innovation – The OM Blog by Heizer, Render, & Munson

Good OM Reading: The Algorithm– How Tesla Drives Innovation

Elon Musk calls it “the algorithm,” a distillation of lessons learned while relentlessly increasing production capacity at Tesla’s Nevada and Fremont factories. And anyone can tap into the powerful management techniques behind Elon Musk’s success. At least that’s the thesis of a new book by former Tesla President Jon McNeill.

“The Algorithm” argues there are five steps that explain how Musk wants his teams at the electric-car company and rocket-maker SpaceX to operate. “Much of the genius in Musk’s companies come from the legions of smart people empowered by the Algorithm,” McNeill writes. “They’re chasing stretch goals with free license to question everything and innovate boldly.”

The 5-Step Operational Algorithm is a structured approach to decision-making, innovation, and efficiency used at Tesla, SpaceX, and other Musk firms. It consists of these 5 sequential steps:

Question Every Requirement– Identify the origin of each requirement and challenge its necessity, regardless the rank of the person making the recommendation. The goal is to make requirements less “dumb” and ensure they serve the final objective.
Delete Any Part or Process You Can– Remove unnecessary steps or components. Musk emphasizes that if you donot occasionally cut back at least 10%, you likely haven’t deleted enough.
Simplify and Optimize– Focus on improving only what remains after deletion. Avoid optimizing processes that shouldn’t exist.
Accelerate Cycle Time– Speed up processes only after simplification and optimization, ensuring efficiency without reinforcing unnecessary steps.
Automate Last– Implement automation only after all prior steps are completed to avoid automating inefficiencies.

OM in the News: Is 3M’s Product Design Pipeline Hitting a Dry Spell?

We open Chapter 5 (Design of Goods and Services) noting that leading companies generate a substantial portion of their sales from products less than 5 years old. And The Wall Street Journal (Oct. 6, 2023) reminds us that “the 20th century belonged to the unruly minds at 3M,” with 30% of their profits from new products.

Some 3M adhesive products, including the Post-it Note, medical tape and industrial adhesives

What a great company. From its early days, 3M gave its researchers a long leash to chase ideas, many to dead-ends. The hits, though, were indelible: Scotch tape. Masking tape. Videotape. Post-it Notes. N95 masks. Artificial turf. Heart medication. 3M patented adhesives and abrasives. Proprietary coatings and films —materials at the heart of highway signs, weatherproof windows and stain-resistant clothing and carpets. Its optical film brightened the screens of millions of laptops, smartphones and flat-screen TVs.

But of late, there are fewer new products and fewer still have been blockbusters–and the company has retreated from its traditional 30% goal. For decades, 3M released a cascade of new items on the market, confident most would be profitable and a few would become indispensable.

3M’s innovation principles took shape more than a century ago under its then president, William McKnight, who believed in worker autonomy and initiative. “Mistakes will be made, but if the man is essentially right himself, I think the mistakes he makes are not so serious as the mistakes management makes if it is dictatorial,” he said. He instituted the McKnight principles, one of which allowed researchers to spend 15% of their time on projects unrelated to their everyday tasks—even if their managers disapproved.

The principles championed collaboration, encouraging researchers to share findings. The Post-it Note came about after scientist Art Fry, bedeviled by paper bookmarks falling out of his church hymnal, remembered a semi-sticky adhesive discussed at a company seminar. The product was an instant success after it hit stores in 1980.

Now, researchers are encouraged to pursue incremental improvements to existing products rather than novel, swing-for-the fences breakthroughs. A recent CEO installed “Six Sigma,” a regimen used at GE to measure and standardize business practices (see Chapter 6) but loathed by 3M researchers as a creativity killer. Further, budget cuts have trimmed 8,500 employees this year.

Classroom discussion questions:

What do you think of the McKnight principles?
Why are new products so important?

Video Tip: Innovation and Ingenuity at Work

“Three decades ago,” writes The Wall Street Journal (Nov. 27, 2017), “a historian wrote several laws to explain society’s unease with the power and pervasiveness of technology“. Though based on historical examples taken from the Cold War, the laws read as a cheat sheet for explaining our era of Facebook, Google, and the iPhone. You’ve probably never heard of these principles.

