The Importance of Meddling
The Importance of Meddling
One of our favorite teaching case studies about Nypro, Inc., illustrates when and why a senior-most executive needs personally to shepherd the creation of disruptive growth businesses. Nypro is an extraordinarily successful custom injection molder of precision plastic parts. Much of the company’s innovative culture and financial success can be attributed to its owner and recently retired CEO, Gordon Lankton.
Nypro’s customers are global manufacturers of health care and microelectronic products. They require worldwide sourcing of plastic components whose complexity and dimensional tolerances demand the most sophisticated molding process capabilities. Nypro seeks to offer a uniform capability from any of its twenty-eight plants—whether in North America, Puerto Rico, Ireland, Mexico, Singapore, or China—under the mantra “Nypro is your local source . . . worldwide.” If Nypro sought to achieve this uniform capability by barring any plant from deviating from standard, company-wide procedures, it would kill innovation at the very level where it best occurs—the plants. Most of the important process innovations that help Nypro to make ever-better products are developed by engineering teams working to solve customer problems in far-flung individual plants, out of the eyesight and earshot of senior management. This situation is a stereotype of the dilemma that confronts most companies in one way or another: Companies need uniform capability but flexibility to change, and senior managers typically can’t even see what innovations are being considered and developed, let alone decide which ones merit investment.
In response to this challenge, Lankton created a system to surface the most important and successful innovations so that he could evaluate which improvements should be adopted by all plants, thereby enabling Nypro to offer a uniform but ever-improving global manufacturing capability. A key element of this system was a monthly financial reporting system that rank-ordered the plants’ performance along a number of important dimensions that Lankton judged to be the drivers of the company’s near-term financial performance and its long-term strategic success. These reports showed, for all to see, which plants were doing better and which needed to improve. Plant managers were evaluated on the measures of plant performance in these reports, and their reputation vis-à-vis each other was affected by the relative ranking of their plants. The system, in other words, provided ample motivation for managers to search for any innovation that would improve their performance and relative ranking.
Lankton created interlocking boards of directors for each plant, so that each board was composed of managers and engineers from several other plants. This kept information flowing among plants. The company augmented this with several global meetings each year for plant managers and engineers, in which they exchanged news about what process and product innovations each had implemented, and what the results had been. In time, there emerged a culture in which managers were intensely competitive to get ahead of each other, and yet were cooperative in sharing the process innovations each had developed.
Lankton watched carefully whenever one plant’s successful innovation began to be adopted by managers at other plants. This was a signal to him that the idea had merit. After several respected managers had copied another plant’s process innovation, Lankton had enough evidence to decide that the innovation should be implemented, and would then mandate that it become a standard practice worldwide. This method tested and validated sustaining innovations first, and then accelerated the implementation of those that had proved to be important.
By the mid-1990s it had become clear to Lankton that Nypro’s world was changing. His engineers could mold millions of complicated plastic parts per month to extremely tight tolerances. Even though there were a few applications that needed even greater precision, Nypro’s capabilities were more than good enough for the majority of the market, and other competitors had improved to compete favorably against Nypro’s cost and quality. Lankton sensed, in other words, that the basis of competition in his markets was beginning to change. He noted that the type of business that had led to Nypro’s success—very high-volume, high-precision molding—wasn’t growing nearly as rapidly as the demand for a wider variety of parts with smaller volumes. Some of these parts demanded high precision as well, but it was the ability to respond quickly with that precision that loomed as the key to success.
Sensing a change of circumstance and crafting a response is a role that only the CEO can fill. Lankton sensed this shift masterfully—but when he left it to the organization to implement the required change, it couldn’t. Here’s what happened.
To prepare Nypro for this shift in the basis of competition, Lankton commissioned a project at the company’s headquarters to develop a machine called “Novaplast” that could be set up in less than a minute. The technology’s unique mold design enabled economical, low-pressure molding of a variety of precision parts in short run lengths.
To be consistent with the company’s practice, Lankton chose not to compel all plants to begin using the new machine. He made sure that all managers understood how the technology worked and what its strategic purpose was. He then made the machine available for plant managers to lease, hoping that this approach would minimize barriers to experimentation and adoption—and, as usual, to see whether those whose judgment he had learned to respect cast their votes for the technology. Six of Nypro’s plants leased the machine, but within four months four of those had returned their machines to headquarters. The reason: They had concluded that there just wasn’t any business that could be run economically on the machines. The two plants that kept the Novaplast machine had a long-standing order from a major manufacturer of AA-sized batteries to provide a thin-walled plastic liner that fit inside the metal casing of these batteries. The plants molded millions of these liners every month, and for unique reasons it turned out that the Novaplast machine could crank these parts out with higher yields and lower costs than could Nypro’s conventional high-volume, high-pressure machines.
The end of the teaching case pictures Lankton puzzling about this outcome. Why was it that he had seen so clearly the growing demand for rapid delivery of a widening variety of short-run precision parts, and yet his plants hadn’t been able to land any of that business for their Novaplast machines? Was it a victory or a failure that Novaplast’s ultimate success came from a very high-volume, standard, high-precision part?
The answer is that this is exactly the result we would expect from the processes and values that supported the existing business model. Nypro’s finely honed innovation engine shaped Novaplast as a sustaining technology, because this is exactly what the system was designed to do—to shape every investment to help the company make money in the way it was structured to make money. An organization cannot disrupt itself. It can only implement technologies in ways that sustain its profit or business model. The consequence for Nypro of allowing the standard process to remain in control is that (so far) the company has missed the chance to create a major new disruptive growth business.
To succeed at this disruption, Lankton would have needed to create-a sales organization whose compensation structure energized salespeople to pursue this high-variety, low-volume-per-part business. He would have needed to build an operating organization whose processes were tuned to this work and to create measures of performance that were different from those that drove success in the core business. None of the processes of the core business could make these judgment calls correctly. This is why the CEO needs to stand astride the interface between mainstream business units and new disruptive growth businesses.
This account summarizes a teaching case by Clayton Christensen and Rebecca Voorheis, “Managing Innovation at Nypro, Inc. (A),” Case 9-696-061 (Boston: Harvard Business School, 1995) and “Managing Innovation at Nypro, Inc. (B),” Case 9-697-057 (Boston: Harvard Business School, 1996).
In our account of this history, we are using the language of our models. Lankton did not know of our research and therefore was guided by his own intuition, not our advice. His intuition was stunningly consistent with how we would have viewed the situation, however.
Interestingly, despite the fact that the company has missed (so far) the opportunity to catch this wave of disruptive growth in high-variety, low-volume-per-model manufacturing, the company has done very well. It has followed the pattern outlined in chapter 6 of eating its way forward from the back end, integrating forward from component manufacturing into technologically interdependent subassemblies and even final product assembly. It (very profitably) tripled its revenues to nearly $1 billion between 1997 and 2002—a period in which several major competitors failed.