Technology

The Dreamliner and the Risks of Transformative Innovation

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In October of 2011 Boeing launched a new plane, said to be the most innovative new aircraft in the commercial space in decades.  Airlines were lining up to order their own, with Japanese airline ANA waiting over 3 years for its first craft to be delivered. Customers paid up to $30,000 per seat to take a ride in the new plane that had the entire industry and traveling world abuzz. The plane offered huge improvements in energy efficiency, was made from a variety of high tech composite materials, and included a wide-spectrum of high-end consumer features like increased space, reduced noise, modular bathrooms, and even a LED light show during preparation for take-off. It seemed like a huge leap for Boeing and the aircraft industry.

The Dreamliner 787 was meant to herald a new age of commercial aviation. Instead it has Boeing scrambling.
The Dreamliner 787 was meant to herald a new age of commercial aviation. Instead it has Boeing scrambling.

However in the time since, Boeing has been dogged with problems: Cockpit windows have cracked multiple times, now three active Dreamliners have had overheating problems related to their lithium ion batteries, and two planes have had fuel leak problems. Given that only 50 Dreamliners are in service (with hundreds more on delayed order) these are potentially scary indications that the entire plane design may need to be reconsidered. The issue has even led US investment bank Goldman to downgrade Boeing stock from “conviction buy” to “buy” while the issues are reviewed by the FAA.

The question that has to be on the mind of many Boeing executives is whether the Dreamliner was too big of a risk – to big of a redesign and innovation – to have been taken in the first place; particularly in an industry with such high regulatory and consumer scrutiny.

But has the Dreamliner really failed? Or is it simply experiencing the rocky beginning that many transformational innovations go through? What does this case say about the relative merits of the first-mover advantage versus being a fast-follower? Let’s consider the details and the impact the Dreamliner has had on its:

–         Industry/competitors: the airline manufacturing industry is particularly competitive, with high levels of capital required. In fact, two major western companies now dominate the consumer and military industry, with Boeing and Airbus fighting for market share. Airbus is set to launch their own next generation craft next year – it too relies on the same type of batteries found to cause issues for Boeing. Boeing has the first-mover advantage in that they’ve defined the next stage of technical development and can capture the early market – whatever features Airbus shows in the A350 will almost certainly have been inspired by the 787. Airbus however has the fast-follower advantage: the chance to quickly adapt its competitor’s technology while making necessary improvements to have an even better product at launch.

–         Market: the airline industry is intensely competitive, with any opportunity to gain consumer share coveted. The Dreamliner captured the imagination of the commercial airline industry, with airlines queued up to place orders to not only gain an edge against their competition but also to keep up. The Dreamliner has been a success, but it is vulnerable to being displaced by its competition based on the difficulties relating to safety. Unfortunately, in the airline industry almost any issue quickly escalates to a safety concern. No amount of internal testing can replace use in the field, so these ‘teething’ problems are almost inevitable in such an innovation. Only time will tell if these are early indications of incomplete qualification of designs and innovation or just minor bugs that needed to be worked out.

–         Consumers: the Dreamliner did something no plane has done for decades – it captured the enthusiasm and interest of the flying public. Boeing was able to become synonymous with innovation in the industry. This interest almost certainly contributed to the early success in selling the plane within the airline market. Boeing now has the challenge of resolving safety issues in a way that assures the consumer of the concern for safety. This means solving the quickly and completely. Another instance of having the plane grounded might be permanently disastrous for the Dreamliner and Boeing brand in the eyes of consumers, especially related to new innovations.

Transformative Implications BoxThat the launch of a transformative new airliner design will meet with some growing pains should have been no surprise to Boeing executives. With any innovation there is a level of risk involved in introducing it to the market – whether that be market acceptance, technical success, or speed of adoption (among other factors). The bigger question is whether Boeing understood the risks before launch and fully evaluated the upside versus the potential downside of making such a transformational leap. The Poole College of Management provides a great discussion on ‘Managing Levels of Innovation Risk’ on its Enterprise Risk Management page. For the executive or innovation leader it is very important to understand the organizational needs – for real breakthrough growth or to capture a new market segment transformation innovation can be a necessity. However, it may be enough to make more sustainable, low risk incremental innovations in order to obtain the same gains.

