Back in the 1970s and 80s, most industrial companies, such as the big car makers, were largely vertically integrated. Most of the parts for production were engineered in-house and many were even made there. A lot has changed since then. Competitive pressure has forced companies to focus on core competencies and outsource much else. In an ideal world, simple and standardised activities should be outsourced or, even better, moved offshore to places with lower labour costs, while core competencies – the knowledge and skills that make the company’s products unique – should be retained. However, in reality, some core competencies may have left without their companies even noticing.
As a result of outsourcing, formerly big integrated companies become leaner, focusing mainly on branding, marketing and assembly of products. At the same time, formerly small “make-to-print” suppliers are now large engineering-driven technology specialists. This new breed of big and smart supplier also looks at assets in a new way. While 30 years ago an asset was a building or a manufacturing plant, today it is as likely to be intellectual property. And this conceptual or intellectual property is increasingly becoming protected. Over the past decade the number of worldwide patent applications has doubled to approximately 500,000 a year.
Today’s CPOs are faced not only with big and smart, but also patent-protected, suppliers. Traditional sourcing approaches fail to tackle these suppliers, who for technical reasons can ask almost any price for their products. Insourcing the product, or having another supplier make it, is not an option. Thousands of patent litigations and literally billions of dollars, pounds and euros paid in royalties and technology licence fees are a clear warning.
More and more, we are observing CPOs who are no longer willing to accept patent-protected suppliers as a fact of life. They and their companies are employing an approach called “invention on demand”. This is an advanced version of a Russian theory known as “Triz”, which was developed in the 1950s (see “The triumph of Triz”, bottom). The benefits of invention on demand can be enormous. For example, one of Europe’s leading boiler makers freed itself from the vice-like grip of a supplier that had ownership of 20 per cent of the value chain, encompassing all differentiating factors in the market (more of which later).
Generating viable solutions
Invention on demand aims to expand the benefits of Triz from component-level mechanical engineering problems to engineering system-level problems that can range from mechanics to electrics and electronics, and even to pure software. While traditional “product specification improvement” would modify the specifications in a way that allowed suppliers to produce the product at lower cost without compromising on customer value, invention on demand seeks to create a completely new product that takes the position of its predecessor without giving the incumbent supplier any leverage to claim intellectual ownership of the product.
The invention on demand problem-solving model comprises four key steps, as shown in figure 1:
1. Evaluate a specific technical problem.
2. Translate the specific technical problem into a general scientific problem.
3. Search for general scientific solutions.
4. Translate the appropriate technical solutions into specific engineering solutions.
Invention-on-demand thinking differs substantially from the traditional approach an engineer would take – analysing a specific engineering problem and then moving directly to a specific engineering solution. With invention on demand, a hydraulic problem is not automatically solved with a hydraulic solution, and a mechanical problem will not be tackled with a standard mechanical solution.
To understand how this works, let’s go through the four steps in more detail:
Step 1: Evaluate a specific technical problem. At the start of an invention on demand project, the engineering system is broken down into its smallest elements at a micro-level and the functional relationships between these elements represented graphically. This function model zeros in on the final result or end product of the engineering system. All other elements are assigned a “function rank” that takes into account their distance from the final product and the balance of their useful and harmful functions. The closer it is to the product and the more useful the functions it possesses, the higher the function rank of the element. The analysis using the function model and the associated rank is called “functional analysis”.
To illustrate this via a simplified example, consider the case of a yoghurt drinks producer. In its “engineering system”, the yoghurt drink comprises a container, its lid, a syrup providing flavour, a straw and the plain yoghurt. Gradually, the patent-protected and monopolistic supplier of syrup increases its prices, making the business less and less attractive for the producer.
Step 2: Translate the specific technical problem into a general scientific problem. In step 2 of an invention on demand project that aims to bypass a supplier patent, key elements of the engineering system are “trimmed”. By trimming or deleting an element from the engineering system, contradictions (general scientific problems) are generated – for example, “how to provide the useful functions of the trimmed element without the presence of the trimmed element?”; or, alternatively, “how to teach the remaining elements to perform the useful functions of the trimmed element?”. In our yoghurt drinks example, the general scientific problem would be described as “how to teach the remaining elements – the container, its lid or the straw – to add flavour to the plain yoghurt drink?”
Step 3: Search for general scientific solutions. In step 3, these contradictions are resolved by experts in various fields using general scientific solutions. By doing so, the solution space is much larger than simply jumping from, say, a hydraulic problem to a hydraulic solution. For each of the trimmed elements, there will be a handful of initial ideas – many rather exotic – on how to teach the remaining elements to provide additional functions.
These ideas are typically very general, just saying what should be done, and leave it wide open as to how they are actually realised. The initial ideas generate hundreds of conceptual directions. At this stage it is important not to drop a conceptual direction prematurely; thoroughness is an important part of an invention on demand project. This ensures that all possible solutions are investigated. In our example, the yoghurt drinks producer would involve experts knowledgeable in “surface treatment technologies” to contribute in a way that enabled these surfaces (plastics, wax, aluminium, and so on) to yield flavours to food.
