It’s spring in the UK. That means it’s a perfectly reasonable time to start looking at new sliders for the pool during your summer holidays. It won’t be long before we’re all queuing up at airports to jet away from the grey British summer.
Five years on from COVID, aircraft passenger numbers are predicted to exceed 2019 levels. For the airline industry, hobbled by a global aviation sector which shut down virtually overnight, this is good news. For powerplant engineer Rolls Royce, which found itself in the doldrums, the problems began long before the pandemic.
In a recent interview with the Financial Times, CEO Tufan Erginbilgiç, revealed he thought the engineering company’s woes started a decade ago. Now two years into his role, the company’s fortunes have seen a remarkable turnaround.
One line in the interview really sticks out. Erginbilgiç says creating a business strategy can “often become too tidy… you need to make it chaotic.”
It’s quite a statement from someone at the helm of a revered British business which, until recently, has struggled to make its share price go anywhere other than sideways.
Of course, Erginbilgiç hasn’t implemented a reign of chaos. He also cut costs, increased efficiency and, as you might expect, took a very comprehensive view of what needed to be fixed.
In a sector which can often prioritise ultimate optimisation, allowing for a little chaos – whether it’s in setting a turnaround strategy or developing new products – can be at odds with the established ‘cult of lean’ which can prevail in many businesses.
The Rolls Royce story isn’t exactly unimpeachable evidence in favour of any one approach over the other, but it does suggest that value doesn’t only – or always – come from perfect optimisation.
The pursuit of lean as a manufacturing methodology has huge merit. Removing cost, stripping out processes which don’t work, creating pace and efficiency wherever possible; these are the things shareholders hear as the strains of heavenly choirs.
But Rolls Royce would have been unlikely to effect such a rapid recovery just by tweaking its internal processes. It invests hundreds of millions in innovating new products. The commercial opportunities in the markets it serves mean that innovation is table stakes – without it, you won’t be around for long.
With established operational procedures, lean is a great way to preserve value. New processes could often be described by a bell curve, with the increased costs of adoption at the start ultimately reducing as a new production line gets up to speed. The inverse of this curve would then show the value of that process increasing over time before reaching its optimum operating level. And, very often, that’s where it would stay.
Lean, and other efficiency-focused methodologies, are great for day-to-day operational requirements. It undeniably improves the performance of a business if things are ticking along well. But choose any performance analogy you like and eventually optimisation runs out of options. Combustion engines in the automotive sector started to become cleaner years ago but, no matter how efficient they become, the only option for zero tailpipe emissions is a different fuel source. Electric vehicles have had a difficult and imperfect start, but with persistence they’re finally finding traction as more and more manufacturers come to market with their battery-powered offers.
Lean is also a very tangible and visible way for a business to demonstrate value. For smaller businesses in particular, it’s a reassuring way to show that working capital and other resources are being put to good use.
Innovation’s role in how businesses create value, by contrast, is often sacrificed on the altar of lean. Manufacturing’s focus on optimisation can not only take away from innovation, but its prominence can make it seem like it’s the only show in town.
Not only is this missing an opportunity, it creates significant risk. If the start of 2025 – and, let’s be honest, most of the past 15 or so years since the banking crisis – has taught us to expect anything, it’s change.
Every business wants to be able to respond effectively to change, since we can assume that every business recognises that it’s the only constant.
Relentlessly optimising is not the only, or even the best, way to do this. Yes, a well-optimised production process can smooth out lumps and bumps. But what about earthquakes? What about the seismic shifts which often characterise markets, industries and geographies? The travails of Rolls Royce may have pre-dated Covid, but recovering from a global shutdown needs more than a slick production line.
When Nokia’s then-CEO Stephen Elop wrote his famous ‘burning platform’ memo in 2011, it was a recognition that the game had changed. “While competitors poured flames on our market share,” he wrote, “what happened at Nokia? We fell behind, we missed big trends, and we lost time.”
Nokia was slow to bring new products to market and, worse, slow to recognise what was happening to its position in the market.
What its competitors did was to understand the market and, crucially, the audiences which make or break products. This is an option open to every business, regardless of size. Large businesses often have innovation teams and established innovation structures. But every company can learn more about its end user or target audience.
The subtle difference of ‘audience-first’ rather than ‘product-first’ can be counter-intuitive to engineers who are trained to make brilliantly effective products.
A mindset shift is required.
Committing time to innovation shouldn’t be at the expense of efficient manufacturing processes, of course. But nor should it be the occasional preserve of a few boffins who show an interest. Innovation should be everyone’s job and, while delivering for existing customers is essential, so too is thinking about what comes next. This is a discussion which requires the word ‘and’ far more often than it does ‘or’.
Doing this isn’t easy. Smaller businesses have less time, resource and cash to carve out for the slightly nebulous idea of ‘innovation’.
So start with some challenges inside your organisation. Where are the regular frustrations? What’s the big complaint people in one team have about the other team? Get people in a room to talk it all through and accept that you might not get the right answer on day one.
It could be something as simple as how invoices are collated and sent to customers, or it could be how clients are welcomed when they arrive at your factory. It doesn’t have to be a world-changing bolt from the blue. Not on day one, anyway.
Then you can move onto looking at what your market could look like with your most innovative minds at work. Speak to customers, suppliers, and other stakeholders. They can’t always tell you what they want, because often they don’t know – for example, consumer data which shows a preference for sustainably-produced food isn’t always supported by actual purchase decisions. So taking the time to listen, explore and employ some critical thinking can lead you to the insights which can inform your next move.
Be prepared to try a few ideas that don’t work, as long as you know the outcome you want to achieve. Let it be known that failure is one part of how you get closer to the right answer, and let the culture of your business recognise ideas and open thinking. Being too rigid or, worse, punishing ideas that don’t work is a surefire way to encourage stagnation and inertia.
The best companies are built on a combination of innovation and optimisation. It’s easy to say we don’t have time and, yes, much harder to find the time – especially if you’re an SME working at full tilt to deliver existing orders. But every market will periodically produce innovators who threaten to upset the established order. Optimisation is important. Lean has its place. But lean isn’t the answer to rapid changes.
To survive and grow in today’s global economy, even the most fervent of lean devotees need to recognise that scrappy, imperfect innovation is every bit as important as optimisation.
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