Carmageddon 1.0: The Collapse of Australia’s Innovation Pipelines Risks Innovation-Driven Prosperity
Introduction to Gary Stewart: Gary brings his on-site perspective as past General Manager at Toyota’s Aisin Plant, plus a remarkable 20-year history with Denso and Toyota companies. He is now Managing Director at Lean Design Australia PTY Ltd. can be contacted at firstname.lastname@example.org Note: This is just the first Article authored by Gary, with more detailed insight into protecting Innovation Pipelines in future. In this series he outlines the current situation in Australian Manufacturing and will share with us details we can learn from.
Problem: This year’s dramatic collapse of Australia’s Design & Development Capability (DDC) has broken their Innovation Pipelines – and created Commoditized Manufacturers instead. This undeniable change is destroying the country’s ability to deliver future high-value jobs and national prosperity.
Solution: A renewed vision that focuses on incentives and programs incorporating Disruptive Innovation and Sustaining Innovations – coupled with a reduced bias for current Efficiency Innovation (Lean) strategies, the current primary Industry-assistance method from Government.
1. What is an Innovation Pipeline?
2. The dramatic collapse of Design & Development Capability (DDC) in Australia
3. A Commodity Society creates Commodity Manufacturing
(Note: The top 10% of today’s manufacturers have already reinvented themselves
away from Commoditized Manufacturing)
4. Clayton Christensen and the Innovation Dilemma
5. The Buffett Rule for Innovation
6. Pulling the threads together
7. What should Australia do right now?
Innovation: It’s not simply about creating ideas. For Innovation to happen, an idea must be executed into the hands of a Customer. Otherwise, it will remain nothing more than an untested idea of questionable Value. Australia has long suffered poor outcomes from the Innovation promise – despite large increases in Taxpayer funding levels poured into Research Innovation, or Efficiency Innovation (i.e. Lean).
A major reason for these continuing poor outcomes is because Australia’s Innovation Pipelines have become increasingly broken over the past 20 years – mostly caused by the dramatic collapse of Design & Development Capability (DDC). This undeniable change denies Australia the promised prosperity from Innovation.
The collapse of Design & Development Capability (DDC) has been dramatic
Over the past 20 years, 30-40% of Australian firms have been lost with the resulting decline of manufacturing production. While mostly unseen, the dramatic collapse of DDC inside our firms stems from the loss of from 1 in 3 firms in the mid 1990’s to 1 in 20 firms today. This has fully broken the Innovation Pipelines over the past 20 years, as confirmed by a stunning 85% reduction in those firms being capable of developing products from end-to-end.
It means, that firms whose Innovation Pipelines have been broken, must now compete among the huge numbers of “commoditized manufacturers” for lower returns.
A Commodity Society creates Commodity Manufacturing
According to Swedish Economist, Kjell Nordstrom and Jonas Ridderstrale, author of Karaoke Capitalism, “The ‘commodity society’ has a surplus of similar firms, employing similar people, with similar educational backgrounds, coming up with similar ideas, producing similar things, with similar quality, and similar prices [and returns].” It means we now live in a User/Customer experience Economy in which the User/Customer controls the market.
The User must now pay a “price premium” for an outstanding product or service experience. (think Apple, or Dyson). Any lesser User/Customer experience means they will pay an “ever reducing market price” for those types of commodities and products – and this leads directly to an even faster decline into Commoditized Manufacturing. This drives ever-shorter competitive lifecycles. The race to the bottom is on with the chase to lowest cost outcomes.
This in turn destroys a firm’s capability to innovate which puts them on the road to becoming a fully Commoditized Manufacturer that must then struggle for survival in an increasingly globalized world against more brutal overseas commoditized manufacturers. Current estimates indicate some 90% of Australia’s firms are now Commoditized Manufacturers.
Clayton Christensen and the Innovation Dilemma
Harvard’s Clayton Christensen, the author of The Innovator’s Dilemma, blames an ever-increasing emphasis by Governments and company leaders to over-focus on “Efficiency Innovation” (Lean). Instead, Christensen sees a focus on “Disruptive Innovation” or “Sustaining Innovation” would result in richer innovation streams. The constant drive to adopt the more popular “Efficiency Innovation” focus also leads to the Broken Innovation Pipeline.
The Buffett Rule of Innovation states, “Show me the Incentive: and I will show you the Outcome caused by that Incentive”. Hence, if the prosperity outcome from Innovation policy in Australia is not delivering, ask – a) What does Australia need from Industry? And, what has the politician promised? The answers show quite simply that the incentives in the current Innovation system are distorted at best, or just plain wrong. Given that the Innovation policy in Australia is not delivering on the prosperity promise – the Buffett rule indicates that Australia’s current incentive programs for Innovation are wrongly focused and contributing to the creation of its broken pipeline.
