2 paragraph discussion

Research . Technology Management52 0895-6308/08/$5.00 © 2008 Industrial Research Institute, Inc.

WHAT’S CONSTRAINING YOUR INNOVATION? Here’s how the Theory of Con str aints can be applied for rapid and

continued improvements in bottom-line impact from innovation.

Michael A. Dalton

OVERVIEW: Leaders regularly need more from their innovation investment while technology and marketing groups are already stretched too far. Although the typi- cal response to this dilemma is to add process (and the attendant bureaucracy) or to teach project and time management skills, these approaches often just end up with people running faster on the same treadmill. The answer lies in the more subtle direction of the Theory of Constraints (TOC) — a tool that has historically been used to help manufacturing operations identify and eliminate bottlenecks. This approach enables innovators to rapidly improve their growth results while gradually creating a culture of continuous innovation improve- ment. Whether in consumer or industrial markets, whether in products or services, a TOC approach works with the current process to fi nd the innovation bottle- neck — the constraint that is holding back all the other steps in the process. Then fi ve focusing steps are used to rigorously eliminate that constraint and move on to the next with an increase in innovation throughput as each cycle of improvement is completed.

KEY CONCEPTS: Theory of Constraints, ongoing im- provement, process mapping, innovation assessment.

A stunning 72 percent of executives now rank innova- tion in their top three priorities, according to one re- cent study ( 1 ). Unfortunately, effective innovation management remains an art and a mystery for a large number of companies, with nearly half of the execu- tives in that study reporting dissatisfaction with the

return on innovation spending. The results were even worse for the 56 percent of industrial companies that were dissatisfi ed.

Perhaps surprisingly, most companies don’t need to in- vest any more than they already are in order to increase innovation-driven growth. Like many things, innovation isn’t about how much you spend as much as it is about how you spend it. What might surprise even further is that the Theory of Constraints, a concept originally de- veloped as part of the manufacturing discipline, can be the key to improvements in growth and return on inno- vation using the resources that you already have in place ( 2 ). Traditional continuous improvement efforts are of- ten based on the premise that the whole can be made stronger by making each part of the organization or each step in the process stronger. We have been led to believe that optimizing each local element of a process will in- crease the global output. But TOC recognizes that pro- cesses are interdependent chains of activities (Figure 1), and the strength of a chain is not determined by the sum of its parts but by its weakest link. To see any improve- ment, the effort must be focused on strengthening the weakest link. For more on the results that have been achieved with TOC see “TOC: From Theory to Proven Results,” page 54.

In the mid 1980s, Eli Goldratt and his book, The Goal, started a quiet revolution with the TOC, which laid out an approach for improvement in manufacturing environ- ments. My practice has extended these concepts to new product and service innovation as a tool for attacking the issues that limit growth and constrain a company’s in- novation. Let’s start by taking a closer look at the fi ve focusing steps of TOC and the accompanying strategies and tools that you can use to attack your constraints and create organic growth and innovation in your markets. Figure 2 provides a graphical overview along with con- siderations at each step.

1. Identify the Constraint

To get started, you fi rst have to agree on the goal and identify the constraint holding back performance. What are you going to improve? Your current operations are

Mike Dalton consults on growth through new product development and innovation as managing director for Guided Innovation Group, LLC, in Racine, Wisconsin, and also consults on open innovation and alliances as a member of the Alliance Management Group, Inc. He has 24 years of prior business experience as a general management and business development executive for the industrial polymer division of S. C. Johnson & Son. He holds an M.B.A. in marketing and fi nance from the Uni- versity of Chicago and a degree in chemical engineering and gas and energy technology from the Illinois Institute of Technology. [email protected]

September—October 2009 53

focused on the goal of making money today. Therefore, the goal of improving innovation must be to generate more money in the future—more money than your op- erations would generate without new products and ser- vices. The goal is not invention. Invention is simply the tool to achieve your goal.

Second, you have to know which metrics you will use to measure improvement. While there are many metrics to measure innovation improvement, throughput and cycle time are key. Throughput is the cash fl ow from the sales of new products and services over and above truly vari- able expenditures such as raw materials, components, and outside purchased services ( 3 ). Increasing through- put means more money or a higher return from your in- vestment. Cycle time is the length of time it takes for a project to go from proposal to generating throughput. Decreasing cycle time means that your innovation be- gins paying off sooner.

When you ask the people in your organization to help identify the constraints blocking higher innovation performance, you’ll probably fi nd no shortage of issues. But the key is to fi nd the bottleneck constraint—the one that is limiting the output of the system. Before you get started, it is also helpful to review the following sections on process mapping and understanding con- straints.

Process mapping

Having a map of your innovation process is critical be- cause it allows you to understand where the process is breaking down.

Are you getting too few new ideas from the market • place?

Are projects routinely delayed in development?• Does the market really need your new products?•

With a process map, you can ask team members across all functions where they see the symptoms that help identify the bottleneck:

Where do the biggest delays occur?• Where does there always seem to be a backlog of •

work?

Where are downstream groups constantly idle and • waiting?

Mapping your process doesn’t need to be complicated. The basic idea is simply to sketch out how a new idea comes into your company and eventually becomes a product or service reality. Gather a few of your more sea- soned commercial and development people—the ones who really get things done. Ask them to diagram how your best-selling products and your most recent intro- ductions were commercialized, and you’ll have a good

start on the current process. Figure 3 is an example pro- cess map, but every business will differ in some way.

Understanding constraints

Generally, there are three types of constraints: policy, physical and market. Table 1 lists some of the possi- bilities.

