Two of the key constants impacting supply chains today are change and the pace of that change. To illustrate, consider the Internet of Things (IoT). An estimated 5.5 million new devices are being connected to the Internet every day,1 bringing with them the potential to eliminate supply chain waste and drive new efficiencies. To be prepared for opportunities with this level of urgency, and to avoid being left behind, companies must innovate.
Although we often think of innovation as the "Eureka!" moment when a new idea is born, innovation does not necessarily imply the development of an all-new product or service. "Reinventing the wheel"—in other words, developing something entirely new—can be costly and is often unnecessary. In the logistics sector, for example, innovation is the implementation of ideas to create new business value. Instead of reinventing the wheel, we may simply add to something that already exists to make it better and/or run more efficiently. Nor does innovation mean adoption of the latest trend. We all know that today's hot topic can be the forgotten fad of tomorrow.
Regardless of whether an innovation is entirely new or an improvement on an existing product or practice, the goal is to make it sustainable and repeatable. This is something that happens at the intersection of those "Aha!" moments and a process that takes the idea to full solution stage. This article describes one such process, a four-stage approach that companies and their third-party logistics (3PL) providers can effectively deploy to manage the innovation of services and rapidly move ideas to one of two fates—implementation or rejection. The four stages (briefly summarized in Figure 1) are:
Later in this article, we will provide a few customer examples that illustrate the value of a defined and structured innovation process. First, let's take a detailed look at each of the four process steps.
1. GOVERNANCE: Defining innovation and establishing parameters
Thorough groundwork is essential to innovation. For example, the inventors of the laser spent years researching and understanding the physics, existing solutions, and properties of light waves before the actual "Aha!" moment happened. In the four-step innovation process, the careful groundwork occurs during the governance stage. This is when goals are stated and a structure is put in place, resulting in an "innovation charter," or formalized innovation strategy. Key issues to be addressed for the establishment of governance are goals, measurement, and structure:
Goals—Innovation is driven by the need to meet a clearly identified challenge. Key questions to ask include: Why do you need to innovate? Who will innovate, and who will make the important decisions? How will you innovate, and how will you sustain it? What level of risk is appropriate? What will be the outcome of the innovation initiative? What will drive transformational change? The answers to these questions will define your innovation strategy.
Measurement—One old maxim still applies to the innovation process: What you can't measure, you can't manage. Be sure to determine how the goals you establish will be evaluated in relation to business outcomes. It is important to establish key performance indicators (KPIs) that are based on both the targeted results and the organization's own definition of innovation. (Is it new inventions? Incremental or transformational change? Value-driven or research-driven? and so forth.) This is not necessarily done at the individual project level, but rather can be for the overall innovation initiative. These measurements should be tied to strategic goals, have a time component, and include a financial target (for example, percentage of revenue increase, dollar amount of cost savings, or percentage of increase in sales). They should also drive innovation activity (for example, number of ideas generated, number of prototypes implemented, and so forth). Keep the focus fairly narrow—define the most important outcomes to assess, and be willing to adjust if needed to drive the right structure and desired behaviors.
Structure—The best innovation ideas are generated once parameters have been defined to clarify the issue at hand. Ideally, this involves collaboration among all stakeholders—including vendors, staff, customers, and end users. The innovation process should be appropriately scaled and structured so that all stakeholders can understand the opportunities, the process, and the appropriate boundaries of the initiative. It is helpful to establish a governance committee or council that will help guide the innovation efforts. This group should be made up of key decision makers in the organization. They will help define this structure and ask questions such as: Will an interdisciplinary team be established? Will innovation be a part of everyone's job? Or will there be an individual who is charged to lead this new function?
Innovation is not a science; rather, it is a combination of art and management that should become a repeatable process for your company to help you build a culture of creativity. The structure you develop, then, must not be so rigid as to limit creativity and cause fear of failure.
A key deliverable of the governance stage is a matrix that defines how potential innovation projects are to be weighted once ideas have been generated and researched. The weighting will be determined to some extent by your innovation goals and measures, but there are other key items. For example, consider how well the innovation ties to the organizational goals, how broadly it could be applied (to many customers or just one; is it a global solution or a micro-solution?), how large the financial opportunity is, how much it will improve customer retention and/or new sales, how many resources it will consume, how much time will be required to implement it, and so forth. Figure 2 shows one of many possible examples of such a matrix.
