Innovation Processes

Abstract

The extensive examination of the defining innovations, which were gleaned from the documented companies, was driven by the importance those early decisions had in shaping the companies. Most of these ideas were product innovations. The separation of the defining ideas from ongoing product innovations was based upon the need to show that following an initial Big Bang step, company management then had to refine these product ideas over time. While the first ideas were often generated from the outside and involved little or no formal research or development, the firms needed to engage in the constant renewal of their product lines in order to stay on top. It was observed that this is actually a different process: one that is most pronounced at those companies where the starting idea was built upon over a long period of time.

Product Innovation Over the Long Haul

The extensive examination of the defining innovations, which were gleaned from the documented companies, was driven by the importance those early decisions had in shaping the companies. Most of these ideas were product innovations. The separation of the defining ideas from ongoing product innovations was based upon the need to show that following an initial Big Bang step, company management then had to refine these product ideas over time. While the first ideas were often generated from the outside and involved little or no formal research or development, the firms needed to engage in the constant renewal of their product lines in order to stay on top. It was observed that this is actually a different process: one that is most pronounced at those companies where the starting idea was built upon over a long period of time.

Among the oldest firms observed, product innovation was a process that never stopped and that allowed the firms to remain competitive on a global basis. Although this was often combined, or even led, by process innovation, to be addressed later, constantly renewed, improved, and reengineered products were a crucial part of the mix.

Examples of this long-term product improvement process were offered by Sécheron, the electric train component supplier, and Burckhardt Compression, producers of industrial compression systems. Both companies were more than 100 years old, and they continue to renew their products on a regular basis with internal engineering resources, some of them for customizing equipment for new sales.

Sécheron had captured the position as the world’s leading supplier of electrical equipment for DC traction substations with an installed base across many countries. Sécheron leveraged extensive knowledge of the technologies used in railway components through extensive in-house engineering capabilities. Sécheron offered both standard and customized solutions and extended its market coverage to provide solutions for energy storage and recovery. Sufficient resources were present to fund such internal development, and a group of about 100 engineers in Geneva, and elsewhere, were developing and improving its product line.¹

Over decades, Burckhardt Compression remained focused on oscillating compressor technology and relevant application segments, avoiding the larger rotating compressor segment. Even though this was a mature technology, the company still managed to develop and refresh its product line by steadily adding new and improved models for new or emerging application segments.

The forerunner of Burckhardt Compression recorded its first compressor sales in 1883 with a patent granted for its two-stage compressor. Burckhardt was able to develop a series of different compressor models that were both innovative and high in demand by industrial users. Over a period of about 50 years, the company launched compressors used in ammonia synthesis applications requiring very high-pressure levels. Burckhardt had always benefited from excellent in-house engineering talent that made the development of superior compression systems possible. To this product line, a family of labyrinth compressors was added when Burckhardt was acquired by Sulzer in 1969. The world’s largest and highest performing compressor was installed by Burckhardt in 2007. This was followed by a new design for the Laby-GI for dual-fuel-stroke engines for large LNG tankers used for direct injection of boil-off gas into the diesel engines of the tankers.²

Reinventing at Regular Intervals

For most companies, a steady stream of new products introduced over time, at fairly regular intervals, was an assurance that the market position would be maintained. Also, indispensable was having a clear idea of the market space that the company wanted to occupy, one that would serve as a guide for the product innovation process. Thermoplan, maker of automated coffee machines for institutional users, serves as an example of this constant and steady process of renewal.

Thermoplan described its market space focus as the range of hot-cold-drinks-beverage, which signaled potentially moving beyond coffee. Although no plans were officially publicized, the company was known to work on tea and chocolate as possible future options. All engineering and development was performed at Thermoplan’s location in Weggis, Switzerland. The number of staff employed in its development functions were estimated at about 20 percent of total employment, or more than 60 specialists from various of engineering and science disciplines. A design Center was maintained in the Canton of Valais where Thermoplan staff regularly met with customers.³

Thermoplan coffee machines were constantly improved since the launch of its B&W Generation One model. In 2007, Thermoplan was the first company to integrate a cold milk foamer into its fully automatic coffee machines. In 2011, the company followed up with a catering coffee capsule machine. The Telemetry System was introduced in 2014 allowing customers to electronically monitor their machines’ performance on their PC via ThermoplanConnect. LatteArtist was introduced in 2018 with its B&W4 generation machines allowing for the creation of artistic designs in the milk foaming phase of preparing a cappuccino or latte.⁴

Pilatus, producer of general aviation planes, had maintained its product innovation rhythm over decades, going back to the company’s creation in 1939 and maturing into a new set of competences as the company accumulated new skills with each new product launch.

