Innovation is a major part of any organization today, it is essential for an organizations growth as it is a factor which will help it in distinguishing itself from others.
According to Schumpeter (Peter & Tim, 2005) 'firm's knowledge of using the scarce resources in new and improved ways has brought about improvements in society's welfare; this process of knowledge growth was seen passing through three phases: invention - innovation - imitation. Creation of an idea and demonstrating that it will work in practise is invention e.g. Wright brothers idea of flying a machine was called an invention when they turned their idea into a working model in 1903. Commercial use of an invention is innovation.' Most of the organizations today are integrating their innovation with business strategies as they have acknowledged the importance of innovation. Technology and innovation are inter- linked. Success of innovation depends on the future vision and the encouragement by the organizational culture. Innovation process can be seen as series of funnels each getting smaller. Organizations come up with many ideas but they get filtered as they pass on through each funnel finally coming up with a single innovative idea. These funnels can be labelled as four phases in the process - idea generation, idea screening, feasibility and implementation.
FORD'S T MODEL
'Gottelib Daimler introduced the first roadworthy car in 1889 which was radical innovation as a new industry was born introducing new knowledge in the form of a product never seen before. Henry Ford started producing cars in 1903 but was not the inventor. His success was limited until he produced the Model T. On September 27th, 1908 first production Model T was built in Detroit.' During that time lot of innovation were taking place around the product creating a large variety of product innovation. Eventually the product innovations diminished and consumers made their preference which saw the emergence of a dominant design, Ford's Model T which became everyone's choice. Model T had a combination of features and technologies which met customers need completely. Earlier cars were seen as a luxury product affordable only to wealthy people; his vision was to make a car for everyman and at a price which everyman could afford. He changed the approach in manufacturing and marketing of cars.
Rethinking in designing a new car is product innovation. Earlier car manufacturing was customized; cars were built according to a client's requirement giving them a wide range of variety and choice for a basic engine and chassis. The models prepared were expensive and not affordable to a common man. Ford's aim in product innovation was designing and standardising a model later known as Model T at a cost affordable to common man by applying value engineering approaches.
Innovation is categorized into four types: position, product, position and paradigm. Position innovation is mainly targeting the market for the product. Ford designed a car which reached a larger market of people who wanted it for personal transportation and at an affordable price. Ford quoted that:
"I will build a car for the great multitude. It will be large enough for the family, but small enough for the individual to run and care for. It will be constructed of the best materials, by the best men to be hired, after the simplest designs that modern engineering can devise. But it will be low in price that no man making a good salary will be unable to own one - and enjoy with his family the blessing of hours of pleasure in God's great open spaces."
Ford's vision was much broader than his contemporaries; he brought about a revolution in the manufacturing process. He changed the level of whole system of product, process and market. His business model was one of low cost, high volume production for a mass market.
'Ford and his team of engineers brought about changes in the production operations to produce the car at a lower cost. The model was based on a number of innovations which reduced need of skilled labour, mechanising the assembly process, integrated preparation and manufacturing operations for both component and finished products. Without changing the basic things he just synthesized them into a new system. The strategy was to reduce the production costs and offer the product at a competitive price than rivals, this new way of organizing the production process dropped the average price of Ford Model T from $3500 to $900 in the period 1909-1923.'
The challenge of low cost, high volume production brought about new extremities - involving heavy investment in specialised machine tools and handling systems, division and separation of workers. The impact of this pattern on productivity was seen in the first assembly line where time fell from man minutes to 5.
Abernathy and Wayne's analysis of Ford's history reveals that it pursued the single minded policy of cost reduction with its Model T production process. Rivals like GM adopted strategy of producing cars which revolved around present consumer tastes like high performance engines and enclosed body designs. As Ford had invested in its specialised large scale manufacture of dominant design responding to changing customer needs put constraint on its commitment of large scale production of dominant design. Ford's engine and chassis were not developed to cope with the extra weight of enclosed body and so the performance of its Model T suffered. As a result the market share of Ford began to drop in the middle of 1920's because of its inflexibility in production system.
