicating among themselves and with Japanese suppliers with whom they had established long-term relationships that often relied on tacit knowledge built up over the years. The influx of new, mostly non-Japanese-speaking engineers and overseas suppliers during a short period of time led to problems of coordination and miscommunication

The author fails to point out however, that the traditional model is slow.  Long term relationships take a long time to develop and require a lot of communication.

Takahiro Fujimoto, a leading Japanese researcher on Toyota, reports that in the wake of rapid growth, Toyota increasingly failed to properly evaluate and approve components designed by outside overseas suppliers. As a result, Toyota’s relationships with suppliers became less collaborative, thereby weakening the company’s distinctive “relational contracting” system characterized by long-term close OEM relationships with suppliers. Ironically, it was the collaborative practices that had originally distinguished Toyota from its Western competitors. 

Whether Toyota chose to grow at a fast pace or not, the traditional R&D model would have had to change.  The customer-base expects their new iPhone to sync with their car stereo.  So, to me the complexity problem along with the Toyota culture caused the problem.  The source of the problem is the slow culture facing a rapid product development cycle.  I do not believe that the way to fix that problem is increasing quality control.  But somehow, that is the obvious answer and that is what Toyota has chosen to do:

Furthermore, Toyota has reorganized and, in effect, deliberately slowed down the product development process by establishing a new team of about 1,000 quality engineers and by greatly expanding its rapid quality response teams around the globe. Although driver error appears to have been the primary cause of the acceleration problems, user error can be reduced by good design. In today’s environment, that is a corporate imperative. To that end, Toyota has reconfigured the shape of the accelerator pedal in response to its floor mat problems.

I hope somewhere someone is also addressing other problems.

What do the product recalls say about the effectiveness of the company’s legendary production system? Why should other companies try to emulate Toyota if it is struggling with so many serious design and production issues itself? The reality is that Toyota’s problems were not caused by a faulty production system but by poor management decisions.