Operations Management Part V 1 The Value Equation

Operations Management Part V 1

The Value Equation 2

Innovation n n Product vs. Process Innovation Managing for Innovation Theories of Innovation Patterns of Innovation Technological Forecasting

The Value Equation Product Innovation Process Innovation

Competing with Process Innovation Competing with Marketing Capabilities Product Enhancements Value to Customer Competing with Price Quality Timeliness Flexibility Competing with Technological Capabilities Operational Capabilities Process Enhancements

Evolution of Product/Process Innovation high Product Innovation Process Innovation Rate of Innovation low early Stage of Product Life-cycle late

Managing for Innovation – Necessary Conditions n Innovative People n n Socioeconomic Incentives n n Motivated to challenge constraints Potential for wealth, fame, honor Diversity and Tolerance n Penalties for challenging status quo not excessive Moykr, The Lever of Riches, 1990.

Richter Scale of Innovation Transforming innovation Newness 100 Substantial innovation 10 1 Incremental innovation 1 f o y lt u fi fic D 10 e g n a h c 100 Wealth Creation Foster and Kaplan, Creative Destruction, Currency (Doubleday), 2001

Barriers to Innovation n Intrinsic Barriers n n n Uncertainty Fear of failure Requires array of talents n Institutional Barriers n n Managerial Barriers n n Emphasis on maintaining order and discipline Risk aversion Reward systems which discourage uncertainty Competition for resources Treat to careers and status Territorial competition Hard work!

Technology in History n Disorderly n n Breaks constraints n n Not an orderly process of research and development; few elements of planning or costbenefit analysis. Technological change involves an attack by an individual on a constraint that is taken as a given by everyone else. Unexplained timing n Often no good reason why an invention was made at a particular time and not centuries earlier (e. g. wheelbarrow and stirrup in Medieval times). Moykr, The Lever of Riches: Technological Creativity and Economic Progress, Oxford University Press (NY), 1990.

Technical Innovation Normal vs. Revolutionary n Normal Innovation n Innovation with an accepted “paradigm” Incremental in nature Increasing specialization required Kuhn, T. S. , The Structure of Scientific Revolutions, 1962.

Technical Innovation Normal vs. Revolutionary n Revolutionary Innovation n n Often a response to “intellectual crisis” Often proceeded by competing theories and ideas Changes the world view of a discipline Establishes a new paradigm Kuhn, T. S. , The Structure of Scientific Revolutions, 1962.

Examples of Paradigms n Everything that can be invented has been invented n n Louis Pasteur's theory of germs is ridiculous fiction. n n Marechal Ferdinand Foch, Professor of Strategy, Ecole Superieure de Guerre. There is no reason anyone would want a computer in their home. n n Pierre Pachet, Professor of Physiology at Toulouse, 1872 Airplanes are interesting toys but of no military value. n n Charles H. Duell, Commissioner, U. S. Office of Patents, 1899. Ken Olson, president, founder of Digital Equipment Corp. , 1977 640 K ought to be enough for anybody. n Bill Gates, 1981 From the Internet

Technological Progress Performance Physical limit of technology Opportunity Sweet Spot Effort (time, funds) Technological performance often follows an S-shaped curve Foster, Innovation: The Attackers Advantage, Summit Books, 1986

Technology Forecasts Performance Growth Forecast Maturity Forecast Early Forecast Development Forecast Effort (time, funds) Technological performance often follows an S-shaped curve Foster, Innovation: The Attackers Advantage, Summit Books, 1986

Performance Successive Tech Innovations Disruptive Technology Attacker’s Advantage Disruptive Gap Effort (time, funds) Foster, Innovation: The Attackers Advantage, Summit Books, 1986

Five Successive Tech Revolutions n Industrial Revolution (1771) n n Age of Steam and Railways (1829) n n US, Germany Age of Oil, Automobile, Production (1908) n n Britain, US Age of Steel, Electricity, Engineering (1875) n n Britain US, Germany, Europe Age of Information and Telecom (1971) n US, Europe, Asia Perez, Technological Revolutions and Financial Capital, 2002

Moore’s Law n In 1965 by Gordon Moore, co-founder of Intel, observed that the number of transistors per square inch on integrated circuits had doubled every year since the integrated circuit was invented. Moore predicted that this trend would continue for the foreseeable future. In subsequent years, the pace slowed down a bit, but data density has doubled approximately every 18 months, and this is the current definition of Moore's Law, which Moore himself has blessed. Most experts, including Moore himself, expect Moore's Law to hold for at least another two decades.

Take-Aways n Innovation n n Promote necessary conditions, mitigate barriers Paradigms are powerful barriers We are in the middle of a tech revolution Technology n n n Technological forecasting is difficult if not impossible S-Curve analysis helpful Beware disruptive innovation