WHY COMPANIES CAN'T INNOVATE
and how to unleash innovation
Here are 18 common practices that prevent companies from
with links to solutions (in red) presented on this site.
1) Don’t bite off more than Engineering can chew when planning product
portfolios, which drastically decreases the success rate of all products.
Rationalize Product Lines
to focus on your most profitable products.
This can triple your profits immediately! Just stop selling your
highest-overhead "loser" products.
Product Portfolio Case Study. The book, Fast Innovation,
(by Michael L. George, et al., 2005,
McGraw-Hill; p. 167) presents a case study which clearly shows how
too many projects diminish the chances of project success.
In the first, year a prominent company tried to
develop 120 products, but resources were spread so thin that no products
were introduced at all! The next year the workload was
reduced to 22 projects and they were able to introduce eight products in 24
to 28 months. In the next year, as they got more focused on only 20 projects,
they were able to launch 14 products in 12 months. Thus
able to successfully launch almost twice as many products in half the time!
The results of focusing product development and
rationalizing away most existing products during a three year period was
that manufacturing productivity tripled, early life failures decreased by 38 times,
customer satisfaction rose from 27% to 90%, revenue increased by 2.4 times, and
operational earnings increased from -6% to +7% !
2) Don’t allow Sales to “take all orders,” sell
any option ever built, and “acceptall customizations” and
pollute operations with low-volume, hard-to-build products that drain resources
away from product development and other improvement programs.
Rationalize Product Lines to eliminate or
outsource high-overhead products that are incompatible with your operations and
supply chains. If hard-to-build products really have
potential, design them into a family in a
product platform. If they do not fit into any product family,
outsource them to a specialist CM or rationalize them away and send all those
problems to your competitors!
3) Don’t “manage” product development with deadline management
(track "progress" at meeting arbitrary deadlines and then putting on the pressure if any deadline is
late) for the illusion of “early progress.” This will be counterproductive if
poorly set deadlines don’t encourage thorough up-front work.
Solution for innovation:
Product development phase scheduling should allow enough up-front
effort, which is (a) when manufacturable innovation
is done and (b) the thorough up-front work
that will cut in half the time to stable production.
4) Be very sure that your product development process
actually does have a product design phase:
Some, even prominent and expensive "processes" don't, and
skip from the "concept testing" phase to the "prototype testing." phase.
Check your to see
if it has a strong product design phase, or has one at all!
DFM and Concurrent Engineering principles, as described in the
white paper on Concurrent Engineering.
5) Don’t quantify only labor and part cost and then allocate (average) all
other costs (overhead) over all products, even your best "cash cow"
products. To make an impact, tell senior management that their favorite
products are paying a "loser tax" to pay for all the overhead costs on the
measurements to get pricing credit for all the overhead cost reductions,
which can range from 1/2 to 1/0 of the usual costs, as shown in for each
overhead category the page:
6) Don’t try
remove cost after the product
is designed, which is so hard to do that it is a waste of resources that
will prevent innovation If this is even attempted, product
development teams will have to devote a very high percentage of product
development resource to make change orders to try to implement DFM retroactively
Solutions: See Solutions
embedded in the article
Reasons Why “Cost Reduction” after Design Doesn’t Work.
7) Don’t go for the
low bidder on custom
parts, which means your engineers will have to design the whole part in
isolation, send it out for bids, manage a "bidding war," and then deal with the
consequences of missing out on concurrent engineering with the best vendor.
Pre-select he best vendor as a
will join your team and help you concurrently engineer the part, thus
expanding the team without hiring or transferring any personnel.
This article will show many ways this will actually cost less and get parts
ramped up quicker. See point # 15 on cautions about not to drive away
the best vendors with onerous terms & conditions and outsourced purchasing
and accounts payable.
offshore manufacturing to "save cost,"
which makes it hard to do Concurrent Engineering when there are no manufacturing
people around to be “concurrent” with. In many offshoring situations, people in
engineering and manufacturing are not even working at the same time. So
research can only be done in one time zone, and
launching a product stares with throwing a drawing package "over the ocean,"
which is followed by the Contract Manufacturer "building to print," whether
the drawings are perfect, 100% complete, and completely unambiguous -- or
not, which is the case in almost all offshoring.
