Should innovation one of your core competencies? Peter Drucker may have answered that question best when he said that since businesses exist to create customers, the two essential functions of any business are marketing and innovation.
And most CEO’s agree or why would they reinvest (aka spend) anywhere between 30 and 50% of their net income in R&D. However, even with that level of spending, most are dissatisfied with the return on that investment.
So what are they doing wrong?
Getting more out of that investment requires a core competence in managing new product innovation. Easier said than done, but knowing where the leverage points are can dramatically speed improvement.
Here’s how the five focusing steps of Theory of Constraints can help in this process.
1. Identify your innovation bottleneck and its constraints.
To increase new product profits and time to market, you need to identify the bottlenecks in your process. Every innovation process, whether formally documented or not, has a leverage point—a step or resource in the process that limits the output of the overall system.
To find your bottleneck, map your innovation process—the steps that your new products follow to go from ideas to commercial reality. Steps might include opportunity identification, solution development, prototyping, scale-up, testing, and even market launch. Of course, the market itself can become a constraint when you have more capacity than demand, but that’s the reason to try and improve new product development in the first place. Look for the step with work piling up in front of it while downstream steps are idle and that’s your leverage point.
Once you know what the bottleneck is, you must identify what is constraining it. Your own innovation management and operating policies are the first place to look. Changing policies is a high leverage improvement, giving you the most improvement for the least effort. A simple example would be to begin assessing projects before allowing them into the pipeline—something many companies fail to do, allowing resources to be wasted on projects that are off strategy or don’t address an unmet customer need.
2. Exploit all of your innovation bottleneck’s capacity.
Here are a few of the higher leverage actions you can take to get more from your new product process:
- Train people to identify unmet customer needs and understand the value that solutions create.
- Cut the number of projects in your new product pipeline. Fewer projects allows for better visibility into each project and its success requirements. This focus can dramatically reduce time to market.
- Limit the number of projects people have, and you can triple the productivity of your technical staff by reducing interruptions and the temptation to multi-task.
- Prioritize projects based on the return per unit of bottleneck time used. This ensures that bottleneck resources only work on the highest value projects.
- Make commercial, technical and manufacturing feasibility the first step in any project to ensure scarce development resources only go to deserving opportunities.
- Use Critical Chain Project Management to shorten projects and ensure they finish on time.
- Run projects sequentially rather than in parallel to speed time to cash flow and reduce market risk since projects are in the pipeline for a much shorter period.
3. Let the innovation bottleneck set the pace.
As counterintuitive as it may seem, areas with excess capacity don’t help when they start projects early. Building too large an “inventory” of tasks hurts visibility and eventually delays the bottleneck, even allowing opportunities to go stale. When they’re not busy, employees who are not involved in the bottleneck area should either help the bottleneck or eliminate work for the bottleneck.
4. Elevate the capacity of the innovation bottleneck.
Start with high-leverage actions that add capacity without adding fixed expenses—actions that either increase the capacity of your bottleneck or improve the quality of the projects that enter your bottleneck. That includes coaching and development of key personnel, increasing fundamental research, and adding tools such as modeling and simulation.
5. Continuous Improvement
Original TOC approaches were focused on breaking the bottleneck, but continually moving the bottleneck can be disruptive for an organization. Instead, with today’s constraints management school of thought, you don’t try to eliminate the bottleneck, but instead determine its ideal location, and then keep it there so it can set the pace of improvement for the rest of the organization. With this approach, continuous improvement efforts alternate between increasing bottleneck capacity and elevating the non-capacity-constrained resources so that you always have 25-50% protective capacity which prevents variation from slowing the bottleneck.
The Simple Bottom-Line:
Innovation will always be complex, but improving your core competence in managing innovation improvement doesn’t have to be. Follow these five steps to identify and address your constraints, and you’ll see gains not only in speed to market but in new product profits as well.
PS – This original article appeared in Blogging Innovation