OPERATIONS MANAGEMENT

Chapter 4
Managing Product &
Service Innovation
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KEY QUESTIONS
4.1 What is product and service innovation?
4.2 What is the strategic role of product and service innovation?
4.3 What are the stages of product and service innovation?
4.4 How should product and service innovation be resourced?

Study Notes — For Exam Preparation

 4.1 What is Product and Service Innovation?

Core Definitions

Creativity The ability to move beyond conventional ideas, rules or assumptions,

in order to generate significant new ideas. It is a vital ingredient in
innovation.
Innovation Variously described as something that is new, a change that creates a
new type of performance, the process of introducing something novel.
Innovation implies more than 'creativity' or 'invention' as it also
suggests the process of transforming ideas into something that has the
potential to be practical and provide a commercial return.
Design The process that transforms innovative ideas into something more
concrete. Innovation creates the novel idea; design makes it work in
practice.

★ Operations Principle: The product and service innovation process must consider three related
issues of creativity, innovation and design.

How They Relate (Figure 4.2)

Concept Role Produces

Creativity Is an essential ingredient of... Innovation

Innovation Is transformed into a practical proposition Design

by...

Design Defines the characteristics of... Products & Services

🌍 Real-World Examples: Creativity → Innovation → Design

▶ Apple (iPhone): Creative idea of a touchscreen smartphone → Innovation of mobile computing →
Design of iOS and the physical device that made it practical and commercially successful.
▶ Airbnb: Creative idea of renting out spare rooms → Innovation in how people travel and find
accommodation → Platform design that connects hosts and guests seamlessly.
▶ Netflix: Creative idea of on-demand streaming → Innovation replacing physical DVD rental → Design
of the recommendation algorithm and user interface.
▶ Dropbox: Creative idea of cloud file storage → Innovation in syncing files across devices → Design of
a simple, frictionless user experience.

The Innovation S-Curve

When new ideas are introduced in services, products or processes, they rarely have an impact that increases
uniformly over time. Usually performance follows an S-shaped progress.

Phase What Happens Example

Early Stage Large resources needed, relatively small Early electric vehicles — expensive,
performance improvements experienced. limited range, slow charging.

Growth Stage Experience and knowledge grows, EVs improve: Tesla Model S delivers
performance increases rapidly. long range and fast performance.

Maturity / Levelling- Idea approaches natural limits; further Conventional combustion engines:
Off improvement increasingly difficult. marginal gains only despite huge R&D
spend.

New S-Curve New ideas introduced, each requiring EVs replace combustion engines; now
redesign and starting a new progression. solid-state batteries begin a new S-
curve.

★ Key Insight: The limits of one idea being reached prompt newer, better ideas, with each new S-
curve requiring some degree of redesign.

🌍 S-Curve in Practice: The Zip Fastener (from the textbook)

▶ The zip is one of the slowest innovations in history — it took decades from invention to widespread
adoption.
▶ First real zip-like device patented 1893 by Whitcomb Judson's Universal Fastener Company. It was
unreliable and commercially failed.
▶ Gideon Sundback redesigned it with metal protuberances with a tooth and socket — similar in
principle to today's design.
▶ YKK (Japan) transformed zip prospects by focusing on manufacturing accuracy. Very small
misalignments cause jams and breakages.
▶ YKK guarantees each zip will last for 10,000 uses and gained ~40% of the global market by value.
▶ Today the zip market is worth ~$11 billion (2017) and expected to grow to ~$20 billion by 2024.

Incremental vs. Radical Innovation

Incremental Innovation Radical Innovation

Definition More modest technological changes; Discontinuous, 'breakthrough' change;
builds upon existing knowledge and/or often includes large technological
resources. advancements that may require
completely new knowledge and/or
resources.

Frequency Very common — the majority of all Relatively rare — perhaps 5–10 per
innovations. cent of all innovations.

Risk Lower — existing services and Higher — creates major challenges for
products not fundamentally changed. existing players within a market.

Favoured by Established companies — they have New entrants — they have no

built up a significant pool of knowledge established position to lose, nor a vast
 and a mindset that emphasises pool of experience.
continuity.

Example Annual iPhone model updates (faster The original iPhone itself (2007) —
chip, better camera). completely disrupted the mobile phone
industry.

★ Innovator's Dilemma (Clayton Christensen): Organisations are often unwilling to disrupt current
modes of working in the face of a barely emerging market, but by the time the threat has emerged
more fully it may be too late to respond.

🌍 Incremental vs. Radical — Real World Examples

▶ INCREMENTAL: Toyota's annual model improvements (Camry refresh, Corolla updates) — each
year small improvements in fuel efficiency, safety features, connectivity.
▶ INCREMENTAL: McDonald's menu additions (McPlant burger, new sauces) — same core operational
model, slight product changes.
▶ RADICAL: Uber — completely disrupted the taxi industry by changing the business model, not just
the product.
▶ RADICAL: Spotify — transformed music distribution from physical/download to streaming; changed
how artists are compensated.
▶ RADICAL: ChatGPT/AI — a radical innovation currently threatening knowledge-work industries
(consulting, law, writing).