Outsourcing, in general, also involves
converting documentation for outsourcing; changing all parts to "local
sources of supply" (which may involve changing hundreds of parts and
inducing hundreds of new variables), getting outsourcers up to speed; dealing with quality and delivery problems, and so forth and so on.
implement total cost
measurements , which will quantify all the "hidden costs" of offshoring.
Second, understand all the costs that can be reduced by the principles of
this site, e.g. at the page on
how to design half cost products, and the value of doing all
phases of innovation in concurrent
After DFM training, one large company that has pioneered many of these
needed to launch an initiative called "DFM vs policy" to correct current
counterproductive policies for their first product development team to utilize
these new methodologies.
In his travels, the author of this site,
Dr. David M.
Anderson, has encountered several companies that
wasted two-thirds of
product development resources on the last three bullets (# 6, 7, and 8), which really
puts their future in doubt if that future depends on new product development.
Ironically, these attempts thwart six of the eight Half-Cost strategies,
for reasons presented at the beginning of the
9) Don't make the
definition of product cost overwhelmingly
based on part cost or that will
cause serious problems in quality, product development, and block
improvements in supply chains and lean production, summarized in the section
below in the section: "Problems Defining "Cost" Mostly as Parts."
measurements and use that to estimate all the total cost savings
summarized on the page on Designing Half Cost Products
PROBLEMS DEFINING "COST"
MOSTLY AS PARTS
10) Quality compromised.. Pressures to lower part cost
results in cheap parts, which will raise
more their anticipated savings, and that will have the following effect on
11) Product Development delayed
and costing more. Dealing with
problems caused by cheap parts will:
increase resource demands to deal with quality problems,
introduce many variables, which compromise
functionality, with change orders to make everything work again and fix
new problems caused by all the changes
put pressure on teams to compensate for all the above
delay the time to stable production.
thwarted by pressures to keep part cost down because most standard parts are
“better” than a proliferation of the minimum spec parts, but the overall
gain from standardization would be so great the material overhead four
standard parts could be discounted to 1/10 of hard-to-get parts (see the
first page of Chapter 4 on Standardization in the
13) Part availability improvements
also thwarted because more available parts may raise a BOM (Bill Of
Material) entry, but the overall cost savings will be enormous by avoiding
the cost of obsolescence and
supply chain spontaneity which is a key prerequisite to Lean Production.
14) Off-the-shelf parts discouraged, which can focus
resources on what customers buy products for and lower overall cost, but
this will be discouraged by BOM cost pressures because purchased part cost is
the total cost , whereas BOM cost is only material cost. For instance, wires
are very inexpensive (as they may be “expensed” and not even be listed on
the BOM) but wiring generates enormous labor and quality costs to wire
products "like a house." However, DFM solution to wiring problems and cost
is standard off-the-shelf cables, which will all look like “new expenses”“
on the BOM.
15) Vendor/Partnerships can reduce
many costs, reduce NPD resources demands, and reduce the time to stable production.
However, they will not be an option if purchase cost pressures force teams
into the sub-optimal practice of designing in isolation and then going out
for the low bidder.
a) Do not drive your best vendors
away with onerous terms and conditions that stretch out
payments, which doesn't really save money because
the vendors you drove away would have saved
many more costs with better work and do it faster
any saved interest will have to be paid back when
you realize all this and reverse your beat-up-the-vendor policies,
In emergencies, the slow-paying "net 60 day"
customer will get the least attention
Vendor relations is no place "beat up vendors" just
because you can or have the false believe it saves money.
b) Don't outsource Accounts Payable.
which will inevitably stretches out payments even longer and frustrate
vendors with hard to reach offshore people and cumbersome procedure.
Some companies dress these up by calling them "Portals" or :supplier
Network" like they are some kind of benefit. One of these
actually makes vendors buy an access code just to get in.
c) Don't outsource Purchasing
which can thwart standardization, selecting parts for
availability (two major bullets above) , and
concurrent engineering with
both company engineers and vendors.
