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Product Design and Manufacturing Process:

Dynamic Implications for Innovation Management

Joachim Stumpfe

Industrieseminar der Universität Mannheim

D - 68131 Mannheim, Germany
Phone: (++49 621) 181-17 50
Fax: (++49 621) 181-15 79
[email protected]

ABSTRACT

For industrial companies innovations of the product system as well as innovations of

the manufacturing processes are essential. Due to technological facts there is a tight
relationship between technical products and the processes implemented to generate
these products. Innovation management has to take into account the dynamics of the
underlying product-process interactions and the resulting constraints coming to a
coherent implementation of the different types of innovation.
A System Dynamics based approach covering the essential underlying cause and effect
relationships provides suitable support for understanding and managing the
complexity and the inherent dynamics of the industrial innovation process. The System
Dynamics model developed here links the cycle of product innovation to the innovation
cycle of the related manufacturing process and allows to analyse the dynamic
consequences of different activities in innovation management.
One result from the product-process connection is the existence of the productivity and
flexibility trade-off. For industrial companies´ competitive strength managing pro-
duction process efficiency as well as product variety is essential. Based on the
simulation model the long-term effects of the implementation of different types of
innovation innovations are analysed.
 Introduction

As a respond to global competition companies have increased the introduction of

technologically sophisticated products as well as adoption of advanced technologies and
changes in organizational structure and processes. For industrial firms the development
of new products and services is the focal point of strategy and a crucial factor for
competitive strength and survival. The firm´s competitive position is determined by the
ability to innovate it´s product portfolio and the time required to bring new products to
the market. Firms have to launch new sophisticated products in increasingly fast cycles
and their ability to ramp up to full scale production volume rapidly is crucial for success
(Pisano 1997). Thus for industrial companies innovations of the product system and
particularly innovations of the related processes are essential.

Due to technological facts there is a tight relationship between technical products and
the processes implemented to generate these products. Developing innovation strategies
management has to take into account the underlying product-process interactions.
Changes in the product system have significant consequences for the firm´s
manufacturing system and for technical and administrative processes (Utterback,
Abernathy 1975; Hayes, Wheelwright 1979 a, 1979 b; Kim et al. 1992). Much of the
complexity of innovation processes in industrial companies results from these
interactions between product and process innovation.

Innovation management in manufacturing companies is asked to create integrated

innovation and manufacturing strategies. For a development of integrated strategies
considering the product-process interaction further investigation of the inter-
dependencies of product innovations and the related production processes is necessary.

Patterns of Product and Process Innovation in Industrial Companies

Any innovative activity has to take into consideration the underlying interdependencies
as well as the company´s competitive strategy. At any stage of development innovative
decisions have to be consistent with business strategy. Central factor of competitive
strategy is the choice of the market position and it´s realization. Usually, strategies
more dominated by the marketing function focus on innovative product technology
while price leadership will go along with innovations regarding production process
efficiency and large scale production. Results from empirical research show, that
founding competitive strategies primarily on competencies regarding product innovation
in an isolated manner can carry the risk of neglecting important competencies in
operations such as for example cost efficiency and time performance (Milling,
Hasenpusch 2000). An improved performance of manufacturing companies can be
expected from tighter linkages between product and process innovation (Kim et al.
1992).
Dependent on the stage in product and process life cycle and on competitive strategy
there can exist a complementary or a competitive relationship between the imple-
mentation of product and process innovations. The product-process life cycle theory of
Utterback and Abernathy (Utterback, Abernathy 1975) provides a useful model helping
to understand the pattern of industrial innovation processes. This model succeeds in
encompassing the mutual relationships between the stages of a product´s life cycle, the
related production process` stages of development and competitive strategy elements.

Following Utterback and Abernathy innovation is stimulated or inhibited by different

forces changing over time. By identifying, and then separating process and product
innovations, the industrial innovation pattern is related to three different stages. When a
new technological paradigm is coming up, product innovation is strongly driven by the
demand of new product features. After the emergence of a dominant design and
increasing market demand, process innovations are mainly output rate stimulated while
product innovation activity diminishes. In later stages of the innovation cycle tighter
linkages between product and process features occur. Product and process changes are
highly interdependent which must be taken into consideration by management. Further
product innovation activities inhibit the stability of manufacturing operations and put at
risk process flow and production efficiency (Abernathy, Clark 1983). Due to these
constraints the product innovation rate decreases, while further process innovations are
mainly cost driven. The identified stages can be related to the strategies performance
maximization, sales maximization, and cost minimization.

The fundamental ideas of this model can be found in current literature (e.g. Ettlie 1995,
Damanpour, Gopalakrishnan 1999) and the concept still appears to be valid for many
industrial settings (Butler 1988). The description of patterns of innovation and the
analysis of interaction between the elements structure, technology, strategy, and
performance identifies essential underlying cause and effect relationships and provides
fundamental ideas giving substantial support for the generation of a System Dynamics
model focusing on the product-process interdepencies in manufacturing firms.

A Feedback Perspective of Product Innovation and Manufacturing Process

The management of innovation is located in a highly complex and dynamic

environment. There exists interaction inside the organization and interaction between
the organization and it´s environment. The underlying interdependencies are numerous
and not always transparent for management. Due to the complexity and the dynamic
behavior of the system there can exist a large time gap between an action and the
evidence of it´s consequences what makes decision processes in innovation management
difficult.