Innovation is Influenced by Later Stages in the Value Chain

At its simplest, a firm innovates in the form of a design for a product or service (or some blend of the two),
produces or creates it through its core operations, and distributes it to its customers.

Stage Description Design Implication

Design for Decisions taken during the design of a IKEA designs flat-pack furniture
Production/Creation product or service can have a profound specifically so it can be efficiently
effect on how they can be created. For manufactured, stored, and
physical products this is 'design for transported.
production' (DFP) or 'design for
manufacture' (DFM).

Design for Distribution The design of a product can be IKEA flat-pack allows efficient
influenced by how it is distributed. transportation on pallets. Music
tracks are designed shorter with
earlier choruses because streaming
algorithms favour 'catchy' parts
within 30 seconds.

Design for Use How the customer uses or experiences Apple designs the iPhone unboxing
the final product or service. experience as part of the product —
the packaging is 'designed for
use/experience'.

🌍 Design for Distribution — Music Industry Example (from textbook)

▶ The majority of revenue in the music industry comes from 'product' distributed through streaming
services, where artists are paid per play.
▶ About one-third of all streams are played because a track has been included on a streaming
company's playlist, usually selected by algorithms.
▶ It is often assumed that the algorithms favour tracks that get to the 'catchy' part of the tune relatively
fast.
▶ Some point out that this has led to the production of music tracks that are shorter, with truncated
introductions and choruses that start sooner.
▶ Real Example: Modern pop songs average ~3 mins vs classic rock songs of 4–5+ mins. Billie Eilish,
Harry Styles — songs structured to hook within 15 seconds.
 4.2 What is the Strategic Role of Product and Service
Innovation?

Why All Firms Strive to Innovate

Despite the obstacles to successful innovation, almost all firms strive to be innovative. The reason is that there is
overwhelming evidence that innovation can generate significant payback for the organisations that manage the
incorporation of innovative ideas in the design of their products and services.

An organisation's products and services are how markets judge it — they are its 'public face'. Effective product
and service innovation processes add value to any organisation by:

• Driving and operationalising innovation, increasing market share and opening up new markets.
• Differentiating products and services, making them more attractive to customers, while increasing
consistency in the company's range, and helping to ensure successful product launches.
• Strengthening branding, so that products and services embody a company's values.
• Reducing the overall costs associated with innovation, through more efficient use of resources, reduced
project failure rate and faster time to market.

🌍 Strategic Role of Innovation — Real World Examples

▶ Apple: Innovation (iPhone, iPad, Apple Watch) opens new markets AND strengthens brand identity as
a premium, design-led company.
▶ Amazon: Constant innovation (Prime delivery, AWS, Alexa, Amazon Go stores) drives market share
across multiple sectors simultaneously.
▶ Nike: Product innovation (Flyknit, Air Max technology) differentiates its products AND reinforces its
brand values of performance.
▶ Dyson: Bagless vacuum cleaner innovation reduced customer costs (no bags to buy), differentiated
the product, and allowed premium pricing.
▶ Tesla: Rapid innovation in battery range and software updates (sent over-the-air) opens new markets
(energy storage) and reinforces brand.

The Design Process as Input-Transformation-Output

The innovation activity is a process that conforms to the input—transformation—output model.

Transformed Inputs Transforming Resources Outputs (Performance

Standards)
Technical information Test and design equipment Quality

Market information Design and technical staff Speed

Time information Lead user (customer) feedback Dependability

Design ideas Supplier advice & Collaborators Flexibility, Cost, Sustainability

Performance Objectives for the Innovation Process

Objective Meaning in Innovation Real Example

Quality Ability to meet market requirements. Pharmaceutical development — prolonged
Distinction between specification quality 'design' (called development) process
(what it does) and conformance quality because errors directly affect health.
(how reliably it does it). Automotive product recalls due to
'conformance' failures.

Speed Rapid innovation = early market launch Fast fashion (Zara) — design to shelf in 2
(earn revenue longer), ability to start weeks. Microelectronics — Apple releases
design later (more current info), frequent new iPhone annually to maintain market
market stimulation. relevance.

Dependability Avoiding missed deadlines and resource Cyberdanss Software case: 2-month delay
shortages. Professional project → 4-month delay in break-even, funding
management reduces uncertainty. requirement rose from $90k to $160k.

Flexibility Ability to cope with external (market A bank bundling premium credit cards,
changes, competitor moves) or internal insurance and travel facilities — changing
(superior technical solutions) change. one element may require redesign of
others.

Cost Cost of labour, overheads, and inputs. See Cyberdanss Software worked
Delays compound: delayed innovation = example — lateness penalty charges of
more spend AND delayed/reduced $20k/month compounded the financial
revenue. impact.