To the Osmotic Innovator, the warning is to be certain of the organizational goals in relation to an innovation initiative. While transformational innovations are exciting and capture the imagination both internally and externally they also carry a very high risk profile and can do long term damage to a brand and a company that undertakes them. There is a case to be made that in some cases incremental or core innovations can represent a more easily digestible risk profile.

So where does Boeing net-out? Boeing, hopefully, made the evaluation that its position required or allowed it to take a gamble on a transformational innovation. Rather than suffering the innovators dilemma and being outpaced by other firms it would disrupt its own business and take the risk necessary to do so. While being first-mover allowed them to capture a potentially huge share of the market for the Dreamliners benefits (high efficiency longer-range medium sized planes with enhanced consumer experience) and set the industry standard, technical and supply problems have given its competitor a chance to both learn and catch-up, potentially offering a better comparable product when they do launch. Boeings willingness to work with regulators to make its system safe speaks well to regulatory agencies, airlines, and travelers; but it is inherent that these changes are made quickly to repair the damage to the brand and fend off otherwise equivalent competitor offerings.

The future success of the Dreamliner and its place in history (as either a transformational innovation or a failed early stage technical innovation bested by the fast-followers) will rest on Boeings willingness to dedicate resources to solving its problems quickly and efficiently and on the ability of its competitors to leverage these first-mover difficulties to their advantage.

Observing the Innovators Dilemma

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In 1997 Clayton Christensen published The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail.  The book (which we highly recommend) proposed an intriguing explanation as to why large companies with seemingly unlimited resources can fail to see their own demise in the emergence of disruptive technologies.  One oft cited example of this phenomenon is the demise of Kodak who not only failed to see the importance of digital photography on their core film business but in fact were the ones who invented digital photography in the first place.  The purpose of this post is not to discuss Christensen’s work however but instead to cast our eyes over some industries and see if we can spot companies who might well be in the midst of an innovators dilemma as we type.

In order to identify where an innovators dilemma might lie we need to quickly describe the required conditions for its occurrence.  A very common approach, and one used by Christensen, is to describe the situation using innovation S-curves as below.

A:  A new technology in its infancy.  Performance improvements are hard to generate as the innovation is becoming understood.  Generally, innovations at this point are only used by very early adopters and the value of the product offering may be limited.  B:  Rates of performance advances are peaking, rapidly catching up to incumbent technology. The technology becomes commonplace and even the industry standard.  New competitor technologies look hobbyist or misaligned.  C:  The technology matures, performance advances are harder to generate as the limitations of the technology are found.  Most people who might use the technology are doing so.  New competitor technologies seem to have higher potential and are gaining acceptance.  D:  The technology fades.  People stop using the technology and choose others.  A new technology becomes the industry standard.  The Dilemma Zone:  Technology A is well understood, the industry standard and an integral part of the business model of those employing it.  The profitability of the technology is peaking.  Technology B looks very promising even to the point where it is the odds on favorite to be the future of the industry; the only question is exactly when.

So, with this set of conditions in mind we will go hunting for some modern dilemmas in the businesses of today.  Kodak followed the red S curve to their well-publicized regret, who might be next?

Dilemma #1, HBO:  HBO are having a great run at the moment, their internally created content such as Game of Thrones and Boardwalk Empire have generated huge returns for their parent company Time Warner.  HBO is one of the most well known and entrenched premium cable channels in the world and its exclusive offerings are an important part of the business model of cable providers such as Verizon and DirecTV.  So where is the dilemma? Well, Game of Thrones Season II has been downloaded illegally about 25 million times over the year1 and HBO know why; there is no other way to get it apart from subscribing to a full cable service.  HBO could provide downloads through their own site or through iTunes or another vendor but (at least for season 2) chose to take the money i.e. maintained the high premiums from the cable providers at the expense of the pirated copies.  Financially this makes sense today but long term HBO may not always have such a gem as Game of Thrones with which to negotiate (or even define) the process of streaming its content on demand.

