Beware the dark side of Innovation

Watch out for "engineering debt"

There are two concepts that defines my view on life, branding and modular design. It is visible in every discussion and piece of work I do.

Branding is the whole package. The shiny logo, all the love, harmony and amazing stories behind the brand. The people that care for it. The presentation of products to show the hidden beauty behind the brand.

If I like your brand, I will support it 100%. For me a powerful brand is evidence of a caring company.

Modular design, on the other hand, shows the same care from an engineering perspective. It demonstrates that the engineer who designed the system, cared enough to think about his product holistically. His designs can be interfaced with external components and are available and usable in other areas. Modular design for me is the brand of a caring engineer.

One company that has both fantastic branding and modular design is LEGO. It has been my favorite brand forever. LEGO is the reason I became an engineer. Imagine my disappointment when I learned they nearly went out of business. (Brick by Brick: How LEGO Rewrote the Rules of Innovation, https://www.amazon.nl/dp/1847941176/ref=cm_sw_em_r_mt_dp_IMu.Fb3WR3Z56 ).

How about Nokia? Most people owned a Nokia once. They defined the mobile phone environment. When buying a new phone, it would be a Nokia. It was one of the most powerful brands, until its sudden semi-disappearance from the market.

Then in the same light, Apple. It went through an interesting cycle to a point where the company nearly failed. They were in the top-three microcomputer companies in 1981 and continued to dominate the market up to the 90’s. Then a mere seven years later, by 1997, they ousted their CEO and asked Steve Jobs to restructure and revive the failing company.

So how do companies with such passionate followers eventually fail? Lego, Nokia, Apple – they had it all. Enough money and a powerful brand with complete control of their individual markets. They had amazing teams of engineers and they were leaders in their fields.

Even though they tried to design and innovate themselves out of trouble, their amazing inventions just did not turn into sales. I just had to know why this was possible.

Engineering debt 

For me the short answer lies in the in the negative systems loop created with innovation. Let's call this the Negative Innovation feedback loop. By this I mean the following: Innovation leads to more new designs. Unfortunately, each product and design create engineering overheads. Overheads can be seen as extra money and extra engineering time needed per completed product. No product is ever perfect and needs constant re-engineering to fix the flaws that creep in after being released to the market. The original planned engineering overheads of the product therefor reduces but does not disappear when products go into production (Often called design tails amongst engineers). To translate this into financial terms, see it as “Engineering debt”.

The requirements to repay engineering debt will reduce over time, but never stop until the discontinuation of the product. The faster you push a design into the market, especially if it is not ready, the more debt you have from each completed design. As a counter argument, the longer you keep designing the product, the more it cost. It is a fine balance, and often a difficult trade-off.

 This also has a hidden conflict potential between management and engineers. Once the design leaves the building, management reduces the budget on the project. Suddenly a product moves from an exciting design to a point where engineers complain about it taking up their valuable time. The more products an engineer is involved with, the more time is spent on previously hidden issues and less on the new current designs. This results in key engineers to either being overworked, jumping between projects, or lose interest. It also leads to unplanned financial losses. It is important that this hidden risk is included when planning engineering capacity to take on competing technologies. Especially if the competing technologies are disruptive.

Real live scenario

In Nokia’s case, the disruptive technology competing against it was the combination of the ARM processor, with the Android operating system. This competing technology combination caused a product class that was modular. Because of its modularity, it deployed and changed rapidly. In essence, the Nokia engineers were already drowning in engineering debt and design changes. This was made worse by management, who kept demanding innovation strategy of more and better products. The engineers just could not compete with this rapid disruptive technology. What I find Ironic, is that the Open-source community did the work on Android without compensation. Hence competing financially was not an option for Nokia. If they embraced their enemy, and used the new combination of processor and software, it might have worked out different.

Interestingly, the exact opposite happened to Apple. Their decline was accelerated when the company moved away from the Intel processor towards the power PC. From a management perspective it sounds easy: just introduce the new chip. From an engineering perspective, this means moving back to square one. Your operating system, kernel drivers, hardware interfaces and many more have to change to achieve this. (Many of which was already covered by Android) I can imagine there was a small riot under the Apple engineers at time. They still had engineering debt from previous products, when suddenly major design changes were required.

When Steve Jobs returned, he slashed 70% of the new product plans and returned focus to a few small projects. Imagine as an executive you were in his shoes. Get the decision past your board and then deal with the emotional explosion going through the organization? What I also find interesting, is that Jobs stopped competing against Microsoft and rather focused on making Apple healthy again.

Which brings me to LEGO with its fascinating turnaround. Not only did they have hidden engineering debt, but this also became visible in the cost of product. It gives a very clear example to explain engineering debt in understandable terms. Each set of LEGO consists of small-engineered products. Every LEGO brick is a fully design product, with specifications, testing, production logistics etc. Which means that each unique brick needs its own production line. The way LEGO innovated was by introducing more and more unique bricks per set. This resulted in the costs per box skyrocketing, making the eventual product too expensive for its clients. What I find interesting about Lego's turnaround, is the fact that they actually reduced the amount of new and unique bricks introduced per box. Although it sounds counter-innovative, it actually requires engineers to be more innovative in picking parts when compiling sets, and it actually improves value for the company.

Innovation is not..

I am sure this view only scratches the surface of the problems from these companies, but for me it contains valuable lessons as an engineer. For me,

• Innovation is not adding products on the market as fast as you can to be the first (Nokia)
• Innovation is not to use all off your resources towards new technology (Nokia, Apple)
•  Innovation is not to out-innovate your rival or their technology (Nokia, Apple)
•  Innovation is not having so many different products that it drowns you. (LEGO)

Innovation is to focus on your company value system, to decrease requirements for resources, and to re-use those resources in the best way you can to uniquely address your clients' needs.

Disclaimer: This is a personal opinion piece with the sole intention to tell my LinkedIn followers how I see the world. It does not have the intention to reflect on any of my employers, clients or other associates.