LeadershipStrategy

Which innovations should leaders drive? – Thinking the ToC way

posted by Ravi Arora November 13, 2016

In the previous post I gave reasons to establish that Innovations are always top-down. They are almost never bottom up. Managers should not get disheartened by this because we also discussed the good news – Every person or manager is at the top of something and hence can drive innovations. CEO is as at the top of the whole organisation. VP HR is at the top of the HR organisation and so are other VPs. Head of a manufacturing plant is the decision maker for his/her plant. The head of maintenance is at the top of maintenance function and so are other functional heads. The store manager at a small retail shop is at the top of the store operations. At the lowest level the person is at the top of his/her work process!

Every person therefore can drive and implement innovations in the area that is under his/her control and could also influence innovations in the area of others.

In the same previous post, I also stated that there are exceptions to this. There are situations when a person responsible for an area is not able to implement innovative ideas that may result in Process innovations. The first reason is the personality trait of the person. If the person is risk averse he/she will not allow any innovations. The second reason for this exception has been explained below using the concepts of ‘Theory of constraints’ (ToC).

Innovations in bottleneck processes:

We know that every process has a bottleneck (constraint) because of which it is not able to deliver more. Let us take a typical production process or the operating processes as an example and also assume that the bottleneck is internal. Bottlenecks in production processes are not very difficult to spot intuitively. One would find inventory piled up in front of the bottleneck sub-process waiting to be processed. The senior management intuitively knows the bottleneck and spend a lot of energy in maximizing the throughput from it. In such a situation, no one including the in-charge of the sub-process wants to take any risk of trying something new to debottleneck the process. The downside of failing in experiments is unfortunately very high because the opportunity loss due to the time spent in a failed experiment could be very high resulting in the ire of senior management. In such situations, the manager who owns the bottleneck process looks for support of higher level managers to carry out any experiment to debottleneck. Higher the intensity of the bottleneck, higher would be the pressure on the manager to involve the senior management and higher would be the level of senior management that would need to be involved.

The above explains the predicament  of those managers in driving innovations who are responsible for bottleneck processes. This strengthens the point that I made in my previous post (Innovations are always top down) and I am induced to refine it further by saying – ‘Innovations are not only always top down but innovations in bottleneck processes need even a higher level top’.

Innovations in non-bottleneck processes:

On the other hand, process innovation in a non-bottleneck area can be driven by the manager who owns the area/process. If such innovations are targeted to increase the throughput, they result in incremental innovations with low impact because the bottleneck is somewhere else. In these areas, innovation that improve the overall product quality or help in debottlenecking the bottleneck process may create a larger impact.  The only reason for innovations not happening in non-bottleneck areas will be the unwillingness of the manager to try out something new. Management should carefully evaluate past innovations and the portfolio of future innovations in all such non-bottleneck areas. Depending upon the future plan, enterprising managers should be given charge of those areas where innovations are more important.

Innovations in Products:

Can we apply this concept of bottlenecks (ToC) for Product innovations? Yes we can, but the problem is: ‘How do we define bottleneck in products?’ If the demand of a product is lower than that of a similar product from the competition and if there is surplus capacity to produce more, it clearly is a case of product bottleneck. The reason for such bottlenecks is not simple to find. The lower demand of the product could be due to many reasons like inferior quality, poor availability, lack of product features, unattractive packaging, pricing, unfavourable policies (eg warranty or return) etc etc! You would notice that some of these could be due to process bottlenecks eg ‘poor availability’

The role of senior management in such situations is not to put pressure on the product manager but instead involve themselves in finding and establishing the bottlenecks in products. Once the bottleneck(s) is/are agreed by all stakeholders, the senior management should support the product manager in finding (innovative) ways to debottleneck.

Innovations that CXOs should drive:

The above discussion on ToC could be used as a guide by CxOs to identify the areas in which they should support their managers in playing the innovation team sport better. The guidelines could be summarized as follows:

  • For process innovations, CxOs should put their energy in driving innovations in bottleneck areas. In absence of their support, innovations are unlikely to happen.
  • For product innovations, CxOs should back their product managers in finding the bottleneck for lower product sales. Once the bottleneck is established and agreed upon they need to support in driving innovations to alleviate the bottlenecks.
  • In the non-bottleneck areas, CxOs should encourage managers to focus on innovations that may improve the quality of outcomes. It is important that enterprising managers are made responsible for areas where innovations are desired.

 

Process bottleneck Product/Service bottleneck
Symptom Large in-process inventory in front of the bottleneck Large inventory of unsold products OR stagnant/dropping market share
How easy it is to Identify the bottleneck? Easy – Looking at the flow or analyzing data Difficult – It is mostly implicit/latent, no one wants to declare something as a bottleneck. Managers are worried of  blame game
What should senior management do? Support the manager in debottlenecking by investing or improving or innovating Support the product manager in identifying and building a consensus on what the bottleneck is and then in driving innovations to debottleneck
Strategy for non-bottleneck areas Improvements or Innovations in areas other than the bottleneck have no increase in throughput.

Therefore focus on those innovations that will enhance the quality or debottleneck the bottleneck process or will make the process future ready.

Improvements or investments in areas other than the bottleneck will give no improvement in sales.

Hence don’t focus on such areas and avoid spending resources