How to achieve R&D Innovation AND Manufacturing Efficiency BOTH?
Simple Answer: Right people in the right places and give them the WHAT and the freedom to work on HOW. I explain how to do this using ideas from my book Understanding Firms.
Recently, I was prompted on LinkedIn to contribute to an AI-generated article explaining the contrast between R&D innovation and Manufacturing efficiency. The article says, rightly in my view, that BOTH are important. It further says that we need strategic alignment, investment decisions, risk management, and a culture of innovation to balance both. All that is very good in theory.
The real question is HOW to achieve this.
I explained the HOW in detail in my book Understanding Firms - A Manager’s Model of the Firm. In short, the best way to achieve a “Culture of Innovation” etc. is to get the right people in the right places and give them the WHAT and the freedom to work on HOW.
How do we identify the right people?
Every person, in their professional capacity, works in 3 basic orientations - Scouts, Commandos and Bureaucrats.
Scouts are good at exploring a wider variety of new ideas
Commandos are good with projects to completion
Bureaucrats are good at scaling projects to world-class operations.
Scouts should lead R&D Innovation.
Scouts will help create a pool of ideas that can be potential future winners.
The idea is to identify a pool of needs that can be fulfilled using current or potentially new technology.
Then, we decide as to what exact need-technology combination we should target.
Then, we push the technology to satisfy that need.
Steve Jobs was good at this. He understood that we do not take every shiny product or new technology to the people and ask who and how many will buy it. Instead, we look for needs we can fulfil in an exceptional manner.
Once you have the technology, you want to develop the product to address that need. The needs can be met using old technology in a new package (iPod) or a mix of new and old technology (iPhone). Scouts build various prototypes, do cost-benefits, and identify potential revenue streams, service requirements and many such variables till an outline of the product starts emerging.
This is not an easy job. It has a high rejection rate—almost 90% of ideas get dropped just in the initial stage, and many more ideas fall off the radar subsequently. There are many reasons—markets are not ready, technology is not ready, price-point issues, legal issues, patent gridlock, etc. It is not easy to work on projects that almost always fail. But Scouts are wired for this job. Their ultimate success is in the 1% product prototype that can be a winner.
Then, scouts hand over to the Commandos!
Commandos are good at pooling resources/talent from across the firm to create and stabilize the manufacturing/delivery process.
This innovation stage involves many complex activities - bootstrapping, reworking the plans, trial and error, iterations, etc. Sometimes, Commandos return to the drawing board and rework the entire product. The goal is to get the best manufacturing/delivery process working.
When a manufacturing process is first created, some of its efficiency is built into it at the design stage. However, it is not always the most efficient or scalable process. However, Commandos are not best suited to achieve efficiency and scale.
For this, we need the Bureaucrats.
Bureaucrats will streamline the process and scale it.
As the firm becomes comfortable with the manufacturing/delivery process, it can identify inefficiencies and make the process more economical/cost-effective. Further, as the new product becomes more popular, we get economies of scale.
Even after accounting for these benefits, there are efficiency gains to be had. Bureaucrats engage with the stakeholders and rework the process to extract every last bit of efficiency gains.
Leaders define the WHAT.
Leaders do not make the decisions. Scouts, Commandos, and Bureaucrats do. Leaders take responsibility for the failure of those decisions and share the credit with actual decision-makers. They lead because they put their necks on the line for their team.
Leaders also guide and consult on each of these activities. They are the fount of the “innovation culture” through their decisions in identifying these people, backing their decisions and helping them navigate their work more efficiently.
In Sum
Innovation and Manufacturing efficiency are both important. We will achieve both by getting the right people in the right places and giving them the WHAT and the freedom to work on HOW.