Sustainability Extent to which it benefits the 'triple Banks offering ethical investments that
bottom line' — people, planet and profit. avoid weaponry, gambling, alcohol,
tobacco. Supermarkets ensuring animal
welfare standards. Fair-trade product
development.
 4.3 What are the Stages of Product and Service
Innovation?

Overview — The Design Funnel

The design innovation process will generally have several stages. All such processes tend to move from a
vaguely defined idea that is refined and made progressively more detailed until it contains sufficient information
for turning into an actual service, product or process.

★ Design Funnel: Decisions taken during the innovation process progressively reduce the number of
options that will be considered. At each stage, the level of certainty regarding the final design
increases as design options are discarded. However, the cost of changing one's mind on some
detail of the design also increases.

Stage Description Key Point

1. Concept Innovative ideas become the inspiration for Many options, low certainty about
Generation new service or product concepts. final design.

2. Concept Potential innovations considered for further Not every concept can be
Screening development against key criteria. translated into viable
product/service — organisations
must be selective.

3. Preliminary Define exactly what will go into the service or Key objective: simplification
Design product; identify all component parts. through standardisation,
commonality, modularisation.

4. Design Evaluation Take the preliminary design and evaluate to Best-known tool: Quality Function
& Improvement see if it can be improved. Deployment (QFD).

5. Prototyping & Turn the improved design into a prototype so Alpha testing (internal) then Beta
Final Design that it can be tested. testing (selected customers in the
real world).

🌍 Design Funnel — Video Game Development (from textbook)

▶ Process of developing video games follows three broad phases: pre-production, production and post-
production.
▶ Pre-production: Idea → Pitch → Concept → Planning → Resourcing → Design → Programming →
Art production → Audio production → Game prototype → Quality testing.
▶ Production: Maintenance → Testing, debugging → Marketing planning → Distribution.
▶ Post-production: Post-launch feedback.
▶ Like any innovation process, the video game design process involves blurring of boundaries between
stages, and often significant recycling and rework.
 Stage 1: Concept Generation

Concept generation is where innovative ideas become the inspiration for new service or product concepts.
Innovation can come from many different sources, both from within the organisation and from outside.

Source Description Real Example

R&D (Research & Research develops new knowledge and WD-40 literally stands for Water
Development) ideas; Development utilises and Displacement, 40th attempt — it took
operationalises the ideas. 40 tries to get the formula right.

Staff Contact staff in service organisations / (Possibly urban myth) Employee at

salespersons in product-oriented Swan matchbox company suggested
organisations may have good ideas having one sandpaper strip instead of
about what customers like and do not two — saved a fortune.
like.

Suppliers Suppliers are often the experts in their A car seat manufacturer knows more
field compared to their customers. They about car seats than the car
are also likely to be closer to many manufacturer. Respirator technology
technological advances. advances are likely to be picked up by
respirator companies before the
hospitals.

Competitor Activity Most organisations follow the activities Samsung closely monitors Apple
of their competitors. Taking apart a product launches. Chinese smartphone
competitor's service or product to manufacturers rapidly replicate
explore potential new ideas is called features from global competitors.
'reverse engineering'.

Customers — Lead Users who are ahead of the majority of Professional cyclists modifying bikes
Users the market on a major market trend, before manufacturers create
and who also have a high incentive to commercial versions. Extreme sports
innovate. athletes pioneering equipment designs.

Customers — Consumers who consistently make bad Useful NEGATIVE signal: if

Harbingers of Failure purchase decisions — products they 'harbingers' buy your product,
buy tend to fail commercially. reconsider its market viability.

Crowdsourcing The process of getting work or funding, Procter & Gamble asked amateur
or ideas (usually online) from a crowd scientists to explore ideas for a
of people. detergent dye. Government agencies
asking citizens to prioritise spending
projects.

Open Sourcing An open community, including the Google, Wikipedia, Amazon — all use
people who use the products, develops open-source software components.
many software applications. Linux operating system developed and
maintained by a global community for
free.

Ideas Management Formal software systems to collect 3M Corporation: Formally encourages

Systems ideas from employees, assess them, employees to spend time on own
and implement them quickly and projects. Post-it Note invented through
efficiently. this approach.

Stage 2: Concept Screening

Concept screening is the stage where potential innovations are considered for further development against key
criteria. Not every concept can be translated into viable product or service packages, so organisations need to be
selective.

★ DuPont estimates that the ratio of concepts to marketable offerings is around 250 to 1. In the
pharmaceuticals industry, the ratio is closer to 10,000 to 1.

The purpose of concept screening is to evaluate concepts for:

Criterion The Question Examples by Function

Feasibility Can we do it? Marketing: Is the market likely to be big enough?
Operations: Do we have the capabilities to
deliver it? Finance: Do we have access to
finance to develop and launch it?

Acceptability Do we want to do it? Marketing: How much market share could it

gain? Operations: How much will we have to
reorganise our activities to deliver it? Finance:
How much financial return will there be on our
investment?