The top 10% of firms have reinvented themselves away from Commoditized Manufacturing
Just as we have an inequality in incomes in society – we have the same inequality happening in business where the top 10% are fast separating away from the bottom 90%. And they are doing it by dramatically improving their ability to fully develop a product or service from end-to-end via a new competitive advantage Design & Development model.
What to Do?
If Australia is ever to reap the much-promised national prosperity rewards from the pursuit of innovation – Australia needs to quickly set about repairing the broken innovation pipeline. This will require new programs and incentives better focused upon “Disruptive Innovation” and “Sustaining Innovation” activities – with a corresponding reduction in the current single-minded bias towards “Efficiency Innovation” as the primary Industry assistance method provided by Government. Simply adapt Government policy and incentives to copy the Innovation Pipeline strategies of the 10% who win.
Innovation: It’s not simply about creating ideas. It must be an idea that’s executed into the hands of a Customer. Otherwise it will remain nothing more than an untested idea of questionable Value and that is NOT Innovation despite the best efforts of Research. In other words, it is an idea of some Value; executed Brilliantly; and adopted by Customers to better People’s lives.
For Manufacturers, it is the execution of an idea of some Value that addresses a specific challenge while delivering value to both the Company and Customer. The key to delivering the ‘innovation promise’ lies in the effectiveness and efficiency of bringing the idea both into reality – and into the hands of a customer. ideas have little value without execution. They are investments in human capital capabilities, and the competencies of the customer. True innovations are about the value they bring to the Customer – not the innovator.
The 3 crucial parts to Innovation success:
1. Creation of ideas with some Value
2. Translating, and then executing the idea into Reality
3. Putting the executed idea into the hands of a Customer.
Ideas allow us to build a better world. But they must first be translated – and then executed to prove they bring a competitive advantage to their day-to-day reality as they commercialize their offerings. The key question? “By what commercialization methodology will Australian Businesses translate their research ideas into reality?”
1.0: Innovation Pipeline: What is it?
An effective innovation Pipeline consists of 3 phases”
1. An ability to Create ideas – often supported by a Research process.
2. An ability to Translate the idea – via a highly capable Development and Execution process
3. An ability to Exploit the idea – via a very efficient production process
Fully integrating all three phases is crucial if the idea is to be successfully developed into the hands of a Customer.
How a high-performance Innovator like Toyota integrates the Innovation Pipeline
In Toyota they aim to create 3 distinct Knowledge Centres as separate human core competencies – and as the basis for creating an enduring competitive advantage to deliver very high-performance results across the company.
1. Day-to-Day Operations – “Refinement Innovation” (productivity) – efficiency of day-to-day work (the Reality)
2. Development & Execution – “Creative Innovation” – the critical link translating the idea into the operations reality
3. Research & Ideas – “Research Innovation” – the research, exploration, & refinement of ideas
The key to Toyota’s success is making this “Creative Innovation” into a Core Competency that translates the high uncertainty of an idea/innovation into near certainty as customers demand, from every car produced every day.
An effective “Creative Innovation” Core Competency can deliver 50-90% reductions in total production cost, Time-to-Market development, & Customer supply Lead-times.
Exhibit 1. The Toyota Model for Executing Research ideas into the Day-to-Day operations.
Toyota Production System (aka Lean Manufacturing) consists of the following 3 components. The (Green) core competency above is NOT the secret of Toyota despite all the hype and marketing nonsense. And while important, it is not the ultimate savior of world class manufacturing.
1.0 Back End – Day-to-Day Reality
Continuous Improvement — “Refinement Innovation”
Sales & Marketing
Finance & Costing
Production & Processes
HR: Training & Skills
2.0 Front-End – Create Tomorrow research & DEVELOPMENT — “Creative Innovation”
Sales & Marketing “Growth & Expansion”
Financial Modelling – “Cash Cow”
Innovation & Technology Integration
Future Production & Quality Systems
Systems Design & IT Development
Human Development “Knowledge Centres”
Mode: Proactive – “The Innovators” – Internal University
3.0 ‘Out-there’ Ideas – Create the future
RESEARCH & Development – “Research Innovation”
Strategy, Ideas & New Opportunities
New Business Model Design
Mode: Predictors “The Disrupters”
The Toyota production system core competencies above are NOT the secretive Toyota. Despite all the hype and marketing nonsense, which is important, but it is not to be the ultimate savior of Manufacturing
The real secret of Toyota’s Business success is the combination and integration of these three core competencies as a single, robust, holistic, Innovation Pipeline methodology that drives very fast agility and time-to-market responses, while simultaneously creating economic “Cash Cows” or “Stars” of its businesses.
The key point of this structure is the ability to develop and commercialize Innovations and Technology ever faster. It is only firms that respond fastest to new commercial opportunities that will win the future race to the top in Manufacturing.
Next Issue Blog Post #10: Inside Carmageddon 2 – What happens when the Innovation Pipeline is Broken?