Pearson on Excellence: Flexible innovation—Making correct change

In this column—the fourth in a series of five articles focused on dynamic supply chain operations—we look at the role and importance of “flexible innovation.”

Dynamic operations is a timely way to improve supply chain performance in a world where “permanent volatility” (ongoing economic uncertainty, endlessly fluctuating commodity prices, accelerated commoditization, and wildly fluctuating demand) has become the norm.

Dynamic operations is all about innovation: finding imaginative ways to accommodate change; recognizing the opportunities that often accompany economic and political upheavals; and working quickly and effectively to convert permanent volatility from a liability to a leverage point. Innovation—more specifically, flexible innovation—is also the third of dynamic operations’ four key components.

Flexible innovation’s mission is to make the design and development process less rigid; say by reducing changeover times, increasing interchangeability, designing products that embrace multi-channel networks and technology, and structuring ways to smoothly and rapidly rebalance order management, production, and warehousing in response to shifting conditions.

With flexible innovation in mind, companies might consider launching initiatives focused on the multi-purpose use of design and manufacturing assets. They might also create more modular product designs that encourage “plug and play” approaches. Or perhaps the ideal is increased postponement of final assembly or more-efficient upgrades.

Complexity-reduction programs might also be in play: simplifying product designs, avoiding bells and whistles that customers won’t buy, and building more-elaborate products for customers willing pay a premium.

Lastly, flexible innovation can include the rapid bundling or repositioning of products and services, or even positioning a service to supersede a product. Take Philips Medical, which is developing service-based programs to make smaller, more-portable devices available to rural areas. Or General Electric, a company that may maintain ownership of an airplane engine while still providing the engine’s customer with comprehensive maintenance and repair services.

In short, a company’s success often depends on their ability to make the right new things. However, what customers want—or can be persuaded to buy—changes constantly. This is why the ability to shorten development cycles, accelerate times to market, and rapidly alter process attributes and product quantities is a potentially huge advantage. Flexible innovation can help make these things happen.

One of the most interesting practitioners of flexible innovation is Tesco. Seeking to grow in the South Korean market, Tesco found itself working with a new set of customers while competing against players with more fully-developed store networks. The solution was both novel and successful.

First, Tesco worked to increase its understanding of South Korean shoppers’ unique needs and priorities. Using this information, the company determined that South Korean customers’ most pressing requirement was increased convenience.

Tesco then rebranded itself “Homeplus” for the South Korean marketplace—aligning the name with an emphasis on convenient, customer-friendly grocery shopping. The next challenge was to neutralize the advantages associated with competitors’ vastly larger retail networks. Opening many stores quickly would require significant capital, but that still would not be enough to swing the balance in Tesco’s favor. Furthermore, South Koreans’ need for increased convenience wouldn’t necessarily be met simply by building another crop of traditional stores.

Tesco’s solution was to open numerous virtual stores inside South Korean subway stations. These facilities provide a buying experience similar to retail stores. The difference is no actual products: Customers purchase goods by using their mobile phones to scan QR codes next to product images. Purchases log to customers’ online accounts and items are then delivered to buyers’ homes.

By building a large retail network that addresses customers’ most pressing needs—and is simple to expand, move, and maintain—Tesco was able to achieve scale very quickly with comparatively little capital investment. Homeplus has become the second-ranked player in the South Korean retail market and is now number one in online sales.

Making it happen
Flexible innovation has a handful of cornerstones. But companies can often benefit by taking a far-reaching, multi-pronged approach:

• Applying lean manufacturing disciplines to their product and service innovation processes.
• Using social networking forums to collect consumer insights more rapidly.
• Working more closely with suppliers on the design of new products.

• Leveraging new collaboration concepts such as open innovation (emphasizing cross-enterprise cooperation to enhance and accelerate the generation and implementation of new ideas).

• Developing targeted product-design programs, such as customization (make-to-order) initiatives, frugal innovation projects (adapting products for new markets or segments with unique needs), and products that encourage follow-on sales or after-sale service or upgrade opportunities.