Purpose of this paper is the investigation of the mutual interactions and consequences
of implementation of product and process innovations in manufacturing companies. Due
to the complexity of the industrial innovation process a System Dynamics approach
seems to be useful to get a deeper understanding and to give an idea of the dynamic
consequences of actions in innovation management. The objective is to come to a more
effective and efficient management of innovation processes in manufacturing
companies.

The generation of a System Dynamics model can be based on fundamental concepts

desribing cause and effect relationships extracted from the literature mentioned in the
section above. The approach refers to a full life cycle of a single technological paradigm
covering emergence, growth maturity and decline. Although the impact of transition to
a new technological paradigm is not under investigation there are implications for
innovation management when substitutional technologies are coming up.

Figure 1 gives a first overview of the complex and dynamic structures driving the
innovation of a product and it´s accompanying production process in a manufacturing
company. It illustrates the interconnection between innovations of product systems and
the related production process over the innovation cycle.

Technological
need for new Potential Product
product features
attractiveness + - -
+ +
technological
+ position innovation rate
product
market demand + + -
+ Product
Innovations
+
production volume efforts for process
adjustments
product specific
+ - process adjustments
+
process stability

+ pressure for Technological +

cumulated rationalization Potential Process
production + -
- +
+ process
innovation rate interconnectivity
productivity
process

+ + +
Process
Innovations

Figure 1: Core Feedback Structures driving Product and Process Innovation

The approach is based on the assumption that at the emergence of a new technologigal
paradigm product innovation is mainly stimulated by demand for new product features
while process innovation is mainly driven by pressure for rationalization. Due to
experience curve effects further gains in productivity derive from growth of cumulated
production. At the other hand productivity decreases with instabilities in the production
process. Most deeper innovations in the product system demand for changes in
production and manufacturing processes which often leads to instablilities. In their
maturity stage, high volume production processes are highly complex and show
systemic character. Tighter linkages between product and process features occur and
significant changes in product features lead to disruption of current practice in
production. Due to the systemic character of mature production processes efforts for
process adjustments are high which usually leads to constraints for product innovation
activity.

The dynamic behavior of product and process innovation driven by the feedback
structures illustrated in Figure 1 can be analysed by a System Dynamics model. One
result from the analysis is the trade-off between product innovation and rationalization
of the production process. Figure 2 illustrates the decrease of the product innovation
rate as a result of growing rationalization activities.

Product Innovation Rate (Innovations/Month)

4
3
2
1
0
0 30 60 90 120
Time (Month)

High Level of Rationalization

Moderate Level of Rationalization
Low Level of Rationalization

Fig. 2: Impact of Rationalization on Product Innovation Performance

Discussion and Conclusions

One result from the product-process connection is the existence of the productivity and
flexibility trade-off. The analysis illustrates how the unlocking of the innovatiove
potential for product technology is inhibited by constraints resulting from product-
process interaction. The mutual constraints are essential and have to be taken into
consideration in the process of strategy generation. For industrial companies´
competitive strength managing production process efficiency as well as product variety
is essential. In reaction to the dynamics of the competitive envirionment R&D in many
companies attemps to shorten product life cycle capability, while the goal should be to
lengten the product life. Better products with flexible designs have longer life cycles.
Product innvation processes creating broader product variety and taking into
consideration manufacturing specifications have longer useful life as well (Ettlie, Stoll,
1990). A decrease in degree of correlation between product features and accompanying
process requirements will lead to a broader product variety as well as to higher process
efficiency.

References

Abernathy, W.J., Clark, K. (1983). The Competitive Status of the U.S. Auto Industry. A
Study of the Influences of Technology in Determining International Industrial
Copetitive Advantage, Washington.

Butler, J.E. (1988). Theories of Technological Innovation as Useful Tools for

Corporate Strategy, Strategic Management Journal, Vol. 9, 15-29.

Damanpour, F., Gopoalakrishnan, S. (1999). Organizational Adaptation and

Innovation: The Dynamics of Adopting Innovation Types, in Brockhoff, K.,
Chakrabarti, A., Hauschild, J. (eds.), The Dynamics of Innovation, Springer, Berlin,
57–80.

Ettlie, J.E., (1995). Product-Process Development Integration in Manufacturing,

Management Science, Vol. 41, No. 7, 1224–1237.

Ettlie, J.E, Stoll, H.W. (1990), Managing the Design-Manufacturing Process, New
York.

Hayes, R.H., Wheelwright, S.C. (1979a). Link Manufacturing Process and Product Life
Cycles, Harvard Business Review, Jan.-Feb. 1979, 133–140.

—— (1979b). The Dynamics of Process-Product Life Cycles, Harvard Business

Review, Mar.-Apr. 1979, 127–136.

Kim, J.S., Ritzman, L.P., Benton, W.C., Snyder, D.L. (1992). Linking Product Planning
and Process Design Decisions, Decision Sciences, Vol. 23, 44–60.

Milling, P.M., Hasenpusch, J. (2000). Innovation Strategies and the Business-

Manufacturing Interface, in Van Dierdonck, R., Vereecke, A. Operations Management,
Crossing Borders and Boundaries, Ghent, 423-430.
Pisano, G.P. (1997). The Development Factory: Unlocking the Potential of Process
Innovation, HBS Press, Boston, Mass.

Utterback, J.M., Abernathy, W.J. (1975). A Dynamic Model of Process and Product
Innovation, Omega, The Int. Jl. of Mgmt. Sci., Vol. 3, No. 6, 639–656.

Notice

Further information on the System Dynamics model and subsequent steps of model
development are available on request.