For Pilatus, growth from a maintenance role into assembling, or subcontracting of parts, into a full-fledged developer and builder of competitive training or civil aviation planes, including jets, was a step-by-step process. With each, the company gained valuable experience added to its already existing know-how. The ruggedness of its earlier training models was carried over into its civil aviation models. The experience gained in maintenance was capitalized by constructing planes for easy maintenance. The need to provide multiple variations of the same model series led to modularization. The experience with STOL in its PC-6, its first civil aircraft, was rolled over into its PC-12 and PC-24 executive airplanes allowing for the utilization of thousands of small and sub-optimally equipped civil airports in rural regions. Over time, Pilatus accumulated the experience needed to become a full-fledged airplane design and building company.⁵

At Jura, the maker of espresso machines for home use, the acceleration of its innovation rhythm and new product launch became a key strategy element.

Because competitors could quickly imitate espresso machines features, Jura’s strategy was to constantly improve on its machines. The intent was to stay one model generation ahead of the competition, becoming a moving target of perennial innovations. This led to an innovation rhythm of new machine models every year, and with new model sales consistently representing a major part of annual sales. Many of Jura’s staff at its head office in Niederbuchsiten was devoted to this effort.⁶

Product Platform Innovations

For companies operating from established product platforms, the product innovation process often involved product generations or took the form of versioning—rapidly expanding the applications from a major product platform. The platform provided some guardrails for the direction of the innovation process, and the goal became to expand the number of items, or SKUs, to accommodate as many different application variations as possible. Companies pursuing this strategy tended to have larger development staffs and spend higher amounts on development as a percentage of sales.

Among the researched firms, u-blox, EAO, and LEM serve as examples of how a potent product platform calls for constant renewal and development of ever more variations for ever more applications.

To drive its innovation, u-blox invested about 20 percent of sales in development. The company engaged not so much in research but concentrated on development. Applying technology to a particular function, the company wanted to be ready for the next technology phase. This meant to enter into extensive collaboration with universities and to be in constant contact with the market to correctly spot the latest trends. Only then did u-blox decide on the commercialization of new ideas.

If there was an innovation philosophy at u-blox, it could be described as applying new technology for its customers’ use, not so much as inventing technology. This still challenged the company to be ready to move on to the next phase of an emerging communication technology as the fastest follower to apply the new technology. Thus, spotting trends was essential for the company to decide on what and when to commercialize. This philosophy of technology development was also evident in the product technologies adopted. At the outset, u-blox tended to acquire chips on the open market and adopted them, through modules, for its use. With more experience gained, the company did eventually shift to its own chips once the applications began to mature. The first u-blox chip set was brought to market in 2007. Others followed, in succession.⁷

For LEM, development was crucial to further develop the efficiency and quality of its components.

LEM invested about CHF 28 million annually into R&D (2019), or about 9 percent of sales. Product families were constantly improved, updated and functionally extended to keep pace with the changing requirements of its customer base. Product development was decentralized and had to be close to customers. Engineers for Huawei, China, had to be located in China and it did not make sense to make a loop through Geneva for each issue.⁸

At EAO, the process for new product configurations took place at each production site.

It involved different types of talents, such as mechanical and electrical engineers, specialists in material science and some software developers, as well as product managers and production specialists. The team proposing a new product was tasked to put five core value propositions on a single page, not to create a large book of technical specifications. The key questions to be answered were: ‘Who is pushing the button?’ and ‘Why is this person pushing the button?’ The user’s task to fulfil and its experience was always a core value for new products ever since the two founding pioneers started EAO.⁹

Oetiker, producer of clamping products, maintained a steady flow of innovations once the initial clamp design had been launched. The innovations included assembly and installation tools to make the clamping installation process more efficient.

Ever since the development of the first punching machine in 1947, company founder Hans Oetiker followed up with a range of new connecting systems at regular intervals. Oetiker supplied a full product line of clamps where the successive new models of clamps were driven by customer requirements, always keeping old models in the line-up, too. As a result, the product line became cumulative, all later clamp models being improved variations of earlier ones. Over the past ten years, the company brought to market several generations of different clamps which were partial improvements of earlier systems, or new models, for better inclusion in automatic clamping systems. Most of the Oetiker clamping products remained in production for many years and some were produced for its replacement parts business. Other than clamping and connection systems, Oetiker also brought new installation systems to the market. While the rhythm of new connection systems was managed from the center, the various locations, through their multiple direct contacts with customers, contributed ideas for new products or assembly systems.¹⁰

The innovation rhythm maintained at platform companies required close connections to their customer base, which was frequently maintained from international production or sales distribution points.

Innovating with Materials

While product-based innovations are much more visible and reflected in the offer of a company, innovations around materials take place more often behind the scenes. They are, nevertheless, very important to production-based industries, such as those reflected in this research. At times, material innovation can be central to the development of a firm, while missing a material change can mean a loss of competitiveness. Conversely, the ability of leading material changes can bring added competitiveness.

For most of the researched companies, the primary production materials did not change significantly. For a few, the production material did change over time, but at such speed that it was hardly noticed by outsiders.

