What Happens When an Idea Becomes the Product?

From the time of the industrial revolution to today, manufacturers have organized themselves around the efficient, cost-effective, and high-quality production of things. But in the innovation economy, those companies will need to reorganize around the production of ideas instead.

As new technologies take hold and macroeconomic factors shift, a company’s intellectual property will become its most valuable product.

The intangible assets that fuel innovation, from the individual contributions of employees and supplier networks to customer relationships and brand reputation, will outperform their traditional tangible counterparts, such as equipment, raw materials, and labor. Managing that innovation all along the value chain becomes the key to success.

We gathered a panel of manufacturing experts to discuss the drivers behind this innovation revolution and the ways companies will have to reorganize around their intellectual capital to succeed in the new economy.

  • Olivier de Weck, professor,aeronautics and engineering systems,MIT and executive director, MIT Production in the Innovation Economy Study
  • Rob Hand, vice president, business development and innovation, SAP Labs
  • Ruediger Eichin, research manager and innovation coach, SAP

We’re hearing a lot about how intangible assets such as intellectual property will come to define company value in the future. What are the different types of intangible assets?

Ruediger Eichin: There are three categories: human capital, such as an individual employee’s skills and teamexpertise; relationship capital, which includes things like customer and supplier relationships and brand value; and structural capital, such as business processes, corporate culture, and intellectual property.

We are certainly seeing a shift away from the importance of classical, or tangible, assets such as land and money. But it is a challenge for companies to value, monitor, and report on intangible assets, not simply for filing their financial reports but in order to make better operational decisions. What’s the value of an employee? Of a process? Of reputation? That will require new data, some of it unstructured and text based, and more complex analysis.

Customers are also playing a more important role throughout the product lifecycle. How does that fit into the future of manufacturing?

Rob Hand: For years and years, we’ve talked about the customer being the center of the universe, but it’s never really been the case. Now it is.

The customer can act as innovator, designer, marketer, and producer, offering input before, during, and after purchase of the product.

Companies will need to incorporate that continuous input for ongoing innovation. They will take advantage of social media, big data, and analytics to connect customer communication channels with product lifecycle management systems to incorporate customers’ ideas in a timely and efficient fashion. The same concepts apply whether you’re making airplanes or computers or fashion wear.

Olivier, in your research you discovered a trend among some companies of scaling down manufacturing volume and moving production closer to the customer. What’s behind that?

Olivier de Weck: For years, manufacturing has been geared toward large factories, huge container ships, economies of scale. But there is a rethinking of that, in part because of supply chain issues and in part because of some of the exciting new technologies that have come along. There’s a whole family of innovation that could potentially enable you to compete in the manufacturing space without the very high capital investment required in the past. There’s also the potential to move toward a much more distributed manufacturing ecosystem. We call this “breaking the tyranny of bulk.”

manufacturing innovation

What are some of the risks that must be managed in this more distributed environment?

De Weck: It’s a part of the globalization story: you innovate on the front end and rely on a global supply chain to do the rest. Over the last 20 years in the United States, many of the large, vertically integrated firms that we used to have – IBM, Xerox, Boeing – have become quite horizontal. But that has dramatically increased the complexity of the supply chain, and the risk of technical problems grows quite a bit. When you have a large, centralized factory, you have strict quality control over everything that goes out the door. When it’s distributed, that’s much harder to do. There’s a lot of interest, for example, in 3D printing, but distributed digital quality control has not caught up yet.

In addition, a lot of the innovation that occurs is actually triggered by the insights that you have during the process of manufacturing. As innovation is decoupled from production, the capacity to initiate future rounds of innovation decreases. Think about a technician who flags a problem on the factory floor so that the issue comes back to the design engineers for resolution. What happens to that institutional learning in the distributed environment? Companies must maintain a close connection to their ecosystem or partners to ensure that innovation continues to flow through the company.

Hand: As we move in this direction, what unfortunately happens is that you have this patchwork of solutions and business processes all over the place. You also want to take advantage of new data coming from machines and from humans – the customers, the salespeople, the factory workers, the service people – that you want to make sense of as quickly as possible. Today that’s very expensive. But I think that, in the future, companies will be looking to a combination of mobile and cloud networks to connect it all.

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There’s More.

TO LEARN MORE, DOWNLOAD THE IN-DEPTH REPORT, A NEW INDUSTRIAL REVOLUTION: THE INNOVATION ECONOMY AND MANUFACTURING.

The SAP Center for Business Insight is a program that supports the discovery and development of new research-based thinking to address the challenges of business and technology executives.

About the author:

Olivier de Weck is professor of aeronautics and engineering systems at MIT and executive director of the MIT Production in the Innovation Economy Study.

Rob Hand is vice president of business development and innovation at SAP Labs.

Ruediger Eichin is research manager and innovation coach at SAP.

Stephanie Overby is an independent writer and editor focusing on the intersection of business and technology.

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