Policy or Management Constraints. —These are the con- straints that organizations unknowingly or voluntarily place upon themselves. As the law of unintended con- sequences predicts, companies can be very creative in adopting policies that inadvertently constrain growth, and policies make up the bulk of constraints affecting organizations. Unfortunately, organizations often hold policy constraints very deeply and sometimes no one even knows the original reasons for their existence.

The good news is that if you fi nd that your bottleneck is a policy constraint, rapid improvements are possible. Of course, companies can be blind to their own policy con- straints. Sometimes it takes an outside observer or a change in personnel to help challenge the status quo and facilitate the change. In addressing policy constraints, it is important to keep everyone focused on the overall system rather than individual or departmental concerns. Sometimes, it isn’t until people see the negative impact on total throughput that they can agree to put departmen- tal considerations aside.

Physical or Resource Constraints. —Physical con- straints, also called resource constraints, occur at either inputs, outputs or steps in the process. Physical con- straints may appear to be the results of too few resourc- es. But your response should not be a knee-jerk reaction to run out and hire additional staff or buy more equip- ment. When a particular machine is a manufacturing bottleneck, TOC companies don’t just buy and install another machine. They defer that investment and fi rst try to do more with current resources. Likewise, you should fi rst maximize the output of existing innovation bottleneck resources before ever considering additions.

Shared resources are a particularly important class of resource constraint in development groups. It’s the rare development group that admits to having enough resources—R&D, engineering, design, or testing. These groups consist of highly specialized staff and unique equipment shared across multiple projects and some- times even multiple business units. These shared resourc- es are frequently a source of confl ict and the bottleneck that delays projects across the entire organization.

As an example, a typical specialty adhesive company might have 15 different formulation projects going on at any given time. Each project will require several rounds of applications testing where the adhesive is tested for bond strength and performance. However, some of the

Research . Technology Management54

equipment used for applications testing is expensive and highly specialized. As a result, it is often centralized and shared among projects. If this resource is highly utilized, and has the ability to work on only three of the 15 simul- taneously, it will likely be the bottleneck and a source of delay and confl ict between projects. This is analogous to a manufacturing job shop that shares certain machines between multiple production lines. For a more in-depth understanding of shared resource constraints in a multi- project environment there is an extensive body of knowl- edge available on critical chain project management techniques ( 4 ).

Market Constraints. —These are the external constraints that occur when demands change, leaving you with more capacity than the marketplace requires. Market con- straints can be either physical or policy constraints, which offers a dual challenge. Markets change and in- novators must constantly watch for changes that make

their current offering obsolete. For example, the funda- mental shift to digital media is creating a market con- straint for the commercial printing industry while also creating numerous new markets for search-based adver- tising and digital printing.

Market constraints can also be policy constraints that re- sult from a company’s choices. For example, what about products described as being ahead of their time? If the goal of innovation is to make more money, doesn’t launching a product that is ahead of its time mean that you’ve allowed yourself to spend money without a re- turn? Haven’t internal policies and choices failed to re- fl ect the market reality and instead let inertia carry projects along while continuing to allocate scarce R&D resources to work on a product that wasn’t needed? An- other example is innovation that has the potential to dis- rupt existing business models. In this case, choosing the existing market channels, which may not have motivations

TOC: From Theory to Proven Results

Theory of Constraints is an unfortunate choice of words because TOC is anything but academic fl uff. In fact, many refer to it as constraints management for just that reason.

TOC Basics

TOC is based on the simple principle that the output of any system is constrained by the lowest-performing ele- ment in the system—also known as the constraint or the bottleneck. Since the constraint limits the system from achieving higher performance versus its goal, any im- provement effort must be directed at increasing the capac- ity of the constraint in order to deliver results (3). Improving the performance of a non-constraint has no ef- fect on the overall capacity since the limiting effect of the constraint still controls the system. This concept creates tremendous leverage by concentrating improvement ef- forts for larger gains.

Figure 1 illustrates this with a simplifi ed example. Operat- ing steps A, B or C at any rate higher than fi ve units will only cause work to pile up in front of step D. Similarly, improvements to Step E, with a capacity of nine units, will have no impact since D can only operate at fi ve units today. This means that Step D is our constraint or leverage point. Improvements to D will immediately increase output up to

Figure 1.—Example of a constrained process.

a maximum of seven units. Above seven units, Step C becomes the new constraint and the next area to focus.

In the best of situations, traditional continuous improve- ment forgoes the potential for tremendous leverage by working on non-constraints. However, the real damage oc- curs when traditional continuous improvement creates lo- cal optima. When particular departments or process steps are optimized in isolation, companies risk creating con- fl icts that actually reduce the overall output—so-called sub-optimization of global output. How does this happen? Consider the example in Figure 1. The only effi ciency that matters is the effi ciency of Step D because it is the bottle- neck. Unfortunately, operating at high utilization and im- proving any of the steps ahead of D creates an even stronger incentive to operate the non-constraints at higher rates for the misplaced sake of effi ciency at these steps. Of course, we know from Just in Time that the growing backlog of work will eventually create ineffi ciencies that actually re- duce D’s effective output and the system throughput. Not only will operating a non-constraint more effi ciently fail to increase the real effi ciency as related to system throughput, but it will also reduce the output of our constraint and thus the global system.

Establishing the Goal

So how do we apply TOC in the real world? TOC starts with establishing the goal for the system that we intend to improve. Our business is the system, and the primary goal of any business has to be to make money now and in the future (21). Some may argue that satisfi ed custom- ers or secure, engaged employees are the goal. These may be necessary conditions, but to survive, businesses must continually generate more cash than required to make and sell the goods and services they provide. Moreover, that’s

September—October 2009 55

aligned with yours, can slow if not sabotage the success of your new product.

