Innovations on the Decline

Innovation-Sjoo-2014

According to new research from Lund University, research and development innovations are declining and productivity within Sweden’s technology companies is slowing.

An innovation is created when a new product comes on the market and changes a particular pattern. A smartphone is an example of an innovation which changed the market for mobile phones and which is currently leading to change within many other markets. This important difference shows how an innovation isn’t the same as an invention. You might be able to say that Ericsson and Nokia invented the smartphone yet Apple was responsible for the smartphone innovation because they understood how the invention could be commercialized.

Innovations vs. Inventions

Joseph Schumpeter was responsible for defining the terms innovation and invention in the beginning of the 19th century. Innovations create new companies, new jobs and economic growth. However, an innovation isn’t solely a creative process – it is also a destructive one. For example, when Apple or Google’s Android developed smartphones, new jobs and huge profits were made for those companies. At the same time, the mobile phone industry in the Nordic countries was practically eliminated. Schumpeter referred to this phenomenon as creative destruction.

Fewer Innovations

New research from Karolin Sjöö and others at Lund University shows that Swedish industry has become less innovative since the 1980’s (as demonstrated by the red line in the graph above). Even more concerning is the fact that productivity within research and development has declined sharply within the same time period (as demonstrated by the blue line). Swedish companies invest more but get less out of it. According to Business Sweden, Sweden’s share of international exports has also declined. Researchers at Lund University have several theories for why innovations have been on the decline but none of them are completely convincing. However, there is other research that, together with our own research, points to an very important factor: projects.

Projects as Isolated Islands

At the end of the 1980’s and beginning of the 1990’s, Sweden’s industry increasingly used projects. Projects were described as the solution to every problem. There were early warning signs and many who paid attention to these signs. Companies that had started working in project form early on (such as Toyota, which started working with projects in the 1950’s), noticed an increasing degree of sub-optimization. Projects and project managers were singled out as the reason. American research in the 1980’s named autonomous projects as a problem. Even Swedish research in the 1990’s warned of this phenomena. A project can’t be seen as an isolated island, as Mats Engwall and Anna Jerbrant determined in their respective research. In all the companies we have studied there are significant problems with methods for managing research and development when using projects. All of these companies have significant problems with productivity. There are problems determining how much work is actually going on and there are complaints about the lack of resources when what is actually lacking is control and focus.

Bureaucratic Project Models

The project was promoted as a modern form of working based on cross-functional work. In reality, projects are bureaucratic monsters that create greater distance between people. Process-based development models (see stage-gate models, waterfall models), suppress creativity and, counter to their intentions, create a slightly chaotic business.

Popular definitions of projects maintain that a project has a clear goal yet reality tells us differently. Our studies shows that no one really knows the goal of the project or that there are many differing opinions about the goal of the project.

An Agile Network Organization

Road to an agile network organisation
Road to an agile network organisation

The solution to the inherent problems with projects is not to stop using them altogether. Rather, the solution is to implement a structure that allows management to prioritize and re-focus the organization. The solution is also to work with R&D at a strategic level, sometimes called a multi-project level. Toyota reformed their organization during 1991-1992 in order to have a more coordinated collaboration. These reforms were led by Takeshi Uchiyamada. As Chief Engineer within the new Pulse agile organization he developed a whole new kind of car: the Prius. He managed to accomplish this in record time – just 3 years. As Chief Engineer in the new organization he was a part of strategy-focused management. This differed from the old organization in that the different projects didn’t have to compete with each other for everything from resources to clients.

While working on the Prius, Uchiyamada continued to develop his multi-project solution by holding daily stand-up meetings in an Obeya. We call these Pulse meetings in a Pulse room. Scrum has developed a similar solution for project management that makes it possible to replace bureaucratic models with agile solutions.

As you just read, I outlined what Toyota did: they continued to develop their team-based approach while at the same time introducing a concept that made it possible to work strategically. Operations need to be decentralized when using projects yet at the same time they also need to be coordinated. In the entry “The Handlesbanken Way” you can find information about what being decentralized yet still being under the control of management entails. Thanks to agile multi-project organization, Toyota starting using a tool that enabled them to be both inventive and develop new technologies (including hybrid-drift and fuel cells), while at the same time being able to commercialize these inventions and thereby produce innovations. This might have been a more important step for Toyota than lean production. Just how important it has been is indicated by Uchiyamada’s career: after his role in the development of the Prius he has occupied several top posts, including head of development. Today he is the Chairman of the Board at Toyota Motor Corporation.

Increase Innovations!

The pulseroom where different teams has daily stand-up meetings.
The Pulse room, where different teams hold daily stand-up meetings.