1. ‘Technology is neither good nor bad; nor is it neutral’. For example, DDT, a pesticide and probable carcinogen that nonetheless saved the lives of hundreds of thousands of people in India as a cheap and effective malaria prevention. Today, we can see how one technology, Facebook groups, can serve as a lifeline for parents of children with rare diseases while also radicalizing political extremists.

2. ‘Invention is the mother of necessity.’ In our modern world, the invention of the smartphone has led to the necessity for countless other technologies, from phone cases to 5G wireless. Here is a great 2 minute video to show your class to prove the point.

3. ‘Technology comes in packages, big and small. Steel, oil and rail were the package of technologies that dominated the 19th and early 20th centuries, especially in America, just as the internet, mobile phones and wireless connectivity are transforming the 21st century.

4. ‘All history is relevant, but the history of technology is the most relevant.’ The Cold War led to the buildup of nuclear weapons and the missiles to deliver them anywhere on Earth. That led to the development of a war-proof communication system: the internet. Many related innovations subsequently seeped into every aspect of our lives.

5. ‘Technology is a very human activity.’ “Technology is capable of doing great things,” Apple’s CEO Tim Cook said. “But it doesn’t want to do great things—it doesn’t want anything. The point is that despite its power, how we use technology is up to us”.

OM in the News: G.E.’s Long History of Innovation

A 1910 washing machine with a G.E. motor

G.E.’s rare change in leadership this week (from Jeff Immelt to John Flannery) brings to mind my own years of working at that firm’s jet engine division in Cincinnati many years ago. Long a leader in new product development and innovation (Chapter 5), The New York Times (June 13, 2017) provides just a few of the company’s notable products and periods:

1879 Incandescent Electric Lamp. Working at his laboratory in Menlo Park, N.J., cofounder Thomas Edison created an incandescent light bulb that burned for more than 40 hours. Sixty years later, G.E. created new fluorescent lamps. In 2010, the company released LED bulbs that required 77% less energy and would last for 22 years.

1882 The Age of Electric Power. The nation’s first commercial power station generated electricity for 59 customers in Manhattan. To win over skeptics, the electricity was free for the first 3 months.

1893 Electric Locomotive. The company developed a 30-ton electric locomotive that could reach 30 miles per hour without the use of steam power.

1896 X-Ray machine. A year after X-rays were first discovered, the firm created an X-ray tube.

1906 Voice Radio Broadcast. A high-frequency alternator made possible the first voice radio broadcast. Before that time, radio had been operated as a series of dots and dashes transmitted by telegraph.

1912 Vacuum Tubes. The company came up with a glass-encased vacuum through which an electrical current could flow. G.E.’s tube could transmit up to 50,000 volts and made possible advances used in radio and X-ray.

1927 First Home Test of a TV. A man enjoyed a cigarette and a ukulele player hummed a song in the first demonstration of TV, broadcast to 3 homes in Schenectady, N.Y.

1941 Commercial Jet Engines. G.E. introduced the most popular jet engine in history, the J-47, capable of working at high altitudes and in low temperatures.

1957 Nuclear Power. The world’s first commercial nuclear power plant was the Shippingport Atomic Power Station near Pittsburgh. The $120 million plant initially supplied 60,000 kw, enough energy for 120,000 people.

1962 Laser Lights. The laser light discovery was an invention used to communicate by light waves. Over the years, the company has used lasers in everything from processing solar panel materials to drilling holes in aircraft blades.

OM in the News: One Week, 3,000 New Products

Separating winners from flops is the challenge facing Quirky, the 5-year-old New York-based invention-facilitating company. Quirky culls entrepreneurs’ ideas, taking those that seem most promising from development to manufacturing to distribution. In an effort to speed products to market in 120 days or less, it draws on an online community of nearly 900,000 Quirky “community members” for input. Roughly 3,000 ideas for new products arrive in its online inbox each week, reports The Wall Street Journal (July 3, 2014).

And each week Quirky’s staff whittles down this stream of new ideas into a dozen or so top picks that are scrutinized and voted on during a raucous event known as “Eval,” open to employees and the online community. Typically, 3-5 ideas get the green light to move into development. At that point, engineers and designers, working out a vast red brick warehouse in New York, turn sketches into marketable products, tapping the online community for suggestions about design, product names and price points.