Vulnerability What are the risks of doing it? Marketing: What is the risk of it failing in the
marketplace? Operations: What is the risk of us
being unable to deliver it acceptably? Finance:
How much money could we lose if things do not
go to plan?

🌍 Concept Screening — Gorilla Glass (from textbook)

▶ Corning is one of the world's biggest glassmakers. Its scientists create thousands of new glass
formulations and production innovations every year.
▶ Not all have immediate market potential. Those that may have potential are sent to the research
centre's small glassworks for trial production, but even these may not make it to market.
▶ Everything learned from all development projects is added to its 'knowledge bank' — even failed
concepts prove useful later.
▶ Steve Jobs (Apple) requested a faultlessly clear, strong and scratch-resistant glass for the original
iPhone screen — in six months.
▶ Corning searched its knowledge bank and found a 1960s project for toughened lightweight glass for
industrial use. They reworked the formula to create glass thin and strong enough for touch screens —
called it Gorilla Glass.
▶ Gorilla Glass is now progressively improved and found markets in other touch-screen applications
beyond the iPhone.

Stage 3: Preliminary Design

The first task in preliminary design is to define exactly what will go into the service or product. For service-
dominant offerings this may involve documentation in the form of job instructions or 'service blueprints'. For
product-dominant offerings, preliminary design involves defining product specifications and the component
structure of the offering.
 ★ McDonald's has over 50 specifications for the potatoes used for its fries.

There may be significant opportunities to reduce cost through design simplification. The most elegant product and
service innovations are often the simplest. Designers adopt a number of approaches to reduce design complexity:

Approach Definition Real Example

Standardisation The application of commonality by Fast-food restaurants: You know exactly what
using an agreed set of standards. you are getting when you purchase a Big Mac.
The process of making Shipping containers: Before containers, every
components, methods or ship had its own type. Standard containers
processes uniform throughout an allowed huge reduction in shipping costs and
operation. enabled globalisation.

Commonality Using common elements within a Airbus: 10 aircraft models from the 100-seat
service or product to simplify A318 to the world's largest aircraft, the A380,
design complexity. feature virtually identical flight decks, common
systems and similar handling characteristics.
Pilots with a single licence can fly the entire
A320 family.

Modularisation Designing standardised 'sub- Package holiday industry: Assembles holidays

components' of a service or from pre-designed modules (air travel,
product which can be put together accommodation, insurance, car hire) to meet
in different ways. specific customer requirements. University
modular courses allow student choice while
ensuring economical student volumes.

Stage 4: Design Evaluation and Improvement

This stage in the innovation process takes the preliminary design and evaluates it to see if it can be improved.
Perhaps the best known technique is quality function deployment (QFD).

Quality Function Deployment (QFD)

The key purpose of QFD is to try to ensure that the eventual innovation actually meets the needs of its customers.
It is also known as the 'house of quality' (because of its shape) and the 'voice of the customer'.

It was developed in Japan at Mitsubishi's Kobe shipyard and used extensively by Toyota and its suppliers.

QFD Element Description

The Whats (Customer The list of competitive factors that customers find significant. Scored by
Requirements) relative importance (e.g. on a 10-point scale).

The Hows (Design The various 'dimensions' of the design which will operationalise
Characteristics) customer requirements within the service or product.

Relationship Matrix The central matrix represents the interrelationship between the whats
and the hows. Symbols indicate the strength of relationship (strong,
medium, weak).

Competitive Scores Indicate the relative performance of the product, compared to competitor
products (e.g. on 1 to 5 scale).
 Technical Evaluation The bottom box contains the absolute importance of each design
characteristic.

Correlations Roof The triangular 'roof' captures any information about correlations (positive
or negative) between the various design characteristics.

🌍 QFD — USB Data Storage Stick Example (from textbook)

▶ Customer requirements (Whats) include: Size, Robustness, Attach to key ring, Capacity, Print logo,
Price.
▶ Price scores highest importance (10/10) to customers.
▶ Design characteristics (Hows) include: Casing material, Flash chip, Profile, Finish, Connector.
▶ The QFD matrix then maps which design characteristics most strongly influence each customer
requirement.
▶ The roof shows correlations — e.g., a thicker casing (better robustness) may negatively correlate with
smaller size.

Stage 5: Prototyping and Final Design

At around this stage in the design activity it is necessary to turn the improved design into a prototype so that it can
be tested. It may be too risky to launch a product or service before testing it out, so it is usually more appropriate
to create a 'prototype' (in the case of a product) or 'trial' (in the case of a service).

Testing Type Description Example

Alpha Testing An internal process where the developers or Software companies: internal QA
manufacturers (or sometimes an outside teams test builds before any
agency) examine the product for errors. external release. Car
Generally a private process, not open to the manufacturers: internal crash
market or potential customers. Performed in testing before public reveal.
a virtual or simulated environment rather
than 'the real world'.