Dilemma #2, Big Pharma:  Big Pharma is REALLY big and is based primarily on a model that is around as old as your granny.  Two pillars, small molecule chemistry and blockbuster “one size fits all” treatments are what has driven the growth of this industry since the early 20th century but that is coming to an end.  Biotechnology in its many forms is most definitely the future of medicine in the 21st century.  A scan of where the breakthrough patents are being generated in the field and you can see the majority are coming out of small Biotechs and Universities not the massive health laboratories of the S&P 500.  The problem is that small molecule chemistry (what Big Pharma is great at) is not Biotechnology any more than plumbing is interpretive dance.  The initiative needed to transition the capabilities of say, a Pfizer (100,000+ employees2), to a new science is immense, perhaps too immense.  Coupled with this is a reality that Biotechnology tends to make very targeted drugs, limiting the opportunity for another “everyone gets a pill” Lipitor or Prosac, a model that Big Pharma now relies on.  So the dilemma is set, Big Pharma must re-skill, and possibly re-size, but to do it now or to hold on for just one more blockbuster?

Dilemma #3, Microsoft Office:  Microsoft itself is arguably in the middle of an innovators dilemma but I thought I would pose the case for one of its most profitable jewels, Office being very much in the middle of a technology revolution itself.  Office is everywhere, you can’t do business without the ability to open and edit Word, Excel and PowerPoint documents and this has ensured that the Office suite has remained the standard install for companies worldwide for many years.  The knock-on effect of Office being the choice of your company is that you are far more likely to install it on your home PC as well, and why learn two different systems?  So where is the dilemma?  Well, Microsoft knows that it won’t be long before the idea of having to boot up a desktop or notebook to balance the household budget or write your resume will be gone.  People will expect to run their households from their tablets and phones while sitting on their sofa not hiding away in the home office.  So, Office for tablets?  Where is it?  The problem is that fully functioning office products are complex, far more complex that we are used to dealing with on tablets and phones.  Microsoft’s choices seem to be a) cut back on the functionality (losing their technical advantage), b) teach us a new way of interacting (losing the synergy with the company office) or c) lose the home space all together.  You might be thinking that you would still be tied into the Office suite simply because even if you change your home tablet away from Office, other people will still send you Word documents. The simple fact however, is that file type is almost irrelevant these days. Download a free service like Open Office and you will see it is quite capable of opening Word docs and even saving them in Word format so on Monday morning your company PC will be compatible with your weekends endeavor.

1         http://www.forbes.com/sites/andygreenberg/2012/05/09/hbos-game-of-thrones-on-track-to-be-crowned-most-pirated-show-of-2012/

2         www.morningstar.com

The two sides of…Idea Management Software

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Heads

Every organization has its own way of generating ideas, but unless the system is totally broken there is always a plentiful supply of good, bad, and indifferent ideas floating in the minds of its employees. The main problem organizations have is in tapping into those ideas in a way that allows the best ones to rise to the top. In top down organizations leadership designates priority areas to ensure focus but can miss the boat on big wins from disruptive innovation. Organizations that allow everyone to work on their own pet idea are rewarding innovation, but allow its impact to be diluted through extensive resource waste on repetitive and irrelevant ideas.

How can an organization get the best of both? Rather than reinventing the wheel to come up with a new system the most efficient path forward can be the utilization of an off-the-shelf idea management software like Spigit, Imaginatik, or Brightidea that encourages idea submission from all parts of the organization and that then commences an organized process of idea ranking to find the big opportunity areas. This avoids the pitfall of having too few people making a decision and missing out on a big opportunity – the crowd sourcing or stock market approach allows contributors to collaborate to build ideas up and move good ones forward. It also allows management to designate winning ideas to go forward and to be allocated the necessary resources to succeed. Besides these two benefits – involving all employees in the innovation process and ensuring proper focus and allocation – idea management systems also become a de facto filing system for ideas, making sure that work your organization has done in the past doesn’t get lost. Ideas that have been vetted and collaboratively generated are at the ready anytime you need a new innovation.

Idea management software won’t generate winning ideas for you – but it will simplify the process of managing innovation and will allow you to master your innovation pipeline.