Spectra-Kote is a paper coatings manufacturer that faced just this issue. It was marketing a recyclable alter- native to the wax-coated corrugated shipping cartons used by the retail grocery supply chain for shipping meat, seafood, poultry, and produce. Waxed boxes had to be landfi lled, costing Wal-Mart and other retail gro- cers a difference of nearly $300 million in total between the fees paid for disposal and the payment received for used cartons from corrugated recyclers. The solution was a waterproof paper that eliminated the waxing pro- cess entirely.

Because Spectra-Kote’s founders had come from the paper industry, they assumed that the fastest channel to market was through the major integrated paper manu- facturers. Unfortunately, after several years of effort,

this channel had conducted numerous trials proving the technology, but had generated only minimal new sales. An analysis of their constraints made it clear where the bottleneck was. Rather than being motivated, the chan- nel actually viewed this solution as a threat. The major paper companies were integrated all the way from pa- per production to box manufacturing to waxing of the fi nished box. With a high market share and only 50 or so wax saturating plants serving the entire market, it’s no wonder that they would see this technology as highly disruptive to the current channel and business model and have no motivation to see it succeed.

After recognizing its policy constraint, Spectra-Kote changed its approach and began concentrating its efforts on creating a new channel through the larger indepen- dent box plants. The approach created the potential for over 2,000 highly motivated outlets since the indepen- dents could now compete in what for them was a new

the yardstick that any improvement must be measured against: making money now and in the future.

There are all kinds of metrics for making money (EVA, Net profi t, EBIT, etc.), but TOC keeps it simple by intro- ducing the concept of throughput—essentially the cash fl ow over and above truly variable expenditures such as raw materials, components, outside purchased services, and commissions. Using cash fl ow measures and not profi t or cost accounting measures eliminates the distortions introduced by traditional cost allocations. Profi t is a defi ned term, and the cash from a sale might not fl ow for long periods after the profi t is recognized (think long lead-time items with progress accounting like aircraft). This is why so-called profi table businesses can go bankrupt.

The Five Focusing Steps

Now that we have identifi ed the goal and the metric, how do we drive performance? We want to see real results that increase global throughput. But businesses are complex systems with inputs of ideas, cash, raw materials, and labor, and an output of sales. Even the simplest business ends up having a multitude of levers that can be pulled to affect per- formance. In a process of ongoing improvement, TOC uses fi ve steps to focus the effort to eliminate constraints (3):

1. Identify—Agree on your systems goal and identify its constraint.

2. Exploit—Decide how you will operate the constraint in order to get as much throughput as possible from its current capacity.

3. Subordinate—Operate the entire process at a rate to keep the constraint fully exploited and use any excess non-con- straint time to help or eliminate work for the constraint.

4. Elevate—Increase the capacity of the system’s constraint.

5. Start again—Don’t let inertia become the next con- straint.

When completing a step, it is important to assess whether the changes already made have eliminated the constraint. Strictly speaking, you can’t break the constraint without elevating its capacity, but we may have actually had more capacity than our old paradigms of operation allowed us to see. If the constraint has been broken, continuing through the steps would be wasted effort. We bypass the next steps and go straight to Step 5 to identify the next constraint and repeat the process of ongoing improvement.

Proven Results

Until recently, most of the evidence for TOC has been anec- dotal examples from over 25 years of successful real-world implementations in companies as well known as DuPont, General Motors and AT&T. However, in 2007 Sanmina- SCI, the electronics component and assembly fi rm, released the fi rst comprehensive study with statistical evidence of TOC’s impact (22). It conducted an internal evaluation put- ting traditional Six Sigma and lean implementations up against TOC used to focus the lean and Six Sigma tools in all 21 of its plants. The results were stunning. While all plants saw improved results, the six plants using TOC gen- erated 89 percent of the total improvement. The other 15 plants generated only 11 percent of the results. By focusing on the constraints, TOC leveraged improvement efforts to produce 15 times greater improvement than traditional methods. The evidence for TOC from an innovation per- spective is still anecdotal and we look forward to someday being able to provide a comprehensive study similar to the work done with Sanmina-SCI.—M.A.D.

Research . Technology Management56

market. After making this change, sales began growing quickly, and recently the success of this new channel has even driven two of the major paper companies to an- nounce plans to go ahead with this technology rather than see their waterproof box business continue to erode.

2. Exploit the Constraint’s Capacity

Now that you’ve identifi ed your constraint, how can you use 100 percent of its capabilities? Here are two strategies:

Create focus by assessing and evaluating opportu nities • so that the constraint only works on quality checked projects.

Prioritize opportunities so that the constraint is al-• ways working on the best possible opportunity ahead of others.

Create focus with uniform process and assessment

Without a concentrated effort to weed out underperform- ing or lower-potential opportunities, 80 percent of new product results will tend to come from only 20 percent of your projects ( 5,6 ). This means that tremendous lever- age is possible with even modest improvements in fo- cus. To illustrate this effect, the study in Figure 4 shows the dramatic differences in focus between top and aver- age performers in the telephony industry ( 7,8 ). Best-in-

class companies (top 20 percent of performers) cancelled the same percentage of projects overall. However, they were able to cancel unattractive projects much earlier in the process, allowing them to focus their development resources on the truly important projects. As a result, they kept more of the bottom 80 percent of ideas from entering the development process. They also completed projects in half the time and generated double the per- centage of revenue from new products as compared to their average competition.

