Case study notes

Case study notes

Conventional wisdom would surely suggest that Dyson Appliances Ltd would fail within a few months. After all, it appeared to be a small company with an eccentric manager at its helm, trying to sell an overpriced product of limited appeal in a very competitive market with less expensive, conventional, mass-market products made by respected manufacturers whose names were, quite literally, household words. The result was very different.

Dyson invests heavily in R&D and believes that this is the key to success. Not all firms support this view. The level of investment in R&D varies considerably. The high value he places on creativity sets Dyson apart from other firms and helps explain his insistence on maintaining what, in Britain, are considered insanely large annual investments in research and development. Nearly 17 per cent of revenue regularly goes to supporting the company's R&D efforts, a figure some 10 times greater than the average in the UK. Because of these ongoing research expenditures, a company that started with just one product now offers more than a dozen – all either upright or canister vacuum cleaners, each a more refined and technologically advanced model than its predecessors.

Case study questions

This is a long list: design problems; a lack of money; lack of support from the UK government; lack of interest from existing manufacturers; lack of interest from retailers, etc.

The emphasis was on motor power and suction. Increasing the size of the motor was deemed necessary to convince customers that the product was better. Prior to Dyson the vacuum cleaner was virtually a commodity product. Some retailed for as little as £40. Even the best-selling brand was £100. Dyson transformed the industry. NPD in the industry was on process innovation and cutting costs.

Originally, Dyson was after a quick return on his money through royalties. He did not want to be a manufacturer. But being forced into manufacturing has turned out to be extremely profitable. This is similar to the Victorian entrepreneurs from Stephenson, Carnegie, Watt, etc.

They clearly did not believe in the technology and/or thought the licence deal was too expensive. They also believed that their own technologists could deliver something similar. There are two strategies available here, both of which have benefits and risks.

This is because of the large number of unknowns, usually, unknown and untested technology – it could be wonderful or turn out to be a white elephant.

Examine the Dyson example; was his request greedy?

Many would say yes, given the unproven product.

Often, there is so much uncertainty about whether the product will work or whether there is a market.

Linked to this is the question of what is fair and reasonable.

This refers to the rejection by domestic appliance manufacturers of Dyson’s product. There is no simple answer it is a collection of things that need to be done. Marketing and business development managers need to be technically aware and not technically illiterate. Good communication between technical and marketing departments can help here. New product proposals need to be viewed by a cross-functional team so that a multiple-perspective is achieved.

The role is to provide a monopoly for the inventor. The objective is to act as an incentive to the inventor or entrepreneur. Creativity can lead to commercial rewards. Many people argue it is a system for large multinational firms only.

See Chapters 8 and 9 for industry comparisons of R&D expenditure. Some industries spend very little; what could happen if R&D expenditure is substantially increased?

The entry strategy for the US was based on an established brand developed at home. Extensive and unique advertising was used in the US to launch the product. It was a very successful launch.

One of the key problems faced was securing distribution agreements with the big US retailers (department stores, JC Penny). The retailers wanted reassurance that Dyson could deliver the products to the stores on time. This meant Dyson had to fill warehouses across the US with products. The penalty for failing to deliver was severe.

Dyson chose not to defend his patents in the US because he did not want to spend lots of money on lawyer’s fees.

Case study notes

It would be difficult to examine the subject of innovation and new product development without reference to 3M. The company has become synonymous with product innovation. Year after year, 3M appears in the Fortune 500 rankings as the most innovative company. This case study explores why this is so.

Virtually all students will have used a 3M product, but very few will have extensive knowledge of the company or the vast range of products that it manufactures. Part of the rationale for including this 3M case study is to ensure that all students become more familiar with one of the most innovative companies in the world.

The case summarises some of the key successful techniques that the company uses. Many of these are not exclusively used by 3M. Indeed, one of the most important messages to get across to students is that the key to successful product innovation is good management. Moreover, it is the unique combination of activities that is, by definition, difficult to replicate that makes 3M successful.

The company has established an effective culture that nurtures innovation and it has developed a range of management techniques and strategies that together have delivered long-term success.