Of the more than 206,000 ideas submitted since 2009, just 500, or 0.2%, have made it into development, and 132 to market. Inventors receive 4% of revenue, with an additional 6% split among members of the broader community who suggest product features, vote on tag lines or contribute expertise in areas such as electric engineering, material science and product safety. The product managers weed out the ideas they think could face heavy competition, or major technical challenges as well as those with no ready retail partner, before forwarding their top 10 picks, which are winnowed further for Eval.

Classroom discussion questions:

1. What is Quirky’s product development strategy? (See pages 157-8 in Chapter 5)

2. Does Quirky follow the product development stages in Figure 5.1 on page 161?

OM in the News: Designing New Products at Taco Bell

Taco Bell's new Waffle Taco — Taco Bell’s new Waffle Taco

Chains such as Chipotle and In-N-Out Burger may rely on a stable menu of popular items, but Taco Bell engineers a constant rotation of products in hopes of not only keeping consumers coming back but also uncovering the Next Big Thing. Explains the firm’s chief marketing officer: “We want to be the leader in food innovation and believe there is no finish line when it comes to being first and staying relevant.” Crafting a breakfast hit, like the new Waffle Taco, is lucrative. In recent years breakfast has been the fastest-growing day part for the industry.

Taco Bell’s innovation team looks at 4,000 to 4,500 ideas every year, of which 300 to 500 are tested with consumers reports BusinessWeek (June 2-9, 2014). Only about 8 to 10 new products make the Taco Bell menu nationally each year. Including products in testing and all permutations, Taco Bell launches dozens of items each year. This keeps the 40-person innovation team busy and well-fed. “We eat all day long,” says the chief food and beverage innovation officer.

In search of ideas, the product developers mine social media, consider new ingredients, and track rivals. Some Fridays, the team does what they’ve dubbed a “grocery store hustle” to see what’s new in retail. But the basic pillars of anything they develop remain taste, value, and speed. The less a restaurant has to change its kitchen operations, ingredients, or equipment, the better.

The developers come up with a prototype, then start testing it with consumers in the lab and in test restaurants. The typical product goes through about 100 iterations by the time it is launched. The Waffle Taco, for instance, was changed 80 times through various characteristics such as shape, weight, thickness, intensity of vanilla flavor in the shell, and fillings.

Classroom discussion questions:
1. Where does Taco Bell fall in innovation ranking, based on Figure 5.1 (see p. 156)?

2. Which product strategy best describes Taco Bell: differentiation, low-cost, or rapid response (see Chapter 5)?

OM in the News: WSJ’s Technology Innovation Awards for 2012

My favorite issue of The Wall Street Journal (Oct.16, 2012) is the one that announces the technology innovation awards for the year: Treatment for tuberculosis in India; A thermostat that programs itself; A lifting device that could help cut workplace injuries; A tsunami barrier that automatically deploys when destructive waves approach; A sports headphone that sends sound waves through your cheek bones, and does not block out important background noises. Here are the 3 top winners out of 536 applications.

Printechnologics is the Gold winner for its Touchcode technology which enables publishers, consumer-product companies, event promoters and others to include invisible codes on printed items that can be read instantly on any device with a touch screen. The codes can link to videos, games, recipes or just about any other online feature; a concert ticket printed with Touchcode could take you to a clip of the performer singing, for instance. A user only needs to place the printed item on the screen of a tablet or smartphone and the invisible code immediately connects to the online content.

Pure Storage Inc. won the Silver award for a data-storage system that uses flash memory instead of disk drives to hold information in corporate data centers. FlashArray storage systems sell for roughly the same as comparable disk storage, while delivering 10 times faster speeds, taking up one-tenth the space and using one-tenth the energy. That means companies can run complicated data-analytics programs more quickly and on larger databases than is possible with disk storage systems.

The bronze winner is Vidacare Corp. whose OnControl Bone Marrow System eases that pain of a bone-marrow biopsy. OnControl bores like a household drill into the space inside the bone. When the device reaches the correct point in the bone for the sample, changes in resistance and how the motor sounds offer cues for the doctors. It’s faster, less painful, and more precise.

