It is no longer enough to simply have top-notch operational efficiency. The future belongs to companies that can innovate within that often restrictive fiscal framework.
When it comes to innovative thinking it is hard to cap the efforts of physicist Albert Einstein. With his work stifled by the limitations of Newtonian mechanics he spurned traditional doctrine to develop his Special Theory of Relativity. Even then he was not satisfied and his work in gravitational forces produced one of the pillars of modern physics with the General Theory of Relativity.
Speaking about innovative thinking he said: "If you always do what you always did, you will always get what you always got. We cannot solve a problem by using the same kind of thinking we used when we created them."
That same maxim holds true for modern manufacturers. The true innovators such as James Dyson and Steve Jobs led their companies to market-leading positions with innovative products sold at a premium price. However, much of the modern manufacturing dogma, fuelled by Enterprise Resource Planning (ERP) packages, has driven ever greater efficiencies into companies – but often while simultaneously stifling innovation.
"For 200 years we have been thinking about operational improvements as the main driver for competitive advantage," Jim Heppelmann, CEO of Product Lifecycle Management (PLM) developer PTC, explains. "But having done this for 200 years it is getting harder and harder to find an advantage in the way that you do things. We are probably getting to the point where this is just table stakes: it's what you need to get in the game, but being operationally efficient does not mean that you are going to win. Just ask the cell phone manufacturers who compete against Apple. It's not good enough at all just to be operationally efficient.
"Today we need to ask where manufacturing companies can turn to gain a sustainable and truly meaningful competitive advantage. I would submit that they need to metaphorically go back to the Cotton Gin. They need to realise that the best products in the end do carry the day. We need to think strategically about the opportunities to create value and innovation. It is difficult to find a breakthrough in operational efficiency these days, it's not so difficult finding breakthrough products and services, it's happening all the time."
Today, engineers have a new generation of tools to help them. Gathered under the umbrella of PLM are design software, process management software, software development tools and engineering calculation software to name but a few.
It is easy to argue as the Economist did in a special April 2012 issue that the digitisation of manufacturing is the third industrial revolution. There are so many new ways to do things, new ideas, new approaches that are brought on by digital technology that there is the opportunity to create differentiation.
The role of PLM
The principal role of PLM itself within an organisation is to manage a product's definition from concept to its retirement. To be effective, solutions must completely define all aspects of the product's Bill of Materials (BOM) – including mechanical and electrical design files, software, documentation, and service information. PLM enables the definition and synchronisation of cross-functional views of the BOM: engineering (eBOM), manufacturing (mBOM), and service (sBOM).
Employed as a standalone product PLM offers significant value to a company, but it can also enhance other enterprise systems (ERP, CRM) by enabling the sharing of product information throughout the organisation.
Heppelmann describes the interaction between what he describes as 'above the line' enterprise processes, handled by the ERP system, against 'below the line' engineering functions, the domain of PLM, as akin to the right-brain/left-brain connections. "The right side of the brain is reportedly very creative and the left side very logical," he says. "Another analogy I like is [that of] a word processor and a printer. A word processor is all about collecting the right bits of information to create a digital document. Then when you hit the print button the role of the printer is to take this digital document and, using raw materials, transform it into a physical document.
"You can think of a factory as a bit like a printer; information and raw materials come in one side and a physical product comes out the back end. I would submit that if you want the document to be good, the definition of 'good' is really how it reads, even more so than how it's printed.
"Apple doesn't even do the bottom half: they outsource it, think it's a commodity and their advantage is all created around the ideas. It's a great testament to the power of being really good at the strategic side [and] the table stakes need to be good at the operational side."
Heppelmann points to Hyundai's efforts to gain market share in the US as a model of innovative thinking. Today Hyundai is the fourth-largest automotive OEM in the world and the fastest growing, but it wasn't always that way. When the company's cars first arrived in the US in the 1990s their reputation for quality was extremely bad. Hyundai's then chief technology officer, Hyun-Soon Lee, decided that the company needed to stop buying engines from its current supplier and start producing its own if it wanted to drive up quality: because the engines were a big part of the quality problem.