• In the case of Pilatus, the aircraft manufacturer, the material originally used for airframes was wood; it then gradually changed to metals, mostly aluminum, but did so over the course of many years.

• At Fraisa, the machining tool producer, the change came largely in the materials its customers used, therefore forcing a change in the tool design.

• For Kuhn Rikon, the change was represented in the addition of its kitchen gadget line, which was made mostly of plastic materials, a change that was absorbed by using outsourcing for those products, allowing the company to continue with its aluminum-based cookware business in parallel.

For both Geistlich and Sefar, the change in materials substantially affected their business. In the case of Sefar, shifting from natural to synthetic fibers allowed the company to maintain its edge and gain new application segments.

When nylon was invented shortly before the Second World War, Sefar started working with synthetic fibers which required that new weaving techniques had to be developed. In 1945 nylon yarn was woven into gauze on a mechanical loom for the first time and in 1950, after lengthy experiments, the company succeeded in producing nylon fabrics that were more effective and durable than silk products. In the 1960s, synthetic fibers increasingly replaced silk until the production of silk bag cloth was discontinued altogether in 1990. Since it is possible to apply various chemical coatings onto synthetic fibers, Sefar added refinement as a new production step. The field of possible applications for Sefar fabrics also became more extensive. Synthetic fibers allowed for filtration applications in the automotive industry that were superior to metal filters. After great efforts, Sefar managed to make this area one of the most important business segments today.¹¹

Geistlich, producer of natural bone-strengthening materials, went into a totally new direction with products launched in 1986 and successively extended their use into broader indications for bone loss. The development process was centrally driven by the nature of the biotech industry and its controlled production environment. Building on the initial innovation, the company expanded its product and materials platform at regular intervals.

By 1986, Geistlich had launched two products: Geistlich Bio-Oss^® and Geistlich Bio-Gide^® to enhance jawbone structures for dental patients, enabling the insertion of implants where previously prevented by insufficient bone support. After the successful entry into the dental regeneration market, Geistlich launched Orthoss^®, a bone regeneration material in connection with orthopedic bone defects. This was followed in the 1990s by Bio-Gide^®, an absorbable collagen membrane for dental surgery and Chondro-Gide^®, a collagen material for cartilage defects. Bio-Gide^® was a natural bilayer collagen membrane superseding non-resorbable membranes, simplifying surgical techniques and effectively revolutionizing bone regeneration. By 2004, only about 15 years after introduction, Geistlich’s Bio-Oss^® had become the most often used bone replacement material in oral and maxillofacial surgery.¹²

For the companies described above, the changes in materials relevant to their products and production processes were critical. If the companies had not managed to engage in changing materials, market positions would have been lost.

Innovating Production Processes

In the context of innovation, it is important to notice that significant innovation can occur around industrial processes. Previously, the focus in Chapter 15 was on the choices around production processes. For many companies, developing proprietary production processes has been extremely important. Ultimately, such processes are powerful, particularly in terms of defending against international competition.

For Geistlich, the change to biomaterials opened up an entirely new business opportunity that affected its entire business, from research to production and market segments.

For Geistlich, the process of shifting production from the traditional industrial processing of animal bones and tissues towards biomaterials began in the mid-1980s and was completed by 2001. This required a fundamental shift in operations that became noticeable to people living in the vicinity of the Schlieren and Wolhusen plants when the persistent strong odor emitted from the plants suddenly stopped. Gone were the trucks and railcars delivering bones by the tons or truckloads. Instead, the company now delivered its products in small dosages, typically one gram for a single procedure. One kilogram of the new materials was reported to cost CHF 200,000. Instead of tons of industrial materials, the company shipped biomaterials annually measured in a few hundred kilograms.¹³

The researched companies where proprietary industrial processes were preceded by significant innovations are featured in this short section. The firms which utilized proprietary manufacturing processes did, in fact, at one time engage in process innovation. Some of those innovations are included here again as a reminder; more details can be found in Chapter 15 in Part VI.

• Medartis, producers of orthopedic trauma implants, developed an innovative process to machine titanium screws.

• Rüeger, manufacturer of temperature gauges, developed a manufacturing process that remains unique to this day.

• maxon developed its own winding process to produce small electric motors, improving from the initial ten minutes per rotor down to as fast as 12 seconds per rotor, all with equipment and processes developed in-house and not available on the open market.

Winning at the Innovation Game

Most of the SMEs covered in the research sample did not innovate in one single, major step to arrive at a new product. Instead, these companies practiced step-by-step innovation, making improvements over time whenever a step could, or should, be improved, seeking excellence over a long period of time.

The innovations have been pursued on a number of different dimensions, such as with a product, a new manufacturing process, or new materials. Companies did not always follow the same dimension consistently, but instead might meander between one innovation path or the other. When combining different paths of innovation with a steadfast focus on the same target customer, or industry, even small companies can build considerable competitive advantage over time. It was particularly those innovation steps that were not visible in the final product that have been the longest lasting and the most difficult for competitors to duplicate.