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Operations Fuel Innovation

Tue, 07/10/2012 - 4:56pm
Kevin J. Duggan

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As the frontier of medicine continues to push new limits, device manufacturers strive to not only keep pace, but to lead the pack with new healthcare solutions. Companies know that perpetual innovation is key to staying ahead of the competition and continually leverage their time and resources to optimize product development to ensure their success and sustainability in this dynamic market.

But the innovation process does not end when a new product is conceived or even developed; it still has to be produced and then delivered to the customer. And while production and delivery were typically considered to be the only role of Operations in innovations, in an organization that achieves Operational Excellence, Operations will instead become an integral part of the invention process -- from the start -- to drive business growth.

How can Operations impact business growth? It starts by understanding exactly what Operational Excellence is and how to get there. Operational Excellence is defined as when “Each and every employee can see the flow of value to the customer, and fix that flow before it breaks down.”SM It creates a “self healing” flow where employees involved can see the flow become abnormal, and repair it themselves without the need for management intervention. If management is not needed to oversee the delivery of products to customers, then what will they spend their time on? The answer many companies have reached: have Operations become a formal part of the innovation process.

Designing the Operation for Growth
When creating new clinical devices that will change the healthcare delivery system, medical manufacturers consider everything from research to ultimate manufacturability, and even issues like how existing products can be redesigned to meet other customer needs. These matters, among others, are usually handled by R&D, Sales, and Marketing, who create a concept, perhaps develop prototypes, then visit Operations to discuss how they can produce it. This all takes time, and meanwhile, the customer is waiting, and the competition is looming.

Instead, by making Operations a formal part of the innovation process, prototypes are designed in conjunction with, and sometimes by, Operations, saving valuable time in the pre-production process. The one key ingredient needed for this? Time. It takes considerable “up front” time with R&D for Operations to be able to work in the development stages of a product – time most Operations leaders cannot afford as they manage the day-to-day operation to get orders to customers. Having the time for Operations to play such a key role in the innovation process is not achieved by good management or corporate objectives. It is accomplished by designing the operation itself to run a certain way and then setting up a method where all employees (and perhaps even visitors) can see if the operation is performing to that design.

Consider an aircraft in motion. Every pilot goes to flight school and learns the principles of aerodynamics, aircraft design, and aircraft performance once in flight. A pilot ensures that performance is achieved by using a checklist to see if things are normal or abnormal with the plane as he or she flies it. This is the exact same thinking we would like in our operations so they can be leveraged to support the innovation process. 

The first step to accomplish this is to know where we are going, and teach that to all employees. Employees must understand that operational improvement is not about eliminating waste or improving the operation day-by-day through kaizen or continuous improvement events. Rather, it is about setting a destination of Operational Excellence, and following a design (OpEx principles) to get there. Similar to the way an engineer designs a plane to fly, we would design our operations to run. Think of this analogy being applied to a device manufacturer’s “in flight” operations, the day-to-day activities it undertakes to get out a product. When we have a design for how the operation will work from raw material through delivery, employees can see whether the operation is performing to this design through use of a visual checklist. When problems in the flow of the product emerge, employees know how to correct the abnormal flow on their own, without management intervention.

If we apply the principles of Operational Excellence and get our operation to a point where it not only regularly delivers the product to the customer, but functions in a way that the employees can fix the flow of product before it breaks down, then we can incorporate key personnel from Operations into our innovation efforts because they will now have the time to devote to it. Additionally, other Operations resources, like time and capital, can be freed up and reallocated to this endeavor. Since the returns from new products won’t be realized until after they’re launched, the innovation process has to fund itself before the innovation happens, and the savings from Operations can be used to help do this by reallocating capital normally devoted to Operations to product and technology development.

From Operational Defense to Business Offense
An organization with Operational Excellence as its destination bridges the gap between continuous improvement and business growth. Most companies have innovation funnels that take ideas and phase them through to products, which are then handed to Operations to produce. When Operational Excellence is achieved, the difference is that operations can now be at the front of that process. Instead of being on the production floor, chasing parts or people, the Operations manager can be with the Sales manager at a customer meeting, discussing the manufacturability of designs, tooling procurements, and so on. Operations itself is integrated at the beginning of the funneling process.

At medical device companies where this transformation has taken place, the results have been profound. In 2001, IDEX Health and Sciences, which produces “advanced fluid-handling solutions for a wide range of analytical instrumentation and in vitro diagnostic systems, began instituting a formal continu­ous improvement program because it understood the impact strict process and quality control would have on the cost and quality of its products. IDEX also knew it could see even greater gains and better compete on price, quality and delivery simply by putting these controlled processes into flow.

In 2005, IDEX be­gan to initialize a program of Operational Excellence across the organization. After formally educating management and workers and implementing the principles of Operational Excellence at each site, plant and operational leaders were freed up and redeployed to innovation initiatives that enabled business growth through a formal process that included meeting with customers about their future needs, a right that had to be earned by consistently meeting their quality and timeliness requirements. Only by first demonstrating this capability was it possible to move on to the next step and discuss how IDEX could enhance the customer’s business with new products or technologies.

The result: over the last year, the company grew at about three times the market average, with 35 percent of sales generated from new systems and new products. R&D spending did not drop during the worst of the reces­sion in 2009. And In 2010, it had twice as many products in de­velopment as it had compared to other years.

“IDEX thrives on innovation, and Operations is entrenched in that innovation,” says Lawrence D. Kingsley, the CEO and chairman of the board for IDEX.

That’s the impact Operational Excellence can have. By freeing up the time and resources once necessary to deliver the product to the customer, companies can further enable, and even enhance, their ability to innovate new technology to stay ahead of the competition.

Kevin J. Duggan is a renowned speaker, executive mentor, and educator in applying advanced lean techniques to achieve Operational Excellence and the author of three books on the subject: Design for Operational Excellence: A Breakthrough Strategy for Business Growth, Creating Mixed Model Value Streams, and The Office That Grows Your Business – Achieving Operational Excellence in Your Business Processes. As the Founder of the Institute for Operational Excellence, the leading educational center on Operational Excellence, and Duggan Associates, an international training and advisory firm, Kevin has assisted many major corporations worldwide, including United Technologies Corporation, Caterpillar, Pratt & Whitney, Singapore Airlines, IDEX Corporation, GKN and Parker Hannifin. A recognized expert on Operational Excellence, Kevin is a frequent keynote speaker, master of ceremonies, and panelist at international conferences, and has appeared on CNN and the Fox Business Network.

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