Beta Testing When the product is released for testing by Google releasing beta versions of
selected customers. An external 'pilot test' apps (Gmail was in beta for
that takes place in 'the real world' (or near years). Retailers piloting new
real world, because it is still a relatively short services in a small number of
trial with a small sample) before commercial stores to test customers' reaction.
production. Video game 'open betas' before
release.

Virtual-reality-based simulations allow businesses to test new services and products as well as visualise and plan
the processes that will produce them. Individual component parts can be positioned together virtually and tested
for fit or interference. Even virtual workers can be introduced into the prototyping system to check for ease of
assembly or operation.

🌍 Prototyping — Key Real World Examples

▶ Automotive (VR Prototyping): BMW, Mercedes and Volvo use full VR environments where designers
'walk around' cars before any physical prototype is made.
▶ Architecture: Virtual reality lets architects and clients 'walk through' buildings before construction
begins.
▶ IKEA: Uses VR to prototype store layouts and customer flow — testing before any physical changes
are made.
▶ Pharmaceuticals: Computer simulations of molecular behaviour replace early-stage physical testing,
dramatically reducing time and cost.
▶ Retailer pilot stores: Marks & Spencer tests new store concepts in selected stores before national
rollout.

Critical Commentary: Service vs. Product Innovation

★ The chapter treats product and service innovation together, implying that there is little difference
between them. The IHIP characteristics (intangibility, heterogeneity, inseparability and
perishability) add distinctive features to service innovation.

Service Innovation Explanation

Characteristic
Harder to separate innovations In service innovation it is more difficult to separate product, process
and organisational innovations.

More interactive Service innovation involves the engagement of both internal actors
(marketing and technical staff, back-office and front-office staff) and
external players (suppliers, regulators and especially customers).

Co-creation Some organisations employ a significant degree of co-creation on the

part of customers, both in the design and delivery of service.

More incremental Service innovation is often more incremental and less radical than
traditional product innovation. Often a mix of small 'ad hoc'
innovations introduced to solve single customers' problems.

Easier to copy Service innovations are easier to copy and more difficult to protect.
High-visibility services are clearly more exposed to be inspected by
anyone who wants to view them. Unlike manufactured products,
service features cannot always be protected using patent law.
 4.4 How Should Product and Service Innovation be
Resourced?

Five Key Resourcing Questions

For a product or service innovation process to function effectively, it must be appropriately designed and
resourced.

Question Core Issue

1. Capacity Requirements What are the capacity requirements for innovation?

2. In-House vs. Outsourced Should innovation be carried out in-house or outsourced?

3. Technology What technology can be used to support the innovation process?

4. Organisational Structure What organisational structure is most suitable for the innovation
process?

5. Process Compression How can the innovation process be compressed?

★ Operations Principle: For innovation processes to be effective they must be adequately resourced.

1. Capacity Requirements for Innovation

Capacity management involves deciding on the appropriate level of capacity and how it can be adjusted as
demand changes. For innovation processes, demand is the number of new designs needed. The difficulty is that,
even in large companies, the rate of new innovation is not constant.

The expertise necessary for innovation is embedded within designers, technologists, market analysts and so on.
Some expertise may be able to be hired in as and when it is needed, but much design resource is, in effect, fixed.

★ Vicious Cycle Warning: Companies fail to invest in innovation resources → skilled design staff
cannot simply be hired in the short term → innovation projects overrun or fail → company loses
business → company becomes even less willing to invest in innovation resources.

🌍 BT's Open Innovation Ecosystem (from textbook)

▶ BT is one of the world's leading providers of communications services and solutions, with customers
in 180 countries.
▶ BT's 'open innovation' model means working and collaborating with actual and potential suppliers,
customers and its own staff.
▶ BT's 'new ideas scheme' acknowledges and exploits the creativity of the group's 90,000-plus
employees worldwide. Staff can submit informal 'Eureka moment' ideas.
▶ Of the approximately 2,000 ideas submitted every year, around 50 make it through to implementation.
 ▶ BT's technology scouting unit has been advancing the group's innovation efforts since 2000, with
scouts in Silicon Valley, Israel, Japan, Korea, Singapore, Hong Kong, India, China and throughout
Europe.
▶ The BT Infinity Lab in London allows it to keep track and often co-innovate with start-ups while
innovation scouting teams scan the world of technology start-ups.

2. In-House vs. Outsourced Innovation

Innovation processes can adopt any position on a continuum of varying degrees of design engagement with
suppliers, from retaining all the innovation capabilities in-house, to outsourcing all the innovation work.

Factor In-House Outsourced

Control of Resource Close, but loose Distant, through contracts

Familiarity Strong Weak in the short term, potentially

stronger in the long term

Accessibility High Low/limited

Cost Fixed Variable

Risk of Knowledge Leakage Small Great (potentially)

★ Knowledge Leakage Paradox: Businesses usually outsource design primarily because of the
supplier's capabilities, which are themselves an accumulation of specialist knowledge from
working with a variety of customers. Without such knowledge 'leakage', the benefits of the
supplier's accumulated innovation capabilities would not even exist.

