Global business success

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1 September/October 2011 Global business success Principles of innovation Boundaryless supply chain finance Maximizing the benefits of kaizen Ideas and innovations in operations and supply chain management Volume 21 Number 5

2 APICS magazine September/October 2011 Volume Numumber Number Features 28 Visibility and Value The APICS Interview Discover how kaizen events improve cycle times, eliminate waste, and lower costs. 32 Make the Most of Your Cash By Gregory L. Schlegel, CPIM, and Peter Merke, CFPIM, CIRM, CSCP Manage all financial aspects of your supply chain from anywhere in the world. Cover STory 36 Harness the Global Workforce By Elizabeth Rennie Leverage technology to expand the ways you work. 40 Stepping It Up By Albrecht Enders Differentiate between continuous improvement and innovation to achieve cultural change. Watch your inbox in November for the digital edition of APICS magazine. 2 September/October 2011 APICS magazine

3 36 40 For an initiative to succeed, all key stakeholders need to become experts in the language of innovation. page 42 Departments 4 From the CEO 5 From the Editor 6 APICS Report 8 Membership Matters 9 Ask APICS 10 Industry Watch 12 Building Blocks 13 Enterprise Insights 14 Sales and Operations Planning 16 Working Green 17 Management Perspective 18 Lean Culture 20 Executive View 22 Relevant Research 26 Book Review 50 Case Study 52 Lessons Learned Resources 44 Index 45 Product Showcase 48 ERP Directory APICS magazine (ISSN ) is published bimonthly by APICS The Association for Operations Management, 8430 West Bryn Mawr Ave., Suite 1000, Chicago, IL Phone: (773) Canada Post International Publications Mail (Canadian Distribution) Sales Agreement No Periodicals postage paid at Chicago, IL, and additional mailing offices. Subscriptions: $65 per year U.S., $77 Canada/Mexico, $93 elsewhere. Copyright 2011 by APICS. All rights reserved. Printed in the United States of America. POSTMASTER: Send address changes to: APICS, 8430 West Bryn Mawr Ave., Suite 1000, Chicago, IL APICS magazine September/October

4 STEPPING IT UP Accelerate improvement efforts with innovation basics By Albrecht Enders Innovation is a journey. Creating innovation requires endurance, discipline, and patience to build upon successful and even more importantly failed experiences. A 2007 McKinsey Global survey of executives defines the challenges companies face as they attempt to reinvent themselves and remain competitive. The survey discovered that most senior executives do not actively encourage and model innovation behavior top management believes there is not enough talent available for innovation leaders think they encourage learning from innovation failures employees feel their organizations do not encourage and reward innovation, learning from failure, and risk-taking activities. The results point to two critical gaps in modern business: an experience and behavior gap at the leadership level and a perception gap between leadership and frontline staff. So, how can a company create an innovation culture that delivers sustainable and profitable results? September/October 2011 APICS magazine

5 While both innovation and continuous improvement are critical to maintaining business viability over long periods, performance gains through continuous improvement alone are not always enough to meet an organization s needs. To help illustrate the difference between continuous improvement and innovation, visualize the act of rolling a bowling ball up a flight of stairs. Through continuous improvement, the ball rolls horizontally on the stair an achievable task. But with innovation, the ball is lifted vertically to the next stair a true functional change. (See Figure 1.) What innovation brings to the table is the ability to achieve that step-like, functional change. The best approach is to incrementally introduce and progress innovation principles in the organization a bottom-up methodology. Quick successes build critical confidence and the necessary momentum to fuel an organization s innovation journey, while quick failures September/October APICS magazine 2011 September/October APICS magazine