Step 4: Translate the appropriate technical solutions into specific engineering solutions. In the final stage of an invention on demand project, the conceptual directions are scrutinised through intense discussions among developers, product owners, marketing people and supply market specialists. These are then developed into specific engineering solutions. As resistance is often encountered, strong leadership is needed to support the best solutions. In our yoghurt drinks case, one answer would be to “teach” the straw to provide flavour when the drink is consumed. As a matter of fact, this solution is just being launched.
Based on these analyses, some conceptual directions will be dropped and others modified or combined. Typically, one or two dozen directions will survive. These are turned into commercially viable concepts, most of which can be patented. The lead time of an invention on demand project from kick-off to commercially viable concepts is generally in the range of three to four months.
For example, Europe’s leading maker of wall-hung boilers found itself in a difficult position. The company had not paid a lot of attention to a new generation of condensing boilers. These had been a niche application for more than a decade, and this had allowed the supplier of the primary heat exchanger – the core element of these boilers – to assume a monopolistic and even patent-protected position. This was all very well until the UK decided to make condensing boilers mandatory by 2006, with other countries in the European Union likely to follow suit. As most of the other boiler makers (with the exception of one, which had developed a proprietary solution) had also been buying from this particular supplier, the same primary heat exchanger was to be found in nearly every boiler.
After a considerable R&D effort the company was convinced there was no conventional way to bypass the monopolistic supplier, because its patent covered all conceivable ways of making a condensing primary heat exchanger. At this point the boiler maker’s CPO heard about invention on demand and commissioned a team of external specialists. Three months later, this team presented 20 alternative concepts for a condensing primary heat exchanger, none of which infringed the existing patent. (Indeed, 15 of these were patentable in their own right). And the best news? All 20 concepts were more efficient and cheaper to produce than the existing solution.
What to do with the results
Having the commercial concepts available raises the next question: how to use them? An enormous spectrum of applications is possible. Some companies have used the results of invention on demand projects to insource critical competencies to become independent from their previously most critical suppliers. Others have transferred the project results to competitors of the incumbent supplier in order to help create an alternative source. However, most of the CPOs in companies applying invention on demand use the alternative concepts as negotiation levers with the incumbent. The existing supplier will often be taken by surprise when the procurement team lays out the concepts and will react quickly if it thinks there is the risk of losing a valuable customer.
But invention on demand can do more for a company than forcing an improvement in terms from a patent-protected supplier or bypassing it altogether. It can replace expensive components with cheaper ones. It can generate product improvements in combination with target costing. It can be applied to any technical problem, whether for reasons of technical improvements, the value-price ratio, or both. Generally speaking, it can boost a company’s innovation performance.
An excellent example of a company that has taken advantage of this is the Korean conglomerate Samsung. It first introduced Triz in the late 1990s, starting with a core group of engineers, and has since rolled it out to other staff every year. Using Triz as an inventive thinking and problem-solving tool has become part of Samsung’s culture. Today, an introductory course is imperative for new employees.
In the past few years, Samsung has consistently been among the world’s innovation leaders. Triz has been applied to solving all kinds of engineering problems, reducing the costs and time it takes to develop products, avoiding competitors’ patents and planning R&D strategies. Samsung’s market capitalisation, which was less than a quarter of Sony’s in late 2000, is now almost double that of its Japanese rival.
In conclusion, producers that source important components, systems, modules or ingredients from suppliers that are enjoying a patent umbrella should not take for granted the relationship they feel trapped in. There is always another way and, triggered by the invention on demand approach, this may turn out to be even more effective than the one the producer has become accustomed to.
And even if a producer decides to continue with a monopolistic supplier relationship, it will change for the better once the supplier realises that its customer has an alternative.
Briefing: The triumph of ‘Triz’
Triz – an acronym derived from the Russian for “theory of inventive problem-solving” – was developed in the 1950s by the Soviet self-made engineer and inventor Genrich Altschuller. After several successes as an inventor, he started to challenge the conventional thinking that inventions require some kind of inspiration. His aim was to make inventive thinking a structured process that can be taught and learned. Together with a team of loyal supporters, he analysed 200,000 patents, focusing on those that he felt described real technical breakthroughs. This led to three major discoveries:
1. Technical problems are best described as contradictions. For example, if you want to increase the performance of an airplane, you replace the engine with a more powerful one. Typically, the more powerful engine is heavier, requiring a heavier structure of the entire aeroplane. In this case, the contradiction is one of performance versus weight.
2. Problems and solutions across industries and sciences are governed by the same objective laws.
3. Inventions use scientific effects outside the field in which they are developed. An inventor does not have to engage in basic research; the real challenge is to identify the appropriate scientific or physical effect.
Altschuller condensed these discoveries into Triz, which comprises a number of tools and elements: the two most important are “ the 40 inventive principles” and the “contradiction matrix”. The former provides guidelines to inventors, while the latter is a ready-to-use engineering tool. In the case of a chemical engineer tasked with developing a new method of sterilising medical syringes, for example, instead of searching for an exotic chemical substance to remove all germs, applying Triz would lead to cheap, single-use syringes of the kind used in hospitals around the world.
Christian Schuh (christian.schuh@atkearney.com) is a vice-president and Boris Piwinger is an associate at AT Kearney, based in Vienna
