Making the Most of Ideas

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Making the Most of Ideas

• Prof. M.J. Gregory

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Overview

• Industrial ideas
• Global context
• Emerging capabilities
• Working in networks
• Industrial innovation

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Industrial Ideas

• Products ARM Microcircuit design
• Production Zara Fashionable clothes
• Distribution Dell Personal computers
• Services Rolls-Royce Aero-engines

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ARM microchipsmarketinggtdesigngtproductiongtdistr
ibutiongtservice

• ARM designs used in 75of mobile phones
• Close to global customers and OEMs
• Fabless business model
• Substantial process knowledge

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Zara - clothesmarketinggtdesigngtproductiongtdistrib
utiongtservice

• Spanish clothes maker Zara owns all production
  capability
• Products in own shops change every 2 weeks
• Production can be flexed to respond to demand
• Competitors cant follow!

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Dell personal computers marketinggtdesigngtproduc
tiongtdistributiongtservice

• Dell pioneered large scale direct selling.
• Their model allows on-line customisation of
  products
• Production and delivery status can be tracked by
  the customer
• On-line diagnostics and after sales service
  minimise support costs

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Rolls-Royce Aeroenginesmarketinggtdesigngtproduct
iongtdistributiongtservice

• Responding to customer needs
• Rapid growth in market share
• Totalcare service model 60 of revenues
• Implications for design and production

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Innovation, Value Chain Business Models

• Innovation can occur within and between each
  stage along the value chain
• MarketinggtDesigngtProductiongtDistributiongtService
• but the stages often have different owners and
  the interfaces and interdependencies between them
  are often poorly understood.

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and the context is changing rapidly

• Global demand for products is rising
• Disintegration of stages in some value chains
• Value-adding opportunities at each stage
• BUT
• Globalisation is changing industry configurations
  
• Industrial capabilities are evolving rapidly

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Globalisation the case of China

• China is emerging as an industrial powerhouse
• It has received massive inward investment
• Industrial development has been systematic
• High-tech capabilities are increasing rapidly
• Growth impacts global industrial structures

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Growth
Average annual growth rate was more than 10
between 1980 and 2004
Source Chinese National Statistics Annual Report
(2005)
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Foreign Direct Investment
Billion US Dollars
Source http//www.china.org.cn
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New Workshop of the World- Pearl River Delta

• 70 of the worlds photocopiers
• 60 of the worlds microwaves
• 160,000 people in single factory for running
  shoes

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New Workshop of the World - Yangtse River Delta

• 30 of the worlds ties
• 70 of the worlds
• lighters
• fastest growing car production location

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Domestic appliances - Galanz

• Largest microwave oven production base in the
  world
• Annual production capacity of 15 million units
  11,000 employees.
• Turnover 700m
• 70 of China market,
• 40 of global market.

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Clothing - Meters/Bonwe

• Virtual company in Garment Industry
• Grown dramatically from a shop into a regional
  brand and into the leading national brand
• Over 1000 retail outlets in China
• Sales of US250 million in 2003.

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So how do they do it?

• Cheap labour
• Foreign Direct Investment
• Natural resources
• But also
• Systematic development of infrastructure
• Strategic development of industries
• Increasing focus on innovation and service!

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Industrial Capabilities - Hon-Hai
marketinggtdesigngtproductiongtdistributiongtservice

• Global electronics production capability
• Developed strongly from component production
• Value capture through economies of scale and
  flexibility
• Moving to design and service

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..and is extending its scope

• For example Hon-Hais strategy reads
• Focus on global logistic capabilities
• Expand production capacity
• Achieve further vertical integration
• Maintain technologically advanced and flexible
  production capabilities
• will leverage off its manufacturing expertise
  and continue to move tirelessly into new areas of
  related business

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and as for brand

• We have no brand
• but, our quality is the brand
• our technology is the brand
• our people are the brand

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..and then the ODMs

• Original Design and Manufacturing businesses
• Execute the whole manufacturing cycle
• Ask you (the brand owner) if you would like some
• Sell the surplus under their own brand and
• Develop proprietary design, product and process
  technologies!

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QCI - Quanta computer Inc.
Established - May 1988 Market Cap - US7B Revenue
(04) - US 10.14B Employees - 25,000
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Strong and diverse customer base
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Industrialised countries are responding by

• Changing business models
• Networking
• RD
• Design
• Innovation
• Service

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Networked RD

• China and India accounted for 3.4 of foreign RD
  sites in 1990, increasing to 13.9 by 2004. 
• 77 of new RD sites planned through 2007 slated
  for either China or India. 
• By the end of 2007, China and India will account
  for 31 of global RD staff, up from 19 in
  2004. 
• Participants projected 37 faster time-to-market
  and 24 lower costs with an integrated innovation
  network
• Booz Allen Hamilton 2006

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Networked design - Apple

• A team of engineers designed and built the first
  iPod in less than a year,
• PortalPlayer had a reference design based on two
  ARM cores
• Pixo created and refined the user interface,
  under the direct supervision of CEO Steve Jobs

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Open Innovation Supply PG

• Entrepreneur spotted a rotating sweet!!
• Healthcare professionals designed the product
• Production outsourced
• Leading PG brand Crest distributes.

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Networked Services - Serco

• Serco is an international service company
• Manages people, processes, technology and assets
  
• Offers operational, management and consulting
  expertise
• The approach offers economies of scale and
  opportunities for innovation

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Industrial Innovation involves

• The full cycle from understanding markets
  through RD, product design, production, supply
  and services within an economic and social
  context
• and is increasingly
• Global, Connected, Multi- partner, Multi-business

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What can industrial innovation do for us?

• Improve efficiency
• Exploit capabilities
• Access global resources
• Capture global business
• Create new industries

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BQ China

• BQ is the leading DIY chain in China
• It commissions designs, outsources production,
  distributes, sells and services
• These activities are orchestrated from the UK

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Plastic Logic

• The power of electronics withthe pervasiveness
  of printing
• Enables new product concepts including displays
  and sensors.
• Potential to create a new industry through
  radical change in economics of production

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So whose job is it to pull the bits together?
No single group has sufficient influence

• Government sets the context
• Businesses marshall resources
• Professions develop share expertise
• Academics develop coordinate knowledge

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And experts have specific roles

• Scientists to discover new knowledge
• Engineers to design new products and services
• Managers to make business more efficient
• Industrialists to make money for shareholders
• Policy-makers to create maximum value for
  society

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So new approaches are needed to

• Build better bridges between science,
  engineering, business and economics
• Focus on the integrated development of products
  and services
• Identify trends, trajectories and opportunities
  more clearly
• Recognise that
• Industrial Innovation Modern Manufacturing

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We need a better understanding of

• Value creation and appropriation which requires
  knowing what it is and how it can be captured
• Partner identification and evaluation - which
  requires sophisticated due-diligence
• Production ramp-up - which requires sophisticated
  technical capabilities
• Management of dynamic relationships - while
  making sure they dont eat your lunch!

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and new expertise including

• Improved skills in global co-ordination
• A sector by sector understanding of the role and
  dynamics of design, production and service
• Enhanced early stage production capability
• Control - not necessarily ownership - of
  production capacity
• Comprehensive innovation capabilities

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Conclusions

• Making the most of new ideas requires
• Inventiveness
• Global reach
• Appropriate institutions
• An integrated approach to education
• A comprehensive approach to innovation
• for which the UK is particularly well placed!