While 80/20 is the well known Pareto distribution, it’s also true that the bottom 50 percent of projects will only deliver 5 percent of the results and the bottom 40 percent will deliver almost no results. Just eliminating the bottom 40 percent of projects can nearly double your innovation return. To squeeze everything you can through the bottleneck, there just isn’t room for anything but the most promising projects. You need a uniform innovation process with an early assessment element to ensure that only the highest-quality projects make it to your innovation bottleneck.

Think of assessment as a hopper or funnel of potential projects at the front end your innovation process. This hopper has a sieve at the exit to quickly divert the losers and only release potential winners to the constraint. Projects must be assessed for:

Clear unmet or unarticulated market need.• Value of the solution to the customer.• Potential for a solution that can be delivered profi tably.• Clear identifi cation and evaluation of competitive •

alternatives.

These steps help ensure that the constraint will not be in the marketplace and that the project has promise before committing expensive, constrained resources such as development or testing. If the team has a compelling story consistent with company strategy, the next step is a project-planning proposal with the fi rst step being to

The goal of improving innovation must be to generate

more money in the future.

Table 1.—Three Types of Innovation Process Constraints.

Policy Constraints Limited technical staff market involvement.• Pricing for margin rather than value.• No supply chain (mfg, purchasing) coordination with•

the project team. No downstream marketing coordination with the •

project team. Projects proceed without assessment or well- •

understood hinge assumptions. No early feasibility work.• Doing too many projects simultaneously.• Not freezing project defi nition early enough.•

Physical Constraints

Shared resources.• Skilled, specialized staff.• Specialized processes.• Available technology.• Facilities and equipment.• Number of skilled project managers.•

Market Constraints Competitive and business conditions in market •

segment served. Market segment focus.• Available market channels.• Misalignment of channel motivations.• Marketing features rather than benefi ts.•

September—October 2009 57

test feasibility. You do have to be comfortable with some level of risk since feasibility resources are committed without a guarantee of success. However, without some level of risk, there is a danger of cancelling projects too early, missing big ideas, and marginalizing product de- velopment to delivering only conservative line exten- sions. Of course, an unchecked process can create bureaucracy and overhead. For more on a simpler, streamlined alternative, see “Speed-Pass: Innovation Process in the Fast Lane,” page 60.

Prioritize the constraint

You can improve innovation throughput almost immedi- ately by giving the best projects priority access to the bottleneck. If your bottleneck moves from producing 8 units per unit of time with a value of 5 each to producing 5 with a value of 10 each, your throughput will increase by 25 percent. The key metric for innovation project pri- oritization is the expected throughput return per unit of bottleneck time. This is loosely analogous to return on R&D investment.

This can be diffi cult for managers schooled in the para- digm of local optimization to accept. But maximizing the return per unit of constrained resource will maxi- mize the global return for the system. Returning to our adhesive company example, Table 2 considers three projects for prioritization. If development time is the

constrained resource, project C would deliver $250 of projected return per hour of development, ranking it ahead of projects B and A, respectively. But if applica- tion testing is the shared resource constraint, project A only requires a moderate amount of bottleneck time and delivers $250 per hour of constraint. That ranks it high- est for global system throughput ahead of projects B and C, respectively.

3. Subordinate All Activities to the Constraint

With an approach to exploit the constraint fully in place, how do you subordinate the organization’s priorities to the bottleneck and make sure that all of your non-con- strained resources help in this effort?

Stop bad multitasking

Many organizations struggle with their key technical staff doing too many projects. Some companies’ job post ings even list multitasking as a new skill require- ment. These activity junkies have it upside down. The objective is not to work on more projects, but to actually complete projects that generate more new product throughput.

The bad multitasking we are concerned about here is having the constraint switch back and forth between multiple projects without fi rst completing an entire

Figure 2.—Five steps focus the effort to eliminate constraints.

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task. Studies show improved performance when techni- cal staff are limited to a smaller number of projects and required to complete tasks before switching projects ( 9 ). Recent research shows that people aren’t actually capable of multitasking ( 10 ). So-called multitasking is just the act of switching back and forth between tasks and actually reduces effi ciency—like driving and talking on the phone. In fact, productivity begins to drop rapidly when engineers are assigned to more than two projects. By the time they are involved in fi ve projects, less than 30 percent of their time is spent on value-adding activity.

The general manager of a mid-sized industrial equip- ment company came to us with just this issue. We identi- fi ed the bottleneck constraint in the engineering and development group where they had far too many proj- ects underway, and very few of them were making any progress. We quickly whittled their active project list by more than 80 percent to four projects and the results were immediate. With signifi cant new visibility into each project, the teams had a new sense of purpose. They took a new technology project that had a three-year de- velopment horizon and using a combination of already available technologies began production of a new line of energy-saving products with 95 percent of the benefi ts in less than six months. Within a year they reduced new product cycle time by more than 60 percent.

Prioritization buffer

How do you protect the bottleneck from interruptions or distractions created by lower-priority tasks and activities?

Your project management system must ensure that the next highest-priority task is always waiting and ready for the constraint. In a TOC manufacturing setting, the constraint pulls work from an inventory buffer. The same concept applies to innovation where you establish a buffer of prioritized tasks. This way the constraint does not waste any time deciding what to do next.

The number of waiting tasks is set at safety level to cov- er the normal fl uctuations that you would expect in terms of the development group’s work. The upstream groups continually monitor the buffer to make sure that they are timing release of their work to keep the buffer at the safety level. As I will cover in the next section, subordi- nating the non-constraints to the pace of the bottleneck and keeping the safety buffer close to a minimum level minimizes project cycle time. (Non-constraints are

Improve innovation by giving the best projects priority

access to the bottleneck.