Video Tip: Why the US Needs Innovation and High Tech Manufacturing

If you want to show a 6 minute video that will set your semester on fire, try this interview with Henry Nothhaft, author of Great Again and former CEO of Tessera. Nothhaft starts by saying the only way the US can recover from the recession is to deal with the 5 million manufacturing jobs lost in the past decade. He believes we can bring back high-tech manufacturing with some basic tax and policy changes.

The US has the world’s 2nd highest corporate tax rate in the world (and California is the 48th worst in the US). Good tax policies are the reason Israel and Germany have had a revitalization of their manufacturing bases. And offshoring in high-tech is unnecessary when labor costs are only 3% of total product cost. Nothhaft points out that 70% of high-tech innovation goes on during production on the factory floor. Give up the factory and in 10-15 years “you have sown your own seeds of destruction”.

Nothhaft also takes on the US Patent Office and its 3.7 year average approval wait time. He points out that in Silicon Valley this is two or three product life cycles—an immeasurable delay. And finally, he asks for a new green card policy for foreign grads in technology areas. “We need to hang out a sign by the Statue of Liberty that says Geniuses Welcome“, he says, noting that the founders of Intel, Google, ebay, and Yahoo! were all immigrants.

OM in the News: The Startling Loss of US Manufacturing Capacity

The Sunday New York Times headline (Feb.13,2011) reads, “When Factories Vanish, So Can Innovators”. With the closing of the last spoon and fork (“metal flatware”) factory, in Sherrill, N.Y., the US lost an industry that traces its roots to Paul Revere. Just as Sherrill Manufacturing succumbed to less expensive Chinese imports, so have the sardine cannery, stainless steel rebar, vending machine, incandescent light bulb, cellphone, and laptop computer industries.

Less noticeably, says The Times, the imported portion of components that go into American-made products has risen from 17% to 25% over the past 13 years. For example, the wings of many Boeing jets are now made in Japan. With the inclusion of these imported components, manufacturing’s share of the GDP is actually 10.5%, not the government-reported 11.2%. (This, of course, is down sharply from 14.2% a decade ago and 30% in 1950). Moody’s chief economist states: “I think there is a growing recognition that a diminished manufacturing sector will undermine our economy”.

The US has long appreciated that low-wage workers abroad would cut consumer costs on a wide array of manufactured products. But the theory was that US producers would be the world’s best innovators, developing (and at least initially, producing) sophisticated new products here at home. Somehow, though, Apple’s spectacularly designed iPad and iPhone are being made in Asia, not here. Likewise, Maglev (high-speed rail) was invented here, but the technology and production has transferred to Japan.

Many experts believe that the engineers and factory workers in Asia may become the next innovators. One economist is quoted as saying: “The big debate today is whether we can continue to be competitive in R&D when we are not making the stuff that we innovate. I think not”.

Discussion questions:

1. Do we need to worry that “young people stop thinking about making things” in the US?

2.If consumers have benefited from unrestricted lower-priced imports, what is the negative of the equation?

3. Is innovation falling in the US? Rising in Asia?

OM in the News: China’s Drive to Innovate

We have blogged several times about China’s success at reverse engineering such products as bullet trains, solar technology, drones, jet fighters, wind turbines, and computers. And, indeed, one of our strengths in the US has been the ability to stay ahead of competition through innovation (See Ch.5 and Figure 5.2). But The New York Times (Jan.2, 2011) has just reported that China has issued a new government policy aimed at increasing the number of inventions in that country. China’s goal is to have 2 million patent filings/year by 2015. (In 2009, there were 300,000 in China and 480,000 in the US).

So can China become a prodigious inventor? The answer will play out over decades–but also shape the global economy. “The leadership in China knows that innovation is its future, the key to higher living standards and long-term growth”‘, says the Director of US Patents. But the Chinese approach is an innovation by-the-numbers mentality, says one consultant. It is “emphasizing the quantity of innovation assets more than the quality.”

China’s strategy is guided and sponsored by the state. Should this be a source of concern for the US? Despite China’s inevitable rise, the US has a comparative advantage because it is the country most open to innovation. Our culture forgives failures, tolerates risk, and embraces uncertainty.

Discussion questions:

1. In the 1980’s, Japan was considered a similar threat to American industry. What happened?

2. Will China overtake the US one day as the world’s leader in innovation?

3. Comment on China’s use of metrics to meet the goal. What incentives are they using?