🌍 In-House vs. Outsourced — Real World Examples

▶ APPLE (In-House chip design): Apple moved from using Intel chips to designing its own M1/M2/M3
chips in-house. This gave control, secrecy, and competitive advantage — but required massive
investment.
▶ NIKE (Outsourced manufacturing, in-house design): Nike designs in-house but outsources all
manufacturing to Asian suppliers. Design IP protected; manufacturing costs variable.
▶ OPEN INNOVATION (Procter & Gamble): P&G's 'Connect + Develop' programme formally sources
innovation from external partners, universities, and entrepreneurs worldwide.
▶ PHARMACEUTICAL OUTSOURCING: Large pharma companies (e.g., Pfizer, AstraZeneca)
outsource clinical trials to Contract Research Organisations (CROs) to access specialist skills and flex
capacity.

3. Technologies to Support Innovation

Technology Description Real Example

Computer-Aided Design CAD systems store and categorise Boeing used CAD to design the 777
(CAD) component information and allow aircraft — the first plane to be 100%
designs to be built up on screen, digitally designed and pre-assembled in
often performing basic engineering the computer. This dramatically reduced
 calculations to test the physical prototyping costs.
appropriateness of proposed
design solutions. Designs can be
saved and retrieved later, enabling
a library of standardised parts and
components to be built up.

Generative Design (AI- Designers specify important design Airbus used generative design
powered) goals, parameters and (Autodesk) to design the internal partition
performance requirements, after wall of the A320. The AI-generated
which generative design software structure is 45% lighter than conventional
explores all the possible design, inspired by the structure of bones
permutations of a solution. More and coral.
advanced versions use artificial
intelligence to learn from each
iteration. Proponents describe it as
exploiting machine learning to
mimic nature's evolutionary
approach to design.

3D Printing Designs from CAD can be Medical device companies print patient-
converted into physical models specific implants. Nike 3D prints shoe
using 3D printing, enabling rapid midsoles for professional athletes before
prototyping. mass production.

Virtual Reality (VR) More interactive than traditional IKEA's VR app lets customers visualise
CAD — designers (or customers) furniture in their own homes before
can 'walk around' a design and get purchase. Volvo uses VR for car safety
a better sense of what it looks like testing simulations.
and feels like.

Digital Twins The combination of data and Rolls-Royce creates a digital twin for
intelligence that represents the every jet engine it builds. The twin
structure, context and behaviour of collects real-time operational data to
a physical system of any type, predict maintenance needs before
offering an interface that allows failures occur, reducing costly unplanned
one to understand past and downtime.
present operations, and make
predictions about the future.

Knowledge Management Systems that allow McKinsey and Accenture use intranet
Technologies consultants/staff to put their knowledge management systems to
experience into a common pool, prevent 'reinventing the wheel' across
contact other staff with relevant global offices. Staff can identify who has
skills, and identify previous similar worked on similar problems anywhere in
assignments. the world.

4. Organisational Structure for Innovation

The process of developing concepts through to market will almost certainly involve staff from different areas of the
organisation. The organisational question is which perspective — organisational functions, or the innovation
project itself — should dominate the way innovation is managed.

Structure Description Best For

Functional Organisation The innovation project is divided into segments Stable, well-understood
and assigned to relevant functional areas. innovations where deep
Coordinated by functional and senior technical expertise within
management. functions is critical.
 Functional Matrix A person is formally designated to oversee the Simple to moderately
(Lightweight PM) project across different functional areas but complex projects.
has limited authority over functional staff.
Functional managers retain primary
responsibility.

Balanced Matrix A person is assigned to oversee the project Complex projects requiring
and interacts on an equal basis with functional both technical depth and
managers. Both work together to direct cross-functional coordination.
innovation activities and approve decisions.

Project Matrix A manager is assigned to oversee the project Complex, fast-moving

(Heavyweight PM) and is responsible for its completion. innovations where a strong
Functional managers' involvement is limited to project champion is needed.
assigning personnel and providing advisory
expertise.

Project Team (Tiger A manager is given responsibility for a project Highly uncertain, radical
Team) team composed of a core group of personnel innovations requiring
from several functional areas assigned on a maximum flexibility and
full-time basis. Functional managers have no speed.
formal involvement.

★ Toyota's Approach (from textbook): Unlike most multinationals, Toyota has retained a strong
FUNCTIONALLY based organisation for innovation — going against the trend for project/tiger
teams. Toyota argues that cross-functional teams dissipate the carefully nurtured knowledge that
exists within specialist functions. The solution is not to destroy functions but to devise
organisational mechanisms to ensure close control and integrative leadership.