Figure 3.—Constraints can be anywhere, including the marketplace. A process map allows you to identify them.

September—October 2009 59

resources or process steps with capacity in excess of the constraint’s capacity.)

Avoid early starts

Since non-constraints have extra capacity by defi nition, why shouldn’t we use them to get an early start on the next task? If we have the resources to do Projects 1 and 2 simultaneously and Projects 3 and 4 are already queued up in the prioritization buffer, how much harm is there in letting Projects 5 and 6 get a head start as well? After all, good research managers know that people need some- thing to keep them busy during the inevitable breaks in a project. Remember, though, that the non-constraints are working to keep the prioritization buffer at a target level; following this approach would build an excess in- ventory of uncompleted tasks.

There is ample evidence from Just-in-Time and Lean Manufacturing to show that releasing work ahead of the required lead time actually increases the lead time required to complete all jobs ( 3 ). What happens when the person who has gotten an early start on the number 5 project needs to jump back to help on the number 1 project? Do they immediately drop everything they were doing? Unlikely—when switching, they need time to fi nish up and document the lower-priority task resulting in frequent delays, decreased focus, and increased cycle time. Parkinson’s Law was intended to be satirical, but it ends up being true: “Work expands so as to fi ll the time available for its completion.” The result is that starting projects early increases the cycle time of all projects.

In order to maintain this focus, your innovation process must have a clear communication mechanism. The pro- cess needs to have easy visibility into the status of projects and the prioritization buffer. Depending on the duration of projects, this can be as simple as fi ve-minute daily team meetings or a regularly updated intranet page. One client has even begun keeping an updated priority

list posted at the entrance to their facility along with a sign that reads, “If you are not working on one of these projects, then what are you doing today?” People are constantly reminded what should be getting their atten- tion—blunt, but effective.

Help the constraint

As we have seen, non-constraints don’t help throughput by starting additional projects. Instead, you should sub- ordinate non-constraints to unload the constraint by ei- ther helping with tasks or helping eliminate tasks. Returning to our adhesive company example with its constraint in performance testing, anything the formula- tors can do to help the testing group or eliminate work for the testing group will improve throughput. This could be gathering together all of the testing materials needed before the project is released to the constraint, actually helping out in the testing lab, doing additional journal research to see if similar work has been reported, or even fi nding advanced experimental design techniques or modeling methods to reduce the number of samples re- quired. By taking these steps, the formulators can take some of the load off the constrained testing group and help get more programs through the system in less time.

A client struggling with a product development project asked us to see what could be done to get things back on track. When we looked at all the work remaining, it was clear that the engineering group was the bottleneck. However, a closer look revealed that other groups could do some of the work the engineers were doing. Because one component of the project was a new control system, the engineers had excitedly started working directly with potential suppliers in negotiating the specifi cations and price for a solution. Clearly, engineering input was re- quired, but we were able to offl oad a signifi cant amount of the control system sourcing to the supply chain group. Common sense in hindsight, but it could have gone

Policy or management

constraints make up the bulk of

constraints affecting organizations.

Table 2.—The Highest-Priority Projects for Adhesive Company Example.

Project A Project B Project C

Projected Return $500,000 $350,000 $750,000

Development Time (hours)

4,000 1,500 3,000

Return per Development Hour

125 233 250

Ranking 3 2 1

Application Time (hours)

2000 1,500 4,000

Return per Application Hour

250 233 188

Ranking 1 2 3

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unnoticed had we not been looking for ways to unload the constraint.

Cross-functional engagement

After all the effort expended to exploit the constraint, the last thing you want to do is allow delays or mistakes down- stream of the constraint to reduce throughput. Returning to our adhesive example, what sense would it make to develop and test a new paint if they weren’t confi dent that they could scale it to production or that they had the right channel to bring it to market? To avoid this, you must sub- ordinate resources across the organization to be involved

in the innovation process. Cross-functional groups must be involved early enough and frequently enough to ensure that downstream groups see no insurmountable hurdles and are ready to take the project forward quickly as soon as the constraint completes its work.

4. Elevate the Capacity of the Constraint

Once you are satisfi ed that you are using 100 percent of the constraints capacity, how can you increase the ca- pacity available? So far, the improvements, while not necessarily easy, should have been rapid and delivered a high return on investment. The Elevate step starts to

Speed-Pass: Innovation in the Fast Lane

If you’re looking for a way to stop the frequent starting and stopping with traditional innovation processes, I ad- vocate a streamlined process that we like to call Speed- Pass. Rather than a series of tolls and gates, where the team must stop for reviews and approvals after the initial planning and proposal, teams roll through the fast lane and into the next stage as long as all project goals and milestones are being met and the project requirements and critical assumptions have not changed. While still requiring good upfront planning and assessment, this ap- proach minimizes bureaucracy and allows teams to focus on results rather than executive presentations. Stages vary depending on the development process of particular industries but are generally like the following:

Stage 0: Ideation and Unmet Needs

Cross-functional development teams, consisting of tech- nical/research, marketing/business development, and manufacturing/scale-up resources are given the freedom to evaluate any market opportunity within the boundaries set out in the company’s strategic focus. This is early- stage work and many opportunities will end up being blind alleys. There are guidelines limiting the number of evaluations a team can do at one time to help maintain focus. Teams are given a fi xed window of time and bud- get for customer visits to identify unmet needs that the company’s current and developing technology can fi ll. The team then puts together a business case and project plan. In the only required gate, this proposal is reviewed by leadership, evaluated critically and either approved or sent back for refi nement.