In 1927 Ford developed a new car, the Model A, and built production capability similar to its previous policy of specialization in Model T production, the change was costly and painful as "Ford had so specialized its workforce, process technology, and management that it consumed nearly a year in model development and changeover. As an illustration of its specialization, in the course of the model change Ford lost $200 million, replaced 15,000 machine tools and rebuilt 25,000 more, and laid off 60,000 workers in Detroit alone." (Abernathy and Wayne 1974:115).
TATA NANO INNOVATION
India for years was waiting for a low cost family car. Ratan Tata knew about the problems faced by many families who could not afford cars as they were expensive, and he came up with the innovation of TATA NANO. The idea was based on company's success in producing the low cost 4 wheeled Ace truck in May 2005. Nano is derived from the Greek root nanos meaning dwarf. Credit goes to Ratan Tata for designing Nano at a price of 1, 00,000 INR which is within a common mans budget. "Tata's disruptive innovation of the "People's Car" will turn the automobile market on its head, and will result in a paradigm shift."
'Grish Wagh led the engineering team and figured out three vital parameters:
- Low cost.
- Designed and developed to meet statutory safety and emission legislation.
- Good performance.
It was a complete product innovation with good design which enabled it to place the engine at the rear, providing large occupant space and a major cost saving. By placing speedometer at the centre of dashboard enabled the use of the same in left hand and right hand version of car which was creative product break-through thinking. To improve the engine performance 623.6cc engine was used. Nano used tubeless tyres which helped in reducing the weight by 2kg which were provided by MRF who were the sole suppliers.' Strong designing of the roof using sheet metal of thin gauge and use of rear glass windscreen bonded to tailgate helped in reducing the weight and lowering the designing cost with adoption of cheaper manufacturing process.
Instead of being such a disruptive innovation Nano was criticized a lot. Most of them argued it will add to the existing traffic in the cities along with increasing the pollution. It was also said the car was not safe and Tata won't be able to meet its promise of delivering it at such a low cost. Tata not only met its cost promise but the car passed all the safety crash with the engine testing positive for Bharat III and Euro 4 test. 'Also the fuel economy was amazing 26 km/litre. In the process of developing Nano, Tata Motors added 40 patents.'
In today's globalised world innovation is the key to success of any company. The literature and findings from the two case studies helps us in understanding how innovation has played a major role in their success. Innovative ideas and strategies helped both these companies to grow phenomenally; understanding the importance of innovation they developed a culture that promotes innovative ideas and by continuously innovating the companies have been able to maintain an advantage. Ford showed that how innovation impacted the car industry in 20th century and today Tata Motors is showing how innovation is transforming the industry in 21st century. With the advancement of technology innovation is becoming continuously important and it is been integrated in all the company's across various sectors.
- Earl, P., & Wakeley, T. (2005). Business Economics: A Contemporary Approach. Tata McGraw-Hill, pp 393-397.
- Abernathy, W.J., & Wayne, K. (1974). Limits of the Learning Curve. Harvard Business Review, pp 109-119.
- Tidd, J., & Bessant, J. (2009). Managing Innovation. John Wiley.
- Managing Innovation Title: Model T Ford Available from: http://www.managing-innovation.com/case_studies/Model%20T%20Ford.pdf Accessed [16/03/10].
- Figure 1.1 The 4Ps of innovation space. In: Joe, T., & John, B. (2009). Managing Innovation. 4th ed. John Wiley, pp 22.
- Figure 1.6 Abernathy and Utterback's model of innovation life cycle. In: Joe, T., & John, B. (2009). Managing Innovation. 4th ed. John Wiley, pp 40.
- The Innovation Machine Title: Tata Motors Innnovation strategy: Disruptive Innovation "Peoples Car (Volkswagen)" Available from: http://www.the-innovation-machine.com/?p=76#more-76 Accesses [1166/03/10].
- TATA NANO News. Engineering The Nano. Available from: http://tatanano.inservices.tatamotors.com/tatamotors/index.php?option=com_content&task=view&id=136&Itemid=207 Accessed [16/03/10].
- TATA NANO News. BS Motoring: first take on Nano. Available from: http://tatanano.inservices.tatamotors.com/tatamotors/index.php?option=com_content&task=view&id=133&Itemid=207 Accessed [16/03/10].