Breakthrough Innovation Vs
small increment improvement

The Japaness model made invalid by paradigm shift?

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Last update: 8 September 2001     


Abstract

Original French version  here

I came across one Gary Hamel article opposing breakthrough innovation and small increment (improvement) innovation. Until then I was prisoner of the Kaizen "dogma" and had to admit paradigm shift in production management changes the rules. Old rules are no longer valid new ones must be set.

Yet success of Japanese model relied upon these "old" rules. Can the new paradigm cancel Japanese supremacy?

Facing domestic problems as well as backlash of globalization, Japanese manufacturers have to adapt to to new customers expectations, keep on competitive edge and watch for newcomers.

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Contents

     


    Gary Hamel's opinion

    Gary Hamel's interview/article was printed in special "entreprises" issue of French Figaro May 14th 2001, captioned: "Adapting company to permanent innovation era", reporter Guylaine Stephant-Malbois.

    G. Hamel states "Innovation will be first if not sole competitive advantage of the new millenium". Innovation here is meant global and permanent. Global because not limited to products and technologies but as part of corporate strategy. Permanent because conventional and linear improvement is out, change is no more additional and linear, but discontinuous, according to G. Hamel.

    He opposes Breakthrough innovation and small increment innovation or continuous improvement, arguing steady improvement could only develop in a linear and stable context. In the new paradigm however, this is no more true and a new non-linear creative system is required.

    Gary Hamel explains further: the classical ways to create wealth; cost reduction, increased turnover, mergers, show limits and do no more really create wealth.

    Following these statements, 10 rules to push the "innovation wheel", a dynamic and permanent process.

    Breaking out of my mental jail

    My engineer background long fed with genuine Kaizen, the ongoing Japanese improvement way, found this article shocking at once.

    In factories and workshops Kaizen sets steady ongoing (small increment) improvement as true dogma. Breakthrough innovation is considered a risk factor, uncertain and bringing up additional costs. Kaizen is preferred, as continuous improvement builds on known base, approved, mastered and stable solutions.

    How to consider then future competitive edge requests to reject the system which brought the success and to adopt the risky one?

    I am even more uneasy as I recognize continuous improvement reaches limits, the "expense-to-cost barrier". At some point, improvement techniques require means ($) far more expensive than expected progress/gain (P). So to breakthrough this limit, "doing it better" is no more topic, it must be done differently.

    Now I understand: breakthrough innovation I am amidst it! It is the change of our production lines to cellular manufacturing, a fundamental change our company was experiencing, and I was monitoring breakthrough innovation without recognizing it!

    From now everything returns to its logical place, and to understand it, one have to see it in the new environment or paradigm. Was Hamel right, even for industrial engineering!?


Foundation of Kaizen

One of Japanese methods pillar, and further reason of their competitive success, is fighting waste. Setting up a new equipment is considered an important risk to disturb existing harmony and bring up additional expenses (waste) in various fields; required training, errors and waste through poor know-how, lack of reliability, lower performances as expected, ties to manufacturers, suppliers, etc.

Ongoing improvement of well known solutions is therefore preferred.

This continuous improvement principle is not limited to equipment, but covers all areas of the company; methods, ergonomics, tools, individual performances, etc.

Consensual by culture, Japanese did not plainly copy western taylor's model, based on strict task splitting, but developed a participative one. Improvement was everybody's duty, especially for the closest, hands-on best knowing, and not a kind of restricted area for engineering tech.


A paradigm favoring Kaizen

At the end of WWII, Japanese industry had to start from rubbish, with a whole country to rebuild and few raw material available. Government favoring policy and an ambitious project (catch-up the USA), cohesion of population, and a keen sensibility about saving were prerequisite to local development of continuous improvement.

Growth and stability period (1945-1975) allowed Japanese to sharpen their production system, making it optimum for mass production.

Beyond scale merit, they understood to eliminate all kind of wastes and give some flexibility to their process by implementing quick change over techniques (SMED, or Single Minute Exchange of Die). Maximizing equipment productive time was reached trough same thorough elimination of waste, later known as Total Productive Maintenance (TPM). This method is incentive for modifying machines and tools, to improve them permanently.

Improvement made obsession, small ones but performed daily, by everybody granted the Japanese competitive edge.

Meanwhile, continuous improvement gave innovative look to Japanese products, offering a high pace new functions, new cosmetics, colors or materials.


Paradigm shift in industrial production

Favorable mass production paradigm finally shifted.

