editorial

Technological innovation: a key issue at both strategic and

operational levels

In an era of technological changes, it is accepted that in order to maintain competitiveness, manufacturing industries must continuously improve their productivity and efficiency through technological innovation. Fail- ing to invest in new plant and equipment, for example, has been identified as one of the main reasons for loosing one's competitive edge. So fas as the adoption of advanced manufacturing technologies (AMT) is concerned, both the frequency and complexity of the decision-making process have increased significantly. This stems from some of the common problems faced by the manufacturing firms in today's environment, including: • Frequent technological and organizational changes:

due to increasing international competition and customer demand for more variety, higher quality and lower price, firms must increasingly react both to initiatives from their competitors and new market conditions. This often requires a faster new-product- to-market cycle. AMTs must be continuously introduced into their operations to provide the necessary flexibility and productivity. Therefore, either pulled by market demands or pushed by new technology development, firms are having to restruc- ture more frequently than ever before.

• Requirement of accurate initial specifications and adequate appraisal procedures for technological innovation: the increased level of sophistication and functional ability of AMTs have allowed a higher degree of automation with the ability to rapidly re-programme the plant and thus improve flexibility. However, this high level of sophistication has also created the need for a high level of the quality of systems design and implementation. The costs of failing to implement correctly is much greater today than previously, due to the higher level of capital investment involved. This has made acquisition of the necessary investment capital difficult. The problem is made even worse because of the advantages claimed for AMT do not comply with the traditional definition of 'productivity'. The tradition- al methods of investment appraisal (e.g. payback or

discounting cash flows) demand rapid repayment, while the new technologies are increasingly infra- structural, and provide long-term and often intang- ible gains, in addition to the more traditional measures. This requires a more complete method for the financial justification of technological innova- tion.

Therefore, today's firms often need to restucture their operations through technological innovation in order to satisfy new demands, creating an environment where the traditional approach to investment justification is no longer adequate. This has led to the realization that better methods have to be adopted so that a firm is not disadvantaged because of missed opportunities for technological innovation through the use of inadequate managerial procedures. It has been demonstrated by today's more successful manufacturing organizations that an innovative business usually:

• understands the importance of innovation, and hence has an explicit policy of research and development;

• demonstrates accurate market assessment and aggressive investment planning;

• has an integrated decision-making system.

The above clearly illustrates that the management of technological innovation is an area in which a strategic framework together with systems approaches are essential. In fact, the implication of this subject is so significant that it must be regarded as an area of prerequisite knowledge for anyone involved in the design and operation of today's manufacturing systems. The financial appraisal of investment on AMT again provides a good example to illustrate the nature of the problems involved.

The design of a modern manufacturing operation usually follows a framework of decision-making, as illustrated in Figure 1. The first two stages of the general model are the 'analysis of situation' and the 'setting of objectives'. When applied to manufacturing

202 Computer-Integrated Manufacturing Systems

editorial

Problem 1

_•t Analysis of I situation

_l Setting of ] ~ - objectives

-[ Conceptual modelling

Evaluation of concepts

I Oeci,ion t

I Evaluation of concepts

t O 'sion t

Figure 1. Decision-making framework

decision as to whether to implement the resultant system, to consider further development of the design, or to terminate the project. As can therefore be seen, the major consideration involved here will be on modelling and evaluation. However, in the light of the problems outlined above, when AMTs become ele- ments of consideration what is the right approach to model and evaluate an investment decision? This is a key issue that has to be carefully addressed at all of the three levels involved (i.e. the strategic, the conceptual and the detailed levels).

The fact that AMTs are becoming more complicated and expensive while at the same time offering intangible gains has made things less clear-cut than they used to be. These intangible gains, which cause improvement in some facet of the operation but whose result is not clearly seen in financial terms, relate to both strategic and operational issues including, for example:

• the ability to respond to market changes with respect to product volume, product mix and product change;

• the ability to respond to specific customer require- ments;

• shorter lead time, reduced inventory, better product quality and consistency;

• improved plant controls; • improved communication of information; • reduced tooling and simplified jigs; • reduced overhead and direct labour content; • integrated manufacturing environment.

systems design and analysis, both fall into a field of study which could be loosely defined as 'manufacturing strategy'. This requires an analysis of the current state of operation of the manufacturing organization con- cerned. Following this, an analysis of the current markets, their future prospects, and the prospects of markets which could be entered is carried out. Through such exercises, a vision is formed of where the firm should be in a future situation, and what should be done to reach that state. The following phases identified in Figure 1 are the design phases which actually produce and evaluate plans that will be the basis for transforming the operation from its current to the future desired state. These will first form a framework which will achieve the desired results, and then fill in the details to ensure that the output is a complete design. It is noted that within this framework evaluation and decision are always closely related. Here, two sets of criteria must be rigorously assessed before making a decision, the first being functional fulfilment and the second financial justification. On the basis of the evaluation it is possible to make a rational

While it is clear that a manufacturing operation will benefit from the improved situation, with the tradi- tional methods it is unlikely that these improvements and their implications would be identified during the various stages of assessment. As a result, both researchers and managers have started to consider the problems of vagueness and risk associated with AMT intangibles. In contrast to the traditional approach of financially-based methods, the recent approaches are usually based on a strategic and systems perspective. A typical example of this is to initially set an overall objective for the required manufacturing functions. This objective is then split into sub-objectives to form an objective hierarchy. The sub-objectives at each level of this hierarchy must be fulfilled so that the initial objective can be achieved. A figure is set for the level of fulfilment for each of the sub-objectives. These can then be manipulated to allow a 'utility vector' to be calculated for alternative choices. So far as AMT investment is concerned, it is argued that this type of approach has a major advantage in that intangible benefits can be taken into consideration.

Vol 4 No 4 November 1991 203

editorial The above discussion has illustrated the background

and the kind of problems faced in the area of technological innovation in manufacturing. It is clear that this issue will have to be approached at both the strategic and operational levels. There is therefore a need for the development of both sound strategic frameworks and effective analytical techniques in the area. Obviously, the academic community has a strong part to play in achieving these. However, when it comes to application, the right way to approach the situation is perhaps not to tell the industry what to do, but to help identify and transfer the appropriate methodologies so as to improve the chances of better decisions in this regard.

Some of the issues that need to be addressed when dealing with new technology have been raised in this editorial. It acts as an introduction to this special issue of Computer Integrated Manufacturing Systems, which contains contributions that considerably expand the issues involved in 'modelling and justifying techno- logical innovation processes in manufacturing'. Pro- fessor Agustino Villa has acted as editor for this issue, and has brought together a series of papers that propound interesting and stimulating ideas.

B. Wu R. J. Grieve

Brunel University, UK

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