There are some very frightening statistics that the researchers at Lund University are presenting today yet they come as no surprise to us. We know what the problem is. There are solutions that work and we know how to implement these solutions. Most companies have realized that they have a problem and during the past ten years, many companies  have taken the same steps as Toyota and implemented an agile network organization. It’s high time for the latecomers to upgrade their organizations because if they don’t there is a risk that Nordic inventions, like the smartphone, will become lucrative innovations somewhere else in the world.

What is Pulse? A Short Introduction

What is Pulse? Pulse has daily stand-up meetings, visual management and planned demonstrations that give feedback. Pulse encompasses the whole organization.

If you visit a company that works with Pulse you will find a Pulse room where the walls are covered with white boards filled with information, referred to as Pulse boards. If you look closer at these boards you’ll see that several of the boards look alike. These are the Pulse project boards. There are also a lot of boards that stand out. On first impression, the Pulse room might seem messy. In addition to printed plans there are post-its, colored magnets and handwritten documents.

What is Pulse?

Vad är puls?
Pulse meeting in session

If you spend the morning in the Pulse room you’ll notice people gathering by the Pulse boards every so often for short Pulse meetings. During these short meetings they discuss what has been completed, what work is currently in progress and what needs to be done next. At the same time they update their board. The meeting participants use the post-its during the meeting. By moving them between different headlines they can show which tasks need to be done, are being worked on or are completed. The groups work together well and are alert. Everyone participates in the discussions and helps update the information on the board. After a couple of minutes they leave. Some people return for other meetings but no one participates in all of the meetings.

If you were to return on Friday morning you would also see Pulse meeting but it would be a different kind of Pulse meeting. Now it’s the management of the organization and the project managers that take center stage. During several subsequent Pulse meetings they deal with the serious problems that have been encountered within the projects, plan resource distribution for the upcoming week and discuss strategic issues. Pulse boards are also used during these meetings and are kept updated throughout the meetings. The meetings are short and information is kept flowing between the meetings through the participants and the use of post-its.

It becomes clear that the Pulse room is a kind of central dispatch where the organization as a whole can coordinate and decisions are made to keep the company running. The information on the walls also helps the participants interact. The Pulse boards create transparency so that everyone can see how the other teams are doing as well as the status of the organization as a whole. The Pulse boards also demonstrate the impressive number of projects which are completed every year.

What Isn’t Visible Using Pusle?

Will putting up some white boards in order to complete projects at a faster pace increase the pulse of an organization? There are some ingredients in Pulse that are not visible from the outside.

Projects and tasks are started in order to realize a strategy. Exploring which projects to begin in order to realize reach long-term and short-term goals is an ongoing process which is achieved using groups of commercial and technical executives that hold daily Pulse meetings. They give the outlines of the results that the projects are supposed to deliver and by doing so determine the direction of the organization’s development.

The groups are self-organized. This means that they are expected to act within their own authority. The outline of the project is made up of the goals that have been agreed upon. The project’s overreaching plan is developed by the people who will be doing the actual work and be a part of the project group. It’s an important prerequisite in order for the team to be self-organized and able to effectively work together during the Pulse meetings. The plan shows which results will be turned over during the project and the displays will guarantee that the goals have been reached.

Results Are Attained Through Interaction

The more people interact, the more obstacles and problems are discovered. A majority of these the issues can take care of themselves during the Pulse meetings. However, some are outside the scope of the projects’ authorities and need to be taken up at the coordinating weekly Pulse meetings. The pace of the projects is dependent on the knowledge that problems outside their authority can be handled quickly by the management of the organization. It’s here that the coordinated weekly Friday Pulse meetings play a vital role.

Producing results is more important than having a lot going on. If you start too many projects and small assignments at the same time then work will slow down, which will decrease output and increase development times. It’s important to know how many projects the company has the capacity to maintain and the rest will have to wait.

Further Reading

Learn more at This is Pulse. Also, see the Agile Pulse, a simplified version of the Pulse guide.

Obeya – 20 Years Old

An Obeya is a large room for visual management and jidoka. Obeya was invented in 1993 as part of the Prius project with the aim to shorten lead times.

I first heard about Obeya and periodic stand-up meetings in 1998 while working with operation development at Scania. What I heard about Obeya had so many surprises that it really took me a while grasp. At this point in time I had, from time to time, been involved in different efforts to increase the productivity in product development. Until then, the development engineers had always been the focus of our work. We tried to increase productivity with the help of planning and different project models. Obeya changed our ideas of how problems should be solved. Not only do you meet standing up at an Obeya but Obeya meetings are considerably shorter –  minutes instead of hours – compared to normal meetings. However, the big surprise for me was who participated in the Obeya meetings: management.

Clues to the Secret of the Obeya

It took me several years to understand what made these visual meetings with management so powerful. I found clues in books written by organization theorists (such Herbert Simon and James G. March). Further clues came during the development of The Pulse guide in the early 2000s. During this time Ulla and I created a model with a Pulse room that suited the organization and culture of Nordic technology companies.