Do not add onerous terms and
conditions to a Non-Disclosure Agreement (and call it a
"Services Agreement") and try to slip in net 60 day or worse
payment terms (or worse) or thwart class customization by claiming
world-wide IP rights to any "work product" done for the class.
Such policies will limit your training to moonlighting professors or
research staffers teaching from published books.
ALERT TO VENDORS AND CONSULTS:
Insist on an NDA without terms and conditions.
Refusing an NDA with terms and conditions is much easier do
than refusing to sign something called a "Services Agreement."
which may make one look uncooperative. But, if it gets
that far, it could slow down progress or bring it to a halt, because inappropriate or
onerous terms and conditions take much effort and calendar time to
negotiate away. (think insurance to provide a webinar!
or losing your IP right if you customize a lecture; or net 70 days
to get paid or longer if Accounts Payable is outsourced offshore).
This will drive away any company's best consultants and experts, so that void
will be filled by moonlighting consultants or big consulting firms who will send junior staffer to
presented their canned material. These firms don't mind these
agreements because they charge enough to have their own legal
staff who can battle their customer's legal staff.
16) DFM guidelines thwarted, like “Eliminate Right/Left Parts,” symmetrical
parts, and part consolidation will be discouraged if “extra” processing (to
make right and left parts the same) raises a BOM entry. In one company the
VA team resisted the DFM team’s attempts combine eight different brackets
into one by drilling all the holes for all brackets into one versatile
version because it would add extra hole drilling to most of the versions!
However, if the right and left parts were molded or cast parts, eliminating
the extra mold would save tens of thousands of dollars in tooling costs.
17) Concept breakthroughs, that are pivotal for innovation will
be missed, if the project time-lines do not provide time for "thorough up front
work," as shown in the lower time-lines in both graphs in
Example: in the
concept breakthrough article, one category of concept breakthrough is for electronics, including higher
levels of electronic integration, combining circuit boards, and simplifying
inter-board wiring could be discouraged if (a) the status quo is using
‘free” wires and under-reported assembly labor and quality problems and (b)
the solutions appear as expensive new BOM entries without quantifying all
the cost and throughput benefits.
can easily exceed profits. Without standardization, all delivered parts will
go into “raw materials” inventory, which will then be kitted for each
production batch, thus creating a lot of Work-In-Process inventory, and then
wait as Finished-Goods inventory until shipped. Inventory carrying cost
actually costs a quarter of its value per year (see plot in the
Mass Production article), and can be eliminated by
designing for lean production and build-to-order, which will not be
possible with all the above consequences of defining cost as primarily based
on part cost.
Worst possible scenario:
The worst possible “cost reduction” scenario is to *(a) base “cost” primarily on
parts and (b) pressure the design team for ambitious goals, like half the
(parts) cost. That much pressure on parts cost will lead to desperate searches
for the absolute cheapest cost which will:
- Compromise quality, raise quality
costs, worsen reliability, and all the costs to deal with that,
which will lengthen product development time.
- Thwart all real supply chain and lean production
cost improvements such as standardization, designing for part
availability, and off-the-shelf parts, which will be perceived as “raising”
a BOM entry
- Discourage vendor/partnerships if cost pressures on their parts
drive the counterproductive practice of designing in isolation and send out
for the low-bidder
- Discourage DFM improvements that
combine parts and simplify any designs that may raise a BOM entry.
Ironically even a miraculous alignment of low-hanging fruit
reduces parts cost in half (assuming it isn’t cancelled out by the above), , it
would only cut in half mo more than a tenth of the selling
price, which would only result in 1/20 of the selling price, instead of
one half of selling price as is possible by the techniques at:
Call Dr. Anderson at 1-805-924-0100 to discuss
implementing these techniques or e-mail him at
email@example.com with your
name, title, company, phone, types of products, and needs/opportunities.
Dr. David M. Anderson, P.E., fASME, CMC
Copyright 2018 by David M. Anderson
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