In the two crisis decades 1975-1995, Japanese production model was still favored compared to western, because innovation was difficult to justify in a slow economy. Yet this period also experienced the end of stability.

Japanese success pushed this country economically to world top without accordingly gaining political power. Defensive reactions multiplied, like import quotas or trade barriers (e.g. Cars or consumer electronics in Europe).

Western industrials finally reacted and benchmarked Japanese. More used to breakthrough innovation, they could adapt in relatively short time best practices of Japanese model: kanban, inventory reduction, total quality management...

The shift also changed quality conscious customer's status from docile consumer to demanding king.


Globalization et hyper competition

Competitor number increased by new entrants; Asian "tigers", South Korea especially, copying Japanese success recipe. Business was not only slow because of crisis, some industry faced saturation, like consumer electronics.

From then on, stealing customers from competitors is the way to growth. To show attractive innovation and seduction is mandatory. Customers do no more satisfy with limited range of uniform products, but expect customized offers at wholesale price. Products have to be robust and good quality, yet durability is more and more theoretical notion, as Customers get educated to "disposable" products. Globalization, defined as convergence of trade in the whole world, boosts new products releases.

Scale merit and investments payoff get tougher as mass production and life cycle shrink.

Hyper competition is so hard, all competitors rush to any segment showing some profitability.

As an example, Hi-fi business got a new boom with compact disc, but of short duration because of rush of competitors, including new entrants, all seeking new opportunity. Quick market saturation, technology soon commonplace, competition pushing prices and profits to minimum was the result.

This phenomenon progressively reaches all domains (computer, phones, video games…), increasing the need for product differenciation.


Competition Reset

The brutal rupture brought by paradigm shift resets competition. Japanese model based on optimized production lines does no more fit small lots and broad product's variety.

New emerging production organization is built upon an array of small autonomous reactive units.

Unlikely to previous model, the new one doesn't require heavy structural investments nor long learning of excellence.

This model adapted to the new paradigm uses commonplace equipment and technologies, accessible to anybody, hence creating opportunities for new entrants. Even western makers, previously thrown out of competition, could reenter, taking advantage of their market proximity. Autonomy and empowerment required in the new organization should fit the individualistic character of western personnel.


The end of Japanese model supremacy?

Western press often reduces Japanese consumer electronics industry problems to lost opportunities or slow reaction to innovation: MP3 players, hand held computers, etc.

Though, these weaknesses are relative; firstly Japanese always succeeded to integrate and improve other's inventions, secondly these new products have essentially prestige value, but do not yet economically challenge "classic" equipment sold by Japanese makers.

True, but these "classic" equipment are all built on common technologies, open to all...


Opportunities for new entrants

The hidden side of the Japanese consumer electronics industry problems, and probably far more worrying are new entrants; Chinese essentially.

Japanese plant transfers to Malaysia and Indonesia showed only short time solutions to some of their domestic problems; production costs soaring, manpower shortage, currency value, politic and financial problems...

One decade later, cost advantage is questionable: Malaysian costs increase regularly and with economic improvement of this country, international trade favors for its exports disappear progressively.

Chinese manufacturers have free access to common technologies, they have a huge stock of cheap manpower and an incredible domestic market. Their constraints and profit criteria do not match general admitted notion of competitiveness. Their cultural proximity with Japanese and local conditions may replay, Chinese style, the Japanese development story, at inventor's cost!

Designing a new model

Japanese consumer electronics daily newspaper, Dempa Shinbun, frequently reports trials and innovations in Nippon's production organization. Manufacturers recognized the threat menace and try to resist with a different modus operandi.

Close look at their optimized lines, revealed new losses and wastes. From now on, the new credo is "flexible production".

In this nice unity characteristic of their consensus habits and traditional copying each others, Japan's industries mass convert to production cells.

Getting rid of extremely optimized production lines by decades of Kaizen practice, became symbol of innovative company. Breakthrough innovation though...


Conclusion

The new globalized environment requires constant and frequent innovation efforts. Without, no competitive advantage. Time is too short to rely on incremental innovation only, Breakthrough innovation is more and more mandatory.

In this context, Japanese production structures see their limits and Nippon manufacturers redesign their plants. For them, loosing competitive edge is real threat. Paradoxically, competitors they tried to eliminate may multiply!

However, pretending Japan's manufacturers will loose their dominant positions is hasty, considering innovation is made out of 10% invention and 90% improvement of the existing, excellence field of the Japanese.

Chris HOHMANN


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