🌍 Organisational Structures — Real World Examples

▶ SKUNK WORKS (Lockheed Martin — Tiger Team): A dedicated, isolated team created to develop the
U-2 spy plane and SR-71 Blackbird in secret, separate from the main organisation. Produced radical
innovations faster than conventional structures.
▶ APPLE'S FUNCTIONAL STRUCTURE: Despite being an innovation leader, Apple uses a functional
organisation (like Toyota) rather than business units — ensuring deep expertise in hardware,
software, services rather than product silos.
▶ GOOGLE X (Project Team): Alphabet's 'moonshot factory' is a separate tiger team responsible for
radical innovations (self-driving cars → Waymo, smart contact lenses, Project Loon).
▶ P&G HEAVYWEIGHT PM: Product managers at P&G have significant authority and budget over their
brands (e.g. Pampers, Tide), driving innovation within those product lines.

5. Compressing the Innovation Process

Every product and service innovation has, eventually, to be created, so there is a strong case for combining the
design of services and products and the design of the processes that will deliver them. Merging these two
processes is usually called simultaneous (or interactive) design. Its key benefit is to reduce the time taken for the
whole innovation activity. Reducing time to market (TTM) can give an important competitive advantage.

★ Operations Principle: Effective simultaneous innovation reduces time to market.

Method Description Real Example

 Integrating Design of Design the product/service and the Car manufacturers design the
Offering and Process production/delivery process factory production line at the
simultaneously rather than sequentially. same time as they design the
new car model — not waiting
until the car design is finalised.

Simultaneous Development Rather than waiting for one stage to be Software development
fully completed before starting the next, (Agile/Scrum): Development,
stages overlap so there is concurrent testing, and design happen in
work. Communication between stages is parallel sprints, with continuous
continuous. communication. Traditional
'waterfall' = sequential (slow).

Early Resolution of Design It is worth trying to reach consensus in the Senior management must
Conflict and Uncertainty early stages of the innovation process, remain engaged in the early
even if this seems to be delaying the total stages — there is a tendency
process in the short term. Changes made for them to 'leave the details' to
early are cheaper and less disruptive. technical experts, only re-
engaging when problems
emerge later (when changes
are expensive).

🌍 Simultaneous Development — Cyberdanss Software Case (from textbook)

▶ Cyberdanss Software was developing security software (project CD08). The contract specified the
client would pay $50,000/month in licence revenue to Cyberdanss.
▶ The contract included a 'lateness charge' of $20,000 for every month the project was late.
▶ Staff and other development costs totalled $15,000 per month.
▶ AS PLANNED: Income starts Month 7, development costs end Month 6. Break-even just before
Month 8. Maximum cash needed: $90,000.
▶ WITH 2-MONTH DELAY: Income starts Month 9, development costs continue 2 extra months,
lateness penalties of $20k/month in Months 7 & 8. Break-even between Months 11 and 12.
▶ KEY LESSON: A 2-month delay resulted in an almost 4-month delay in break-even. Maximum cash
needed jumped from $90,000 to $160,000.
▶ This illustrates why speed and dependability in innovation resourcing is financially critical.

Sustainability and the Innovation Process

The sustainability of a product or service is the extent to which it benefits the 'triple bottom line' — people, planet
and profit. The design innovation process is particularly important in impacting ultimately on the ethical,
environmental and economic well-being of stakeholders.

Sustainability Dimension Innovation Examples

Ethical (People) Banks offering ethical investments that avoid weaponry, gambling, alcohol,
tobacco. Garment manufacturers establishing ethical trading initiatives with
suppliers. Supermarkets ensuring animal welfare for meat and dairy
products. Online companies instituting customer complaint charters.

Environmental (Planet — Use of organic cotton or bamboo in clothing; wood or paper from managed
Design) forests used in garden furniture, stationery and flooring; recycled materials
for carrier bags; natural dyes in clothing, curtains and upholstery. MacBook
Air advanced power-management system. Unilever/P&G detergents
 washable at much lower temperatures.

Circular Economy (Planet — Designing products for longevity, reparability, ease of dismantling and
End of Life) recycling. Apple's robot 'Daisy' can disassemble 200 iPhones per hour to
recover precious materials. In the automotive industry, over 75% of
materials are now recycled.

Economic (Profit) Newlife Paints remanufactures waste water-based paint into premium-
grade emulsion. All products guarantee 50% recycled content, made from
waste paint diverted from landfill. Keith Harrison now licenses his
technology to companies such as Veolia.
Chapter 4 — Summary Answers to Key Questions

4.1 What is product and service innovation?

• We explore three related terms: 'creativity', 'innovation' and 'design'. Creativity is the ability to move beyond
conventional ideas, rules or assumptions, in order to generate significant new ideas. Innovation is the act of
introducing something new with potential to be practical and give commercial return. Design is the process
that transforms innovative ideas into something more concrete. A design delivers a solution that will work in
practice.
• The innovation S-curve describes the impact of an innovation over time: slow at first, increasing in impact,
then slowing down before levelling off.
• Incremental and radical innovations differ in how they use knowledge. Radical innovation often requires
completely new knowledge and/or resources, making existing services and products obsolete. Incremental
innovation builds upon existing knowledge and/or resources.