Stage 1: Feasibility

Stage 1 in the project plan is proof of technical, manu- facturing and commercial feasibility. The team’s task is to develop a prototype solution and obtain direct cus- tomer feedback. The team must carry out a feasibility assessment to show that a practical solution exists, that

it can be manufactured and that customers will buy it. It can be useful at this stage to have a peer advisory group or an external coach quickly review and chal- lenge the assessment. If feasibility cannot be demon- strated within the time agreed in the project proposal, the team leader releases the resources to move on to the next opportunity. Management must learn not to kill the messenger and instead encourage teams to run small-scale experiments that can quickly evaluate fea- sibility. This is critical to keep the team excited about new opportunities and willing to take risks. Determin- ing that a project is not feasible is only a failure if we wait until after a large investment when we could have known beforehand.

Stage 2: Development

If feasibility proves out, and nothing else changes, the team doesn’t stop for review and approvals but continues on to create the fi nal solution.

Stage 3: Scale-Up to Commercialization

If no problems arise during development, the team is still meeting all of its milestones, and none of the critical as- sumptions have changed, then the team continues on to Scale-Up and Commercialization for the launch.

Stage 4: Launch and Ongoing Sales

Some members of the team continue to be involved with customers as the product goes to market. Seeing the prod- uct in use and hearing customer feedback is an excellent source of information for better positioning the product and getting testimonials. As part of the ongoing improve- ment effort to continue elevating the capacity of our development constraint, before returning to another development project, the project team critiques the proj- ect to identify successes that can be leveraged and mis- takes that can be avoided. It can be helpful to identify someone with the facilitation skills to help teams walk through this sometimes thorny area.—M.A.D.

September—October 2009 61

ratchet up the investment (training, partnerships, staff, equipment, etc.) so you should not proceed until you have exhausted steps 2 and 3.

Let’s look at some of the levers that you can pull to ele- vate the capacity and capability of innovation constraints before adding fi xed expenses and investments in the way of staff, equipment, and facilities.

Customer value lens

Does your organization have a clear understanding of what customers value and what unmet needs they have? Do you know where their pain is, how to make them acutely aware of it, and how to position your new prod- uct as the solution? Or does your staff focus on the fea- tures of your products rather than the benefi ts that customers buy? Elevating these critical innovation and marketing capabilities can pay big dividends.

Industrial B2B markets. —In a business-to-business set- ting, TOC provides a powerful lens for examining how you can add value for customers and how you communi- cate that value in your marketing and sales efforts. Since your customer’s goal is also to make money now and in the future, the only way you can truly create superior value and induce them to buy is by helping them to make more money.

You can ensure that any innovation creates superior value by considering three elements known as �Τ, Ι and OE where the Greek letter delta (�) indicates the change or improvement that your innovation delivers ( 3 ):

� Τ—Increase in Throughput

� Ι—Reduction in Inventory and Investment

� OE—Reduction in Operating Expenditures

Throughput (�T) is listed fi rst for a reason. While main- taining a strong cost position is important, cost improve- ments can lead to diminishing returns when overdone.

On the other hand, increases in throughput are limited only by your skill and creativity in fi nding new solutions and creating new market opportunities. How much more managerial effort do you think Apple puts on generating new throughput vs. cost control?

Market-facing activities and customer visit work (not traditional sales calls) must be directed to identifying un- met customer needs and then using the customer value lens of �T, I and OE to understand the value created. When products are launched, their value must be communicated through both marketing and sales efforts using the language of the various decision makers ( 11 ). It’s always about the customer’s pain and how you help solve it. But at the operational level, it’s about their unit cost targets and problems in meeting them; at the mana- gerial level, it’s about their productivity and budget prob- lems; and at the top management level, it’s about their problems with the bottom line—earnings or cash fl ow.

A natural objection at this point is why would customers be willing to share detailed, confi dential information for all of their components and production steps? Granted, if you take the traditional approach of waiting until you have a solution and then asking for economic infor- mation, you will struggle to get good data. The customer knows you are trying to put a price tag on your solution and will either not be forthcoming or will downplay the value in hopes of a lower price. Alternatively, start by making it clear to the customer that if the economics benefi t all parties, you would be interested in develop- ing a solution for them. My experience is that custom- ers will provide a surprising amount of information with this approach—certainly enough to understand what value a solution can create for both you and the customer.

Consumer markets. —In consumer markets, we apply a different lens to customer value. The primary difference lies in the defi nition of customer value. For consumers, convenience, emotion and status-driven issues such as brand and fashion can play a much larger role. That’s not to say that consumers don’t buy on price, but they rarely conduct side-by-side economic analyses. The early pop- ularity of Toyota’s Prius hybrid attests to this, with a payback period that was often longer than the expected life of the car. Nonetheless, the market for hybrids grew rapidly, in large part due to the emotional connection that consumers feel with being green.

An alternative approach is to look at the jobs consumers are trying to do along with their key buying tradeoffs ( 12 ). What are the tradeoffs along traditional and emerging competitive dimensions? Innovation then becomes a search for how these jobs can be done better along various lines—all as the basis for a new competitive dimension. As an example, iRobot was able to identify vacuuming and fl oor washing as time-wasting jobs for

Figure 4.—Innovation projects cancelled after detailed design.

Research . Technology Management62

Guided innovation mapping identifi es

the critical assumptions upon

which project success hinges.

today’s busy families. The Roomba® robotic vacuum au- tomatically takes care of this job for consumers. How does it stack up along traditional competitive dimen- sions? Not nearly as effectively as most alternatives but “good enough.” Instead, iRobot chose to compete on convenience—a new dimension that has allowed it to bypass the market constraint of lower competitor pric- ing and establish a completely new market for auto- mated cleaning.