Tails

Idea management software is becoming more and more commonplace in corporate environments and the number of different vendors producing and selling their own management platforms seems to increase every day.  Like all productivity tools they have their place and when used well can add tremendous value to an organization’s efficiency. However, idea management tools must be chosen very carefully and before beginning down this path you should consider the following:

Are you sure that the problem your company has is too many great ideas?  If your staff isn’t sure what to work on because they aren’t sure what (if any) are the good ideas then maybe idea management isn’t as important to you as an improved idea generation process

Are you sure that an idea management platform can cope with the shear number of ideas in your innovation portfolio?  Many platforms promote their ability to cope with large numbers of entries, but does the interface allow for the user to cope?

For platforms that promote some sort of crowd wisdom approach to idea management, are you sure that the software will be engaging enough to get a large number of people involved?  Crowd wisdom only works if there is a crowd.

Many platforms include mechanisms for contacting internal experts or require experts or management to comment for ideas to progress.  This works when the idea base is well targeted and relevant, but when a system becomes a catch-all for every half baked idea in the company, the contact mechanisms can rapidly become inbox spam turning off the very people who can contribute most to the system.

Like all productivity tools the adoption of idea management software has to drive a benefit for the company in the form of improved output (do more stuff), improved efficiency (do the same stuff with less people) or improved quality (do better stuff).  Do you know how to measure or realize this benefit for your innovation program?

In short, better idea management is a challenge that all innovation groups face but the system you chose must match both the quality and quantity of the ideas in your portfolio.  Just because it doesn’t have a URL doesn’t mean it isn’t cutting edge.

Why is Desktop Manufacturing Important for the Osmotic Innovator?

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MakerBot 3D Printer (source: Hack N Mod)

In recent months there have been increasing mentions of the concept of “desktop manufacturing” in both technical and lay press. “Desktop manufacturing” refers to the use of 3D Printing technologies to generate products using designs developed on or delivered to a user’s computer. This revolution has been coming for some time; with Fast Company stating that “the end of the  current production- manufacturing economic model may be on the horizon” back in 2009. In a keynote at the FEI 2012 conference Chris Anderson of Wired magazine spoke on the new business models that these technologies are enabling –enthralling the audience with stories of successful application of the technology. Anderson went so far as to say we are only at the dot-matrix stage of this technology, with massive growth and development poised to occur.

Indeed, increasingly advanced 3D printers and the computer-aided design (CAD) programs that support them are being made available at lower and lower prices to small companies that rent time and capacity to other companies and to individual consumers with the interest.

But why should this topic be important to the Osmotic Innovator?

–         Rapid Prototyping: the ability to quickly turn-around prototype products should not be underestimated. Only 10 years ago prototypes were used sparingly due to cost and time to manufacture, limiting consumer interactions with test concept designs to 2D images and descriptions. Even today many large companies have their own 3D printing capacity to churn out test designs quickly. The 3D printers of tomorrow may be simple enough to allow product developers with no design experience to create and modify innovative new solutions early in the process. It appears inevitable that the 3D printers of tomorrow will be capable of handling multiple materials to create complex mechanical objects. Making efficient use of these systems has the potential to transform the product development process even further.

–         Do-It-Yourself Mentality: the students of today (as well as many of the tinkerers) are beginning to see this technology as a normal part of doing business. Whereas teams that want to have the capability to model and create products on the fly currently need to staff individuals with design competency and engineering backgrounds the skills needed to use these tools are increasingly part of a basic technical education. Workshops that allow creative people to access these tools in their free time are also democratizing the product development process, making it possible that competition (or opportunity) for your company is going to come from unanticipated sources in the future. Your best customers might become your worst competition as they are able to harness this technology to make their own product improvements. Having a strategy to harness this technology and those with the skills appropriately will part of doing business in the future.

–         Future Technologies / Business Models: just as desktop publishing transformed the creation and distribution of printed content innovators should be ready for desktop manufacturing to have a similar impact on the creation, manufacturing, and distribution of new products. How your company will respond to, or position itself within these changes will go far to determining its future.

Regardless of your experiences with desktop manufacturing in the past, it is clear it is a concept that is poised to transform a multitude of industries. As an Osmotic Innovator there are a number of opportunities that can be leveraged to boost your teams’ effectiveness. Are you ready to seize the chance before your competitors do?