In a Pulse room information and feedback is visualized so that everyone can see what’s going on. Besides frequent meetings between designers that work with projects and tasks there are also regular meetings with management. These managers represent different areas such as construction, acquisitions, production technology and marketing. Joint decisions are made and mutual action is taken. This creates heavy leveraging at the top of the operation, increasing the organization’s ability to take appropriate actions. Learning increases.

Obeya was invented between 1993-1994 when Toyota created the development project for the Prius hybrid. To develop a new car model is normally an incredibly complex task. However, with Prius they also had to develop a new driveline. These kind of projects can take a lot of time with lead times reaching up to ten years. The goal of the Prius was to launch the car in 1997 which was seen at the time as “mission impossible.” Against all odds, Toyota reached its goal and the car was developed in just three years. With this success Toyota didn’t just have a new product to offer the market but a whole new organizational model! This model might have been a more important success than the hybrid.

Obeya and Prius

The Obeya used during the Prius project was in many ways a kind of “project room.” We refer to this kind of project room as a Pulse room. In the Pulse room multiple projects can be developed. In the Pulse room the whole operation’s strategy and development work take place. All levels and functions are included in the Pulse guide and by doing so we could replace traditional project management with visual management. Furthermore, we could let the project’s Pulse board become the information and feedback that management use in order to help with decision-making. We also supplemented the concept with the organization’s strategic development. This meant that management and specialists that developed new markets, new products and new production technology solutions became a part of Pulse.
Anyone who has tried an Obeya or a Pulse room with management meetings has probably realized one thing: it’s a big success. However, there are pitfalls that can cancel out part of the positive effects. In some cases I’ve seen a bureaucratic viewpoint visualized when the management use visualization to control and monitor the project workers. In the bureaucratic tradition it’s also common for management, probably subconsciously, to have a personal agenda. When correctly implemented, management needs to place the problems and progress achieved within the strategic context of the operation. There is also a need to work together with the use of visual decision-making meetings; this type of coordinated action leads to success.

In an article in Ny Teknik, a Swedish technology publication, you can read about how Toyota has now created a new development center based around the Obeya concept. This is a strong  indication of how important Obeya is for Toyota.

What is Lean?

What is lean? I would like to answer that question with an explanation based on the description given by the inventor of lean, Taiichi Ohno.

Pull and push

Hopp and Spearman define pull in their work Factory Physics based on Little’s law. It’s a good definition that states that pull sets limits on any current workload while push doesn’t. However, there’s more to lean than pull.

What is Lean?

The inventor of the concept of lean is Taiichi Ohno. Ohno has written two books in which he summarizes the results of decades of experiments. These experiments and results are both comprehensive and have been tested by others. Ohno condenses the results into two principles: Just-In-Time (JIT) and jidoka (autonomation). Just-In-Time is the result that Ohno would like to achieve and the solution is Kanban (visual management). Kanban makes it possible for different actors to work together without the intervention of management or other planners. Besides these principles, Ohno also discusses 5S and wastefulness; however, his main focus is the challenge of getting people to work together.

Lean is Self-Organization

People who interact without the interference of outside actors practice self-organization. The term was defined in complexity research and is based on Claude Shannon’s information theory. When a number of actors, such as the participants of a group, have more interactions (more organization), the probability collaborating behavior (value-creating work) increases. This is called self-organization. An important prerequisite for self-organization is that the interactions are initiated by the actors themselves. There can’t be any outside actors (bosses, project leaders, etc.) that hinder or block interaction. However, the group does need information and feedback in order to deal with events appropriately.

Within a company, individuals will be a part of a greater whole (an infrastructure) that sets prerequisites for the groups to function well. In production, the production facility is this infrastructure. Within strategy and development we build an infrastructure through a network of Pulse boards and Pulse meetings.

Lean is Networks

With self-organization, the group has an opportunity to act more coordinated. Work that has previously been waiting for the contribution of another actor can now be done. However, with increased action there are also more problems that need to be solved in order for work to progress. The probability of problems appearing increases the greater organized the organization is. Therefore there is both a positive and a negative side. We can turn this into an equation:

Self-organizing (the ability to do things) = the degree of organization - problems that appear

With the help of visual management (such as Kanban, Pulse or Scum), increased organization is made possible. With the help of Jidoka (“pull the string” and other “take-care-of-problems-now methods”) you learn to deal with the problems that come up. When the “ability to do things” increases it’s a measure of increased productivity and quality. Productivity and quality improvements emerge from the interactions that come from self-organization. In theory, lean is therefore a concept that makes self-organization possible.

From Large-Scale to Networks

The time before lean was dominated by large-scale thinking. Nowadays we think in terms of networks. This has changed the duties of management. Previously, management lead and distributed work while in today’s world they build networks.

 

Read a blog entry about lean in action here.