Innovation tools

Training and investment in innovation tools can help to develop strengths in the processes and skills necessary to elevate the innovation capacity of your organization.

Thinking Processes for Problem Solving. —Inventions solve problems by resolving contradictions. Carbon fi ber composites are an example of an invention that can resolve the contradiction between strength, weight and speed. Nanotechnology is intended to resolve the contradiction between active material performance, huge surface areas and compact size. Invention and problem solving skills are an important component of innovation that can be elevated with training in various thinking processes. The thinking processes of TOC are used to identify contradictions and fi nd simple solutions that resolve them ( 13,14 ). TRIZ (Theory of Inventive Problem Solving) is another widely used approach ( 15 ).

Guided innovation mapping. —As teams work through the planning and execution of a project, Guided Innovation Mapping can be a particularly useful tool. A variation on the TOC prerequisite tree technique (14), it identifi es where innovations will be required and facilitates devel- opment of simple solutions. It also identifi es the hinge assumptions that the team must consider for the project. Hinge assumptions are the critical assumptions upon which the success of any project hinges.

After the project’s objectives are established, the proj- ect leader and cross-functional team take part in a fa- cilitated session where each participant is asked, “What are all the possible obstacles that you could dream of that might cause this project to fail?” The simple act of asking people to provide input on why something might fail opens their minds up to think in new ways and elim- inates the passive-aggressive behavior that can hurt team effectiveness. The wording of the question is im- portant because we want them to be open and not to worry about being viewed as cynical or pessimistic. Of course, the team’s next task is to develop a plan that gets around all of these obstacles and categorizes the result- ing project steps as technical, commercial, manufactur- ing, or regulatory.

Guided Innovation Mapping helps the team to understand where they must focus innovation efforts. The hinge

assumptions about key project constraints that come out of it are important tools for helping the team prioritize its efforts. It is critical to check the validity of hinge assumptions as early in the project as possible. If a proj- ect is going to fail, you want to fi nd out as quickly and inexpensively as possible. Another benefi t of this tool is that the team ends up jointly developing a visual ver- sion of the project plan including most of the inputs needed for Microsoft Project or other project planning tools.

As an illustration, let’s look at an aircraft engine manu- facturer that has identifi ed an unmet customer need for improved effi ciency at lower altitudes. The guided innovation mapping uncovers an obstacle—a new ultra lightweight rotating vane design will be required. Since the titanium and carbon fi ber composites that are cur- rently in their materials toolbox don’t meet the re- quirement, this project requires innovation focused on resolving the contradiction between weight and strength. Having identifi ed a hinge assumption, the team will lim- it the amount of work done on other parts of the project until proving that a durable, lightweight solution is pos- sible. They now use a directed form of brainstorming to work through ideas to fi nd potential solutions. Maybe they decide that either a ceramic or a titanium laminate over a high-temperature composite structure could do the job. They can then test the feasibility of each ap- proach with fi nite element analysis modeling and exper- imental prototyping and use the results to decide if further work on the project is justifi ed.

Design of experiments, modeling and simulation. —If your constraint is in development or testing, reducing the number of experiments required to commercialize a product can increase throughput and cut cycle time. Statistical design of experiments is the fi rst place to start. These methods help researchers to create experi- mental plans with a minimum number of data points

September—October 2009 63

( 16 ). Computer modeling and simulation goes a step further allowing researchers or designers to conduct vir- tual experi ments and play what-if simulations to predict performance.

Employee development and selection

Nowhere are top talent more important than in the group entrusted to creating growth. The product managers, engi- neers, scientists, and technologists in these roles can have a profound impact on your success. There are many good resources available on top-grading your team ( 17 ), but it is crucial to have regular development discussions with your people. This includes frank discussions about skills and competencies and whether they have the ability to become top talent in their current roles or are better suit- ed for different roles.

Open innovation

One of the largest bottlenecks in any organization is simply that there are only so many managers, so many funds to invest, and so many people to carry out the work. Or as Henry Chesbrough put it, “You cannot meet your growth objectives if you ignore all of the smart people out there who are not on your payroll.” Open in- novation is one solution to elevating your capabilities. By reaching outside the walls of your own company to bring in technology or market opportunities through alliances, you can access the innovation capabilities of a wide array of external players—other companies, re- search fi rms, start-ups, universities, entrepreneurs, etc. On the other hand, if you have the technology but not the channel to market, you can extend your reach through licensing or marketing alliances.

But before you rush to put together that alliance, recog- nize that nearly 70 percent of alliances fail ( 18 ). Why such a high percentage? Because managers get caught up in the excitement of the deal and don’t pay attention to the fundamentals of strategic alignment between the partners. Alliances add a level of complexity that you must be ready for, and you should give them serious consideration only after you have attained some level of discipline and capability with your own projects. Much has already been written on the subject of alliances, so rather than going into detail let me just say that in order to successfully implement OI, you must develop compe- tencies in four areas ( 19 ):

Want—Defi ning the outside capabilities that you need.• Find—Finding potential partners that have those •

capabilities.

Get—Using proven process for partner selection and • alliance negotiation.

Manage—Implementing and managing alliances.•

5. Start Again and Don’t Let Inertia Become Next Constraint

It’s time to start the cycle again and refocus another round of improvement efforts on the next constraint. As soon as one innovation constraint is broken, another will show up and there is further gain in addressing it. That is the nature of continuous improvement. Identify, exploit, subordinate, elevate, and do it all over again. Stopping after a single round means that inertia has become your constraint and you only end up stagnating at a higher level, as shown in Figure 5 ( 20 ).