"He bought some seats of ProEngineer and started using these digital tools to create a phenomenal engine," Heppelmann explains. "In fact this engine was so good and he was so confident of the engine that he decided to issue a ten-year/100,000 mile warranty. It was hard to say that a car had bad reliability when it had a ten-year warranty so immediately the reputation for quality dramatically improved as did the reality behind the reputation. This set Hyundai on this explosive growth path that its has enjoyed ever since."
Another example of a company that is employing creative thinking amongst its product portfolio to hasten expansion is appliance manufacturer Whirlpool. PLM in action.
Whirlpool is a $20bn company with 70,000 employees operating in 170 countries around the world. Just two years ago it celebrated 100 years in business. A surprising fact is that fewer than 10 per cent of publicly held companies in the US make it to their first century: survival is not about luck though; it takes innovative thinking to survive.
The company started its life in 1911 as an OEM manufacturer of washing machines sold unbranded to retailers. Gradually the realisation dawned on that if it wanted to continue to grow and prosper it needed to expand, so it took the steps necessary to become a full-line appliance manufacturer.
The next step up the innovation ladder was steps to regain control of its own destiny, and that was achieved by developing its own marque and the Whirlpool brand was launched.
By the 1990s the company was on a path to global expansion and that heralded two decades building the business globally until today it sits proudly atop the pile as the world's largest manufacturer of home appliances.
So what next? "Whirlpool has set its sights on becoming one of the world's leading consumer product corporations," Jeff Burk, director of global products at Whirlpool explains. "That's a pretty big task. To do that we are going to have to leverage the assets that we have: leverage our brands, leverage our distribution and our scale, but with a focus on product.
"We need to expand our product lines to capture new geographies. We need to drive innovation into our products to enable us to grow our core business. And we need to get creative, to bring new products and services to the market to expand our core business."
Of course, this comes with many implications: cost and quality are absolutely essential, but as was alluded to earlier, it is no longer sufficient. "We need to be able to react quicker to opportunities in the marketplace," Burk adds. "We need to have more product variation, but achieve that from fewer platforms. We simply need to be better at translating consumer needs into meaningful product innovation. In short, we must completely transform the way we develop and deliver product to the marketplace."
To support that effort Whirlpool last year started a programme called Constellation: it is chartered to deliver a world-class product development system – PLM in its broadest sense – based on PTC's suite of products.
At the heart of the programme is a desire to deliver capabilities that will allow them to manage its product complexity: to efficiently manage across functional barriers and across physical borders. "We need to be able to quickly redeploy our technology from one platform to another, from one product to another," Burk says. "Most importantly we need to have one single source of the truth for all our product information to allow our enterprise to build and have confidence in that information to build more capabilities."
It is a difficult balancing act for companies treading the path of innovation: balancing standardisation against customisation. "We want more product variants, but with fewer product platforms," Burk says. "We want to be able to give our brands more differentiation, satisfy the local needs of local markets, but with more standardisation of everything inside the product that doesn't absolutely have to change."
Another problem that plagues the development of many innovative products is judging its cost implications and value to an organisation. "We need to be able to understand and quickly assess the cost of a product early in the development stage," Burk agrees. "We need to be able to link our quality information to our parts, to our systems while we are designing them not waiting for the product to be in the marketplace.
"Looking further ahead we need to give our service organisation a view so they can produce their service bills of materials and a service manual well before a product is launched into the marketplace. Ultimately we need to bring speed, accuracy and predictability to our product-development process.
"We're pretty optimistic about our next 100 years that with these kinds of product development capabilities we are going to be able to deliver all kinds of product innovations to consumers all over the world."
For companies such as Whirlpool, who drive innovation into the core of their business plan the future looks bright. For those whose gaze continues to be focused on driving operational efficiency into their business, they may soon discover to their cost that is no longer sufficient.
As University of Southern California business school professor Gerard Tellis explains in his book 'Unrelenting Innovation', released earlier this year, seemingly invincible market leaders stumble when rivals introduce breakthrough innovations.
"Success leads to lethargy and overconfidence, Tellis explains. "It leads a firm to protect the causes of its success ' mainly its current products. But nothing lasts forever. Current products are doomed to obsolescence."
Never has the simple maxim of 'innovate or die' been more relevant as even the most successful companies are appreciating as they seek to marry their innovation to the table stakes of operational efficiency they earned through their ERP implementations.