To boost innovation, think “around the box”
Commodity companies live or die by their operational efficiency. Since the market treats commodities as interchangeable regardless of who produces them, firms must compete on their ability to produce more for less.
And commodity markets are not limited to basic resources like grains, metals or energy products. Even complex machinery and equipment can be commoditized in a competitive global marketplace.
Epiroc, a manufacturer of mining, drilling and construction equipment, has broken new ground in its long-established industry by identifying needs ranging from digital services to electrified mining vehicles and giant robotic drilling rigs that can be controlled at hundreds of kilometers. These large, expensive machines are complex and the competition is global, sophisticated and aggressive.
It is only by understanding the needs of its customers and developing new complementary innovations that Epiroc has been able to differentiate itself, said Jon Torpy, President and CEO of United States. “Going back a decade and then looking ahead, you try to anticipate the challenges and decide, ‘How are we going to continue to be a solutions provider as this evolution happens? ‘ “, did he declare.
In a recent MIT Executive Education online seminar with MIT keynote speaker Sloan Torpy explained how Epiroc has driven innovation, including creating a program for product managers to explore new products and services that complement existing products, add value for customers and generate new revenue streams for Epiroc.
Go beyond selling “dumb iron”
Torpy described Epiroc as a four-year-old company founded in 1873. Atlas Copco, a 150-year-old Swedish company, owned Epiroc until it was spun off as a separate company in 2018. Torpy is part of the company since 1999.
Epiroc sells equipment to some of the largest mining companies in the world. To stay relevant, the company has integrated robotics and automation into its products. One of its recent innovations is the remote automation of 150 ton drill rigs operating deep within a copper mine. “They are robots. They get a set of instructions and they work for 12 to 24 hours straight without human interaction,” Torpy said. “The operator is distant – in some cases over 1,000 miles away.”
Automation has clear benefits for human safety. It also enables Epiroc to move from the individual sale of heavy machinery to ongoing partnerships with mining companies.
“As an equipment supplier, we are not going to be around 140 years old. [from now], at the levels of profitability we expect, if we just build and sell ‘dumb iron,’” Torpy said. “We needed to change the way we are perceived – to show that we can be a robotics company, that we can be a company that understands data and what to do with it, and that we can identify digitalization opportunities. .”
Make product managers the CEOs of their products
Yet Epiroc can never forget that “dumb iron” – expensive machinery – is at the core of Epiroc’s business, Torpy said. They need to focus their innovation efforts not only on improving these products, but also on adding new products and services around them.
To do this, the company developed a Product Owner Excellence Program, which encouraged employees in product or portfolio management positions to “act like you’re the CEO of your product,” as the company said. said Torpy. “The people closest to the problem are best placed to solve it,” he said. (It helps that Epiroc already has a decentralized structure, he added.)
As an example, Torpy recalled a conversation with a colleague who completed the Product Owner program. They were standing at Epiroc’s booth at a trade show, and the colleague took Torpy to visit a redesigned undercarriage for a mining bulldozer.
At first glance, the machine looked ordinary. But the product team had reconfigured the undercarriage to support a self-contained drill without having to change the track system on which the drill rides.
“Through this program, people are finding a better way to do things without over-complicating them,” Torpy said. “People coming out of the program are really motivated to work this way.”
Innovate “around the box”
Robertson, who runs an education executive course on innovate in existing markets, has previously described this approach as around-the-box innovation: building complementary services and experiences around core product offerings. LEGO, for example, has generated growth and profits in its business not through groundbreaking and disruptive innovation, but by creating events, games, TV shows, theme parks and feature films that encourage children (and adults) to play with their basic brick. -based construction games.
Innovate around the box is different from the innovation outside the box – exploring disruptive and game-changing innovations that are expensive, risky and difficult,” Robertson said.
Companies that stay inside the box, on the other hand, risk being overtaken by their competitors and commoditized. One of the symptoms of the emphasis on innovation “inside the box” is a proliferation of similar products, which Torpy called “the disease of plus”.
“The idea is, ‘This exercise was awesome. Let’s build another drill similar to this one, but slightly larger, and then another drill similar to this one, but slightly smaller. And then let’s build another one like this, but in yellow,” he said. In other words, making essentially the same product over and over again, increasing costs but providing little benefit to customers and generating no growth.
Understand the financial impact of product decisions
The main benefit of innovation around the box is the ability to bring innovation (automation, remote control, data analytics) to products that customers already know and love. The challenge is that changes to an existing product can impact the bottom line in ways product teams may not realize.
That’s why financial literacy is at the heart of the Product Owner Excellence Program. The goal is for anyone who is a product CEO, regardless of background or professional background, to understand the ins and outs of an income statement and the impact of product changes or improvements on others. parts of the business.
“Understanding the consequences of technical decisions is really important. We can develop great things all day, but if they’re expensive and don’t make us money, or if we don’t think about the business model proactively, they’re not sustainable,” he said. . “If you make decisions and totally ignore the [profits and losses], that can be a pretty big road to going bankrupt. If we do the right thing for Epiroc, then the KPIs will all fall into place.