Before proceeding with the next round, you also should examine whether the policies that governed the old bottleneck might not apply anymore. For example, the rule might have been that certain members of the devel- opment team were always kept 100 percent busy doing development work in the lab. If that constraint has been broken and getting enough new ideas into the pipeline is the new constraint, does that policy still make sense? Perhaps getting those development people out into the fi eld to better understand unmet customer needs would better serve your goal of making more money in the fu- ture. Similarly, are the metrics that were used previously still appropriate?

Putting It All To Work

So, as leaders how do you begin to put this approach into practice? It would be easy to say that it’s just a matter of discipline in identifying your constraint and then taking the new product and service development activity in your business through the TOC focusing steps. But we all know change is more diffi cult than that. The unknown of change can bring fear and resistance. There are mul- tiple layers of resistance that you must be prepared to take your organization through ( 20 ).

Layer 1: Has the right problem been identifi ed?

Layer 2: Is this solution leading us in the right direction?

Figure 5.—In a culture of continuous innovation improvement, stopping leads to stagnation at a higher level of performance.

Research . Technology Management64

Be prepared to take your organization through multiple

layers of resistance.

Layer 3: Will the solution really solve the problems?

Layer 4: What could go wrong with the solution? Are there any negative side-effects? How can we avoid them?

Layer 5: Is this solution implementable? What is our plan?

Layer 6: Are we all really up to this? Is management committed to ongoing innovation improvement or is this just another program that will come and go?

These are normal concerns for your people to have. Take measured steps, one focusing step at a time, and most important, involve them. Invest in a coach and train your people in the concepts of TOC applied to innovation. Ask them what the obstacles are to using it effectively in your organization and then involve them in coming up with solutions around those obstacles. Some of the tools we have already discussed such as innovation mapping and the TOC thinking tools can be very helpful for this pur- pose. It is critical that people feel secure in expressing their opinions and issues without having them come back to haunt them. A facilitator can help with the process, but as the leader, you must be there and establish trust to help bring them through the layers of resistance. You will fi nd that your people develop common sense solutions. More importantly, you will fi nd that their ownership of the so- lution creates the commitment needed to break the con- straints holding back your growth and achieve your goals of making more money in the future.

Acknowledgement

Special thanks are extended to my former colleagues from S. C. Johnson Polymer/BASF Performance Chem- icals who over the years have encouraged me to put these concepts into action to help turn innovation into bottom-line results.

References and Notes

1. Boston Consulting Group. 2006. Innovation 2006. Boston, MA. 2. Throughout, we use the term resources to include any combination of staff, technology, equipment, and facilities involved in product or service development. 3. Goldratt, Eliyahu M. 1990. What is this thing called theory of constraints and how should it be implemented? Great Barrington, MA: North River Press. 4. Goldratt, Eliyahu M. 1997. Critical chain. Great Barrington, MA: North River Press.

5. Koch, Richard. 1998. The 80/20 principle. New York, NY: Doubleday. 6. The 80/20 principle only applies across a sampling of independent projects. Since the steps within a project are dependent events, 80/20 does not apply to project management (i.e., 80 percent of the project benefi t is not realized by completing only 20 percent of the steps). 7. Eduardo, Miranda, 2003. Running the successful hi-tech project offi ce. Norwood, MA: Artech House. 8. Ogawa, Dennis and Laura Ketner, eds. January 27, 1997. Benchmarking product development. Telephony Online, Chicago, IL: Penton Media. 9. Wheelright, Steven C. and Kim B. Clark, eds. 1992. Revolutionizing product development: Quantum leaps in speed, effi ciency, and quality. New York, NY: Free Press. 10. Rubinstein, Joshua S. and David E. Meyer, eds. Executive control of cognitive processes in task switching. Journal of Experimental Psychology—Human Perception and Performance, Vol. 27, No. 4, pp. 763–797. 11. Goldratt, Eliyahu M. and Eli Schragenheim, eds. 2000. Necessary But Not Suffi cient. Great Barrington, MA: North River Press. 12. Mankin, Eric, 2004. Can you spot the sure winner? Strategy and Innovation, Vol. 2, No. 4 Boston, MA: Harvard Business Press. 13. Goldratt, Eliyahu M. 1994. It’s not Luck. Great Barrington, MA: North River Press. 14. Dettmer, H. William, 2007. The Logical Thinking Processes: A systems approach to complex problem solving (2nd ed . ) . Milwaukee, WI: American Society for Quality. 15. Altshuller, Genrich. 1999. Innovation Algorithm:TRIZ, systematic innovation and technical creativity, Worcester, MA: Technical Innovation Center, Inc. 16. JMP Statistical Discovery. Cary, NC: SAS corporation. 17. Smart, Bradford D. 2005. Topgrading: How leading companies win by hiring, coaching, and keeping the best people, revised and updated edition. New York, NY: Penguin Group. 18. Slowinski, Gene and Matthew W. Sagal, eds. 2003. The strongest link. New York, NY: AMACOM. 19. Slowinski, Gene. 2005. Reinventing corporate growth. Gladstone, NJ: Alliance Management Group. 20. The Goldratt Institute, 2001. The theory of constraints and its thinking processes. 21. Goldratt, Eliyahu M. and Jeff Cox, eds. 1985. The goal. Great Barrington, MA: North River Press. 22. Pirasteh, Russ, 2007. TLS Continuous Improvement: Is it not time to think differently? Las Vegas, NV: TOC ICO 2007 Annual Conference.

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