After four and a half years at 3M, McNerney left to take the CEO position at Boeing. Now his successor, George Buckley, seems to recognise the negative impact the process-focused program had on the company’s creativity. Many of the workers say they feel reinvigorated now that the corporate emphasis has shifted back to growth and innovation from McNerney’s focus on process and short-term profits (see Chapter 3 for more on the innovation dilemma).

This case study has highlighted some of the key activities and principles that contribute to 3M’s performance. Many of these are not new and are indeed used by other companies. In 3M’s case, they may be summarised as an effective company culture that nurtures innovation and a range of management techniques and strategies that together have delivered long-term success. Many companies pay lip service to the management principles and practice set out in this case study. There is evidence that 3M supports these fine words with actions.

The struggle between efficiency and creativity is one many public companies face. The market values of company stocks are impacted more by short-term results rather than long-term prospects; and executives have an incentive to drive those results.

There are no easy answers and the best solution most likely lies somewhere between the two extremes of either process control or open-ended innovation.

Case study questions

During the 1980s and 1990s, 3M delivered consistently good results and continued to deliver many new products across a wide range of industries. It was rightly classified as a highly successful and innovative firm. Indeed, it won the Fortune 500 most innovative company award for several years during this time. At about the same time, the business world analysts and business schools started taking an ever closer look at the influence of innovation on firm performance and hence, at the time, 3M was highly regarded and the label has remained.

It is true there are many other very successful and innovative firms such as Nokia, Sony, Apple, Microsoft, etc. Furthermore, arguably 3M’s performance has not been as strong as it was in the past. Some analysts have argued that it has not delivered in terms of return on its investment in R&D.

2. In the 3M case study, what is meant by the statement: ‘the message is more important than the figures’?

This refers to ensuring that employees realise that the 3M reward innovation even if there are times when the guidelines, for whatever reason, may be ignored. While a business may not deliver 25 per cent of sales from new products, so long as it delivers 15, 16, 17 per cent, that will probably be acceptable. Hence, it is about ensuring that the culture of innovation is enforced.

The idea that scientists can spend almost one day a week on projects that they find interesting seems a wonderful luxury – some may say an unrealistic paradise. What happens when there are turbulent times, unexpected events that cause disruption to the firm, surely then, critics would suggest employees would be required to drop what they are doing and ‘help out’. The firm’s response may well be that the 15 per cent is flexible and while they may be times when it is not feasible, over a long time frame, scientists are afforded approximately 15 per cent of their time. Moreover, they will be some who choose not to use this time. Once again, this is a flexible guideline that is about trying to ensure there is slack in the R&D environment for creativity.

Take the Post-It notes business for instance – for many years in the early period of its development, it could barely keep up with demand for existing products; so the idea that it had to deliver new products was almost humorous and certainly difficult to achieve. Moreover, any firm would probably have said keep doing what you are doing, the profits are great. The point here is once again the emphasis on delivering innovation and new products, in particular, forced the firm to at least think of the future and start considering new products. Arguably, this helped the firm deliver a whole range of different versions of the original yellow Post-It note. So we had different sizes, different colours and later, different types in the form of book marks and other forms of labels.

It is unquestionably the case that the firm has an impressive record when it comes to investing in science and technology over a 70-year period. But science and technology alone is not enough as many once-successful firms will testify. Indeed, in the late 1990s, 3M came under severe pressure from investors to show some return from its investment in R&D; this was because profits were sluggish and the new product pipeline was looking empty. Good science alone is not enough; Alexander Flemming was credited with discovering penicillin, but it was 30 years later that a US pharmaceutical firm profited from antibiotics.

The Six Sigma programme is a series of management techniques designed to increase efficiency. For the most part, the implementation of the Six Sigma programme was successful as it focused on the operations (manufacturing/logistics) side of the business. However, when 3M’s R&D personnel were asked to adopt Six Sigma processes, the results were less favourable. While established operational processes like manufacturing require strict monitoring, measuring, and a regimented set of procedures, the innovation process requires a different approach.