2. EDUCATION AND DISCOVERY: The basis for true collaboration
This is the stage where you discover "what does the situation look like right now?" It is critical to discover why you need to innovate before launching an innovation project. Start by identifying the issues and who is impacted by them. Involve all the stakeholders in your innovation process. These might include your customers, your suppliers, your own employees, and the end users of the innovation. It's important, too, that all stakeholders understand a consistent definition of the issue, so be sure to present them with a clear and logical explanation of what is happening and why. Then, answer each stakeholder group's questions and address any concerns before you start innovating.
Each group must be educated about the challenge, the impact, and the process of innovation, but in different ways. For example, suppliers of technology and services will need to feel safe in sharing information, particularly as some may be competitors. You will have to help them understand that the collaboration is for your organization's benefit and will not negatively impact their competitive advantage. Your customers must be genuinely involved in discovering what they really need—which might be different than what they think they need. Henry Ford is credited with saying, "If I had asked people what they wanted, they would have said faster horses." It is your job to help your customers understand how you can innovate together to address their actual needs, something that's only possible in an environment of open communication. Additionally, employees must feel that they are being heard and valued. Each one must not only be given permission but also be encouraged to speak freely about the current state and to propose ideas. Above all, they must be treated as equals throughout the process; individuals' titles are not relevant if you want true innovation.
The imperative to transform the supply chain is fed by ever-changing trends, emerging technologies, new processes, and multiple pain points. It is important not to allow the pressure for innovation to push you too fast. This is why the education phase is so important—it will keep participants from rushing to a seemingly obvious solution that might not be the optimal solution. Learning where to invest your time and resources is just as important as the execution.
Additionally, be sure to set expectations that embrace failure as well as success. Often in an innovation project, ideas are generated that do not prove to be a successful solution. This is a necessary part of innovation that eventually results in success. Once that is understood, begin the process of training all stakeholders on the ideation process and how the innovation project will progress. In addition, everyone should understand that each problem chosen for innovation will result in many ideas to be researched, with some to be discarded as failures, some to be shelved as not feasible at this time, and some to move to the next step of further research and pursuit.
Overall, the innovation process will be built on the collaboration discussed above plus design thinking and open innovation. Design thinking is a methodology for solving complex problems.2 It starts with identifying a pain point for a customer or organization. Ideas are gathered and developed with few or no limitations; research on the ideas are done to determine whether a solution already exists and whether or not it is feasible; the best possible solutions are proposed; and prototypes are created for the solution with the greatest potential.
Open innovation is the concept that your own internal research is not enough; in order to successfully innovate, you need a community of interested parties working toward innovation to solve a specific problem.3 This often requires including people outside your organization or customer base. It might also mean involving current vendors who have expertise that your organization lacks. Also, be open to including other supply chain partners, and even bringing in someone who has successfully gone through the process in another company.
3. RESEARCH AND IDEATION: The path toward solving customers' problems
By opening your process to all stakeholders and understanding the customer's needs and priorities, you can engage in research on possible solutions that will be both effective and efficient. In the research stage of the innovation process, you answer the question "what if we could...?"
This stage brings a more structured approach into play. The identification of the challenge and its impact, discovered during the education stage, creates the foundation for identifying possible solutions using a variety of structured brainstorming techniques that are widely accepted and readily searchable online. It is important during these brainstorming sessions to look at things from different perspectives, such as the end user's viewpoint. One effective way to do that is to create a "persona" of the ideal users of your solution, and then identify their key needs. Often the data you gather during this process will reveal some trends and patterns that indicate an issue to be addressed, and brainstorming can bring out solutions around that trend.
Another key to success is to initially ignore any constraints such as cost, existing technology, human resources, and so forth. Just focus on the best ideas. It can also be helpful to look at companies in an entirely different industry, including their issues, how they innovate, and ideas they have implemented. Determine whether those could be applicable in some way to your situation.
It's important to keep in mind that in this stage, the involvement of everyone in your enterprise—from floor associates to the executive suite—is critical. The associates on the front lines are the ones who experience the benefits and shortcomings of your company's processes every day. Many of these workers have great ideas that too often have no meaningful outlet. Including them in ideation will not only bring out effective ideas but can also be inspirational for them as they see their contributions taken seriously. Again, it is important to ensure titles do not mean anything in this phase.
Your brainstorming sessions will net a significant number of valid innovation ideas, which can later be prioritized against the matrix that was established in the governance stage. Priority for development should be given to the ideas with the most potential for both achieving benefit for your customer and meeting your target business outcomes while also appearing to be the most feasible. Next, you'll present the results of the prioritization analysis to the governance committee to determine which ideas should proceed to the next stage. The prioritization matrix will be customized to every organization, but any matrix should include the key measures established in your governance stage.