6 Performance Figure 1: Innovation versus continuous improvement Time Innovation Continuous improvement accelerate learning and can be indispensible lessons for the team. Furthermore, these experiences enable an organization to build a common innovation language. Top-down change management programs contain higher risk and absorb a tremendous amount of resources. They exhaust entire business units and can cause long recovery periods after the programs are completed. This is yet another reason to pursue an incremental, bottom-up strategy. To use a baseball analogy: It is more productive and reliable to hit singles and doubles than to count on a home run exactly when you need it. BACK TO BASICS To enable companies to build a cultural innovation platform, consider the following 10 principles. These can be deployed in any area of an organization and can be customized to fit product, service, and process innovations. 1. Define boundaries. Identify the key areas where innovation can be leveraged. The overall business strategy will guide the selection process. Examples of potential areas for innovation include portfolios, human resources, and manufacturing operations. It is essential to select high-impact areas that can most benefit from a conceptual breakthrough. Once the areas are defined, determine the type of innovation required. Is it process innovation? Would the organization gain higher leverage by reinventing a current solution? Clearly defined boundaries empower leaders and innovation team members to freely explore different approaches and accompanying strategies. Finally, there must be a cap on how much can be invested in an innovation program. Managers who are asked to deliver on innovation must understand how much time, people, and money the company is willing to spend on the discovery of a new solution. 2. Determine the innovation structure. This will consist of a team leader, team members, key stakeholders, and critical organizational interfaces. Top managers should be involved in the team selection process and ensure that all members have the right skill set to get the job done. The team composition that best complements the innovation leaders capabilities and style will go a long way toward innovation success. Note that articulating the innovation structure and the relationship of each function to other change management structures can cause capacity issues to surface. Unrealistic views about available capacity inevitably lead to departmental overload and an erosion of critical resources. 3. Create a common innovation language. Developing this language is an important step and one that requires constant nurturing. But be aware of some common mistakes many organizations make during this task. For example, some companies create tremendous waste by changing their innovation language and processes too often. The waste stems from the effort involved in learning tools and techniques that provide only incremental or insignificant improvements. Another pitfall is when the innovation language only penetrates a small group of experts in marketing or research and development, yet it is used to find the early indicators of business success. For an initiative to succeed, all key stakeholders need to become experts in the language of innovation so they can help build confidence in early success indicators. Too frequently, these stakeholders only become productive participants in the program when more traditional business information and data become available. 4. Choose and implement stretch goals. Stretch goals are high-level objectives designed to shift the mind-set of the organization and the company culture. They force a team to approach things differently than in the past. Take, for example, the sample goal of doubling customer satisfaction levels while cutting the complexity of the solution in half (for instance, through a 50 percent reduction in part counts or other parameters). Creating such an aggressive and seemingly impossible goal often is necessary to generate an early mind-set shift. At this stage, stretch goals should not be used for financial and business planning. The process of evaluating the fiscal impact and the business potential of an innovation must be initiated shortly before major investments become necessary. 5. target markets and customers. The next step is to define and focus innovation goals around key customer groups. The goal of this process is for the innovation team to think like its customers in order to find new innovation opportunities. An effective innovation language can ensure the deepest connection to these markets. To identify customer needs, the best methods are observational. It is important to understand how customers make value judgments and weigh trade-offs. These insights need to be ingrained in the minds of the innovation leader and team members. 6. Find innovation sweet spots. The purpose of the innovation sweet spot is to articulate a successful outcome. It is a process of imposing crucial strategic constraints on the innovation team. One such constraint might be meeting customer and community needs in a simple way in other words, a strategy is innovative and worth pursuing only if it can do more with less. Many times, an idea is perceived as innovative or creative if it feels new and different, but the innovation team can fail to assess early enough if the concept has true business potential. 42 September/October 2011 APICS magazine

7 The innovation sweet spot is a simple metric that helps the team measure the profit potential of a concept. 7. Discover and build solutions. Once the innovation sweet spot is defined, it becomes the critical foundation for creating a successful solution. While the concept discovery phase is more focused and fruitful when an early-needs assessment is performed well, often a shallow engagement during this phase results in marginal innovations and insignificant profit potential. This is manifested in solutions that have unnecessary manufacturing complexity and costs or are unable to obsolete old products and product lines. It thus becomes necessary to make a conceptual deep dive with the goal of articulating and creating alternative approaches that will slowly merge into different, higher-value solutions for customers and the business. 8. optimize solutions. Here the focus shifts from maximizing customer and business value to developing the details of a solution that assures high quality and rapid delivery. At the strategic level, this phase can be boiled down to assuring the solution s simplicity, manufacturability, and resilience. Where the discovery and build step is about finding the best ratio of customer value to business cost, this task is about finding the best ratio of quality to speed. Traditional engineering functions such as standardized work and checklists and departmental design expertise will help make this phase more productive and efficient. It becomes paramount during this step that the engineering group is in lockstep with manufacturing and marketing teams. Base the pacing of innovation releases on market and customer demand and the company s overall business strategy. Big, splashy launch events don t allow departments to define and capitalize on standard work. This can make the difficult transition into the factory and customer channels even more challenging. 9. Deliver the solution. Creating a new marketing story can be exciting especially when the team does a good job quantifying the innovation s performance gains. Key customers must be engaged along all phases of the innovation process to help validate the direction of the innovation program. The innovation language and outcome statements used during the initial discovery step become the foundation for marketing strategies and stories. Ensure that enough time is spent with the organizations that will deliver the solution the sales departments, dealerships, and downstream partners and Quick successes build critical confidence and the necessary momentum to fuel an organization s innovation journey, while quick failures accelerate learning and can be indispensible lessons for the team. involve them in the creation of stories that express the benefits of the innovation. This may require a solid training program and launch strategy and a deep understanding of how to help groups let go of the old stories and embrace the new ones. 10. monitor innovation success. No matter how successful the innovation, it is critical to connect program results to the early outcome statements of the innovation sweet spot. This takes time, as the market and the business adapt to a new solution. However, after a certain period, one can crystallize what caused the project to succeed or fail. It is important not to take this learning experience lightly. When something is successful, we tend to develop a level of arrogance and become blind to the actual causes of success. It is critical to know as much as possible about what part of the success stems from finding the sweet spot and the team s conceptual choices and what part was due to other factors. The more people can analyze the learning experiences during and after the innovation program, the more predictable and rapid the results will become. INTO HIGH GEAR The 10-step process of innovation basics promotes rapid employee engagement and enables users to define and execute mini-breakthroughs within their spheres of influence that contribute to the bottom line. These experiences instill the invaluable knowledge in individuals at all levels to support and lead strategic innovation programs. It is impossible to learn to drive a car by riding as a passenger or watching from the sidewalk. One has to get behind the wheel. An innovation culture will thrive only if key staffpeople including management have hands-on experience in innovation, know how to speak the language, and understand the mechanisms that cause conceptual breakthroughs. This is the most reliable route to success. Albrecht Enders teaches at Portland State University and is principal at consulting firm Enders Group. He has more than 20 years of experience in product innovation in the medical and dental industries. He may be contacted at or albrecht@ endersgroup.com. To comment on this article, send a message to feedback@apics.org. September/October 2011 APICS magazine 43