4.2 What is the strategic role of product and service innovation?

• Despite the obstacles to successful innovation, almost all firms strive to be innovative given the significant
payback for the organisations that manage to incorporate innovative ideas in the design of their products
and services.
• The innovation activity is a process that involves many of the same design issues common to other
operations processes. It is a process that conforms to the input–transformation–output model.
• The performance of the innovation process can be assessed in the same way as any process, namely in
terms of quality, speed, dependability, flexibility, cost and, more broadly, sustainability.

4.3 What are the stages of product and service innovation?

• Concept generation is where innovative ideas become the inspiration for new service or product concepts.
Ideas come from inside R&D, staff, competitor activity, customers, open sourcing, crowdsourcing and lead
users.
• Concept screening involves examining its feasibility, acceptability and vulnerability in broad terms to ensure
that it is a sensible addition to the company's service or product portfolio.
• Preliminary design involves the identification of all the component parts of the service or product and the
way they fit together. Designers adopt approaches to reduce design complexity, including standardisation,
commonality and modularisation.
• Design evaluation and improvement involves re-examining the design to see if it can be done in a better
way, more cheaply or more easily. The best-known tool for this is quality function deployment (QFD).
• Prototyping and final design involves providing the final details that allow the service or product to be
created or delivered.

4.4 How should product and service innovation be resourced?

 • To be effective, the innovation process must be appropriately resourced. Issues to consider include
understanding capacity requirements, deciding how much of the innovation process to outsource, and
determining technology needs, organisational structure and methods to compress the innovation process.
• Organisations must understand the demand for innovation (i.e. number of new designs in a given period)
and match this with their capacity for innovation.
• Organisations must determine whether all innovation activity should take place in-house or whether there
are benefits in outsourcing some or all of this activity to a third party.
• There are many technologies available to support the innovation process, including computer-aided design
(CAD); digital twins; and knowledge management technologies.
• Selecting an appropriate organisational structure can support the innovation process. Typically, structures
towards the project rather than functional end of the continuum (project matrix or project team) are seen as
beneficial.
• The innovation process can often be compressed by integrating the design of the offering and the design of
the process; adopting simultaneous development of the various stages in the overall process; and early
resolution of design conflict and uncertainty.

Quick Revision — Key Terms & Concepts

Innovation S-Curve Performance follows an S-shaped progression: slow start → rapid

growth → levelling off as natural limits approach. When one S-curve
levels off, new S-curves emerge.
Innovator's Dilemma Clayton Christensen: organisations are often unwilling to disrupt
current modes of working, but by the time the threat has emerged more
fully it may be too late to respond.
Creative Destruction Joseph Schumpeter's concept: innovation should be a process of
creative destruction — new innovations destroy old ones.
Design Funnel Decisions taken during the innovation process progressively reduce the
number of options considered. Certainty increases but the cost of
changing one's mind also increases.
Design for Production Also called DFP or DFM (Design for Manufacture). Designing the
product so that it can be efficiently created/produced.
QFD Quality Function Deployment — also called the 'house of quality' or
'voice of the customer'. Maps customer requirements (Whats) against
design characteristics (Hows).
Reverse Engineering Taking apart a competitor's service or product to explore potential new
ideas.
Lead Users Users who are ahead of the majority of the market on a major market
trend, and who also have a high incentive to innovate.
Harbingers of Failure Consumers who consistently purchase products that are subsequently
taken from the shelves. A useful NEGATIVE signal for innovation
screening.
Crowdsourcing The process of getting work or funding, or ideas (usually online) from a
crowd of people.
Open Source An open community develops software applications freely available
and regularly updated by contributors worldwide.
CAD Computer-Aided Design — software that stores component
 information, builds designs on screen, performs engineering
calculations, and enables a library of standardised parts.
Generative Design AI-powered design software that explores all possible permutations of
a solution, generating alternatives the designer would not have thought
of. Uses machine learning to mimic evolution.
Digital Twin A digital replica of a physical system that represents its structure,
context and behaviour, allowing predictions about future performance
without working on the real thing.
Alpha Testing Internal testing by developers or manufacturers in a simulated
environment before any external release.
Beta Testing External testing by selected customers in the real world before
commercial production. Also called 'field testing', 'pre-release testing',
or 'user acceptance testing'.
Simultaneous Innovation stages overlap and run concurrently rather than
Development sequentially, reducing time to market. Also called 'interactive design'.
Time to Market (TTM) The time from concept to commercial launch. Reducing TTM is a key
competitive advantage.
Standardisation Making components, methods or processes uniform throughout an
operation and between operations. Basis for interchangeability and
cost reduction.
Commonality Using the same components across multiple products in a range to
reduce design complexity.
Modularisation Designing standardised sub-components that can be combined in
different ways to meet different customer requirements.
Triple Bottom Line People, Planet and Profit — the three dimensions of sustainability that
product innovation must consider.
Circular Economy Designing products for longevity, reparability, ease of dismantling and
recycling. Contrasted with the traditional linear 'make-use-dispose'
economy.

End of Chapter 4 Study Notes