Now it's time to move to the testing stage.
4. RAPID PROTOTYPING: 90-day cycles with Agile methodology
After setting up governance, educating the stakeholders, and bringing them through the process of ideation and research, it will be time to prototype one or more projects. At this point, you must define the project goals and create realistic expectations for the stakeholders. Remind them that the prototype process is designed to use limited resources wisely for determining what is possible. Firmly set expectations for success so that all can recognize success when it happens. Remind your team that an innovation failure is not a flaw, but rather an acceptable outcome. It is during this phase that you will define "what will work."
With rapid prototyping, success or failure is determined within 90 days to demonstrate that you won't waste your stakeholders' valuable resources. The deadline also helps your team to work quickly and efficiently to find improvements to existing processes and new ways to tackle tasks.
This method of prototyping is similar to the Agile methodology that has brought major improvements to software development. First proposed in 2001, the "Manifesto for Agile Software Development"4 states that it values "individuals and interactions over processes and tools, working software over comprehensive documentation, customer collaboration over contract negotiation, [and] responding to change over following a plan."
This last point is critical, because it has been used to establish an intensely iterative process in which short-term results are used to assess whether to continue, change, or end a development program, rather than following a rigid, long-term plan that is written before there is sufficient information to predict its outcome. The Agile model emphasizes failing fast to succeed often. When applied to supply chain management, it enables lightning-fast decision making.
Agile has particular value in the innovation of supply chain services because supply chains operate on relatively low margins, creating the imperative for maximum efficiency in all aspects. With rapid prototyping, the risk is limited to a 90-day development period, rather than one that might last a year or more with difficult-to-predict results.
At the conclusion of the prototype stage, a decision will be made by the governance committee to either kill the project or rapidly deploy it in the market. There are benefits to both outcomes. The successes you experience will quickly engender stronger support and participation across all stakeholders, and the failures will deliver deep learning about the process and ways to improve. Post-prototype assessment will help you to develop a good perspective on the value of rapid prototyping and lessons learned.
The path to faster success
A customer example from the organization I lead, Kenco Innovation Labs, will give you an idea of how these recommendations can be applied in real-life situations.
In one case, we were asked to help a customer address the problem of excessive retail chargebacks. We went through the discovery process, interviewing and mapping the experiences of several of our sites. We developed the customer persona based on our findings and clearly defined the current state in the education phase (answering the question "what does this look like right now?"). We brainstormed several ideas and applied the matrix of prioritization during the research phase (answering "what if we could...?"), and presented the top idea—which allowed us to capture proof of our compliance with the customer's shipping requirements—to our governance council, which then approved the prototype phase.
We completed a prototype mobile app and Web portal in 90 days. Response was overwhelmingly positive (answering "what works?"). We kept the prototype simple, although all of the stakeholders could see that much more functionality could be added to enhance the solution. Upon receiving governance approval for funding, resources, and our proposed timeline, we moved forward with development and implementation. The return on investment (ROI) is proving sound, and customer response has been extremely positive.
Two other examples of the benefits that can accrue from the development and implementation of a sound innovation process come from Philips Lighting and Enterprise Rent-A-Car. Both of these market leaders have a deep culture of innovation, resulting in new offerings that change the way services are provided to customers and fuel strong, continuous growth.
These are big companies facing big challenges, but organizations of any size can use innovation to modernize methods, upgrade services, improve the bottom line, and strengthen customer relationships.
To be successful at translating ideas into action, a high level of discipline is necessary. Start by carefully and methodically defining and establishing innovation parameters in the governance stage, and follow through with education, research, and rapid prototyping. By following the process described in this article, logistics and supply chain services can be innovated quickly, at relatively low risk, and with a good likelihood of success.
1. Gartner Inc., "Gartner Says 6.4 Billion Connected 'Things' Will Be in Use in 2016, Up 30 Percent From 2015" (November 12, 2015).
2. Linda Naiman, "Design Tinking as a Strategy for Innovation," Creativity at Work.
3. Open Innovation Community website.
4. Agile Manifesto.
5. Mark Faithfull, "Pay-as-you-go lighting arrives at Amsterdam's Schiphol Airport," Lux (April 20, 2015).
6. Auto Rental News, "2015 U.S. Car Rental Market."
Kristi Montgomery is Vice President of Innovation, Research and Development for third-party logistics and warehousing services provider Kenco.
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