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A Better Way to Pilot Emerging Technologies
Technology Briefing |
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TranscriptCompanies that are considering adopting a particular technology typically base the decision on the strength of the business case. Such an assessment is straightforward when the technology will upgrade existing equipment, replace manual processes with automation, or when the technology is already in use at other organizations that have demonstrated its benefits. But it’s much harder to quantify the value of emerging technologies that are not yet being widely used. In fact, budget-centered business case approaches are biased against novel technologies, partly because they don’t factor in the value of learning gains and spillover effects. And without the discipline imposed by requiring a good business case, organizations that bring in new technologies via isolated pilot projects often find that these experiments go nowhere. To understand how organizations can successfully assess, pilot, and implement novel technologies, researchers Torbjørn Netland, Omid Maghazei, and Michael Lewis studied how IKEA introduced drone technology into its warehouse operations. They described this research in detail in a recent Journal of Operations Management article titled, “Emerging Technologies and the Use Case: A Multi-Year Study of Drone Adoption.” The company’s experience demonstrates that a use case can be developed into a meaningful business case with a coordinated approach and the right partners. IKEA may be the world’s largest furniture company, but it suffers from the same pain point as every other retailer: inventory accuracy. Knowing what you have in stock as well as where it is located and when, is critical; but human error inevitably creeps in at a company that moves hundreds of thousands of different items daily. That’s a big deal because every time a customer asks for a product that is not in stock, a sale is likely lost. And a potential future sale is jeopardized if the customer is disappointed enough with the company’s failure. Correcting inventory inaccuracies drives up costs as well. One of IKEA’s distribution centers in Germany used to have several employees dedicated to fixing such errors through regular manual inventory checks. Using forklifts or ladders to count inventory is tedious, strenuous, and potentially dangerous work that is prone to human error. One promising technology that IKEA thought might help solve the problem was drones — something it had already experimented with in uncoordinated trials at a few of its warehouses in 2018 & 2019. In Thailand, a warehouse employee had purchased a consumer drone and flown it in the warehouse to photograph pallets on high racks. In Hungary and Germany, IKEA had tested various products from startups, including professional tethered drones and hobby drones. But they all required too much setup, maintenance, and management while introducing new safety risks — and their performance recording pallets and their content was poor compared with humans’. So, nothing much happened. Then, in 2020, employees in the corporate supply chain development function at IKEA realized that the problem wasn’t simply with the technology but was also a result of the company’s piecemeal, uncoordinated approach to testing drones. IKEA decided to connect, coordinate, and directly manage the drone initiatives as part of its global Development Innovation Network (or DIN), which had been established two years earlier as a governance unit for new logistics and fulfillment technologies. The DIN covers six areas: packaging and identification, automation and robotics, fulfillment of services, handling and storage, transportation, and digital technologies. Each area is run by two leaders who dedicate half their time to this role. In addition, five to 10 subject matter experts support each area as needed. The DIN’s leaders and experts are geographically dispersed across IKEA, and each area forms its own network. The DIN does not directly manage local pilots but allocates resources and builds top-management support. It also collects and shares experiences from successful and failed pilots. The unit’s high-level view is critical for matching emerging technologies and the right technology suppliers with the best use case in the appropriate location. The handling and storage network’s leaders decided to systematically test three drone technologies in 2020. One of them was discarded after the initial pilot because it did not appear to reduce labor costs. This left IKEA with a semiautonomous solution from a French warehouse management specialist and an autonomous solution from Swiss drone startup Verity. IKEA tested both drones in parallel at multiple warehouse locations, following a three-step approach: exploration of solutions, proof-of-concept pilots, and deployment. The DIN was responsible for the first two steps. The pilot tests gave IKEA the opportunity to identify the benefits and drawbacks of the drones while the vendors iteratively improved the technology to better fit the specific use case. The semiautonomous drones were found to be technologically fit for purpose, but the expense of manual setup and administration mitigated any other cost advantages. After more extensive testing failed to yield a clear business case, the semiautonomous option was discarded. The early pilots of the autonomous drones were more promising. By June 2020, IKEA’s store warehouse in Spreitenbach, Switzerland, had successfully incorporated eight of the drones into its operations. The devices, which required no human intervention, flew at night to check the locations of all pallets that had been moved during the day. On Sundays, the drones flew to all pallet locations, providing up-to-date information about the warehouse’s stock status directly into IKEA’s warehouse management system. The business case looked great for this high-cost location that had local nighttime work restrictions. But would it work elsewhere, too? To assess the potential business case for fully autonomous drones at other IKEA locations, the DIN studied what types of warehouses and locations could have the most to gain from this technology. It then handed over the contacts and guidelines to IKEA’s operational divisions. Once the implementation had reached six store warehouses in mid-2022, the DIN reevaluated its business case calculations with observed data — and uncovered a better business case than had been originally anticipated. Early in 2023, the autonomous drones were flying in 16 of IKEA’s store warehouses in seven countries. While it is ultimately important to develop a business case for investments in cutting-edge technologies, in many cases the best approach is to first focus on the use case, which focuses how the technology can be applied to solve a meaningful business problem. Then the potential business case can be iteratively developed as the company gains experience experimenting with the technology in pilot projects. Unfortunately, all too many companies never get further than the piloting stage and wind up in a cycle of endlessly testing new technology use cases. However, IKEA’s successful adoption of drone technology shows that companies can avoid this trap. By starting with the use case — and exploring it systematically and in a coordinated manner — the DIN helped IKEA match the solution to the problem. As Netland, Maghazei, and Lewis explained in the Summer 2023 MIT Sloan Management Review, IKEA is not the only large company which has acquired this hard-earned wisdom. Bosch, the German engineering and electronics company, had a similar experience. When Bosch kicked off its transformation program called “Industry 4.0@Bosch” in 2014, senior management aimed to gain speed and scale by skipping conventional “program governance” practices. This choice resulted in a lot of experimentation involving technology-driven use cases throughout the Bosch production network, which also led to a lack of knowledge sharing and disappointing bottom-line results. At that time, a senior manager who attended an internal Bosch trade show designed to share “best practices” lamented to one of the researchers, “At every booth, I saw geographically dispersed units trying to solve the same problem with similar solutions. That’s when we realized that we needed a more coordinated approach.” Shortly after this insight emerged, Bosch established what they call “the Connected Industry innovation cluster” responsible for governance and collaboration related to implementing advanced digital technologies in its production network. This cluster now offers internal and external customers a catalog of more than 100 technology “use cases” — all piloted and deployed in some of Bosch’s 230 factories. The use case catalog briefly describes how technologies such as additive manufacturing or artificial intelligence solve a problem in a specific process, the approximate implementation costs and time involved, the technological maturity, and estimates of expected performance improvement. Based on IKEA’s successful adoption of cutting-edge technology as well as observations at other companies, the researchers identified five key steps that should be employed by organizations as they develop and test their business cases for new technologies. Step 1. Create a governance structure for the exploration of emerging technologies. For drone technology, the “let a hundred flowers bloom” approach was unsuccessful at IKEA. It spread resources and know-how too thin, and experiences from failures were kept under close wraps or lost. In providing a governance structure at IKEA, the DIN unit helped support a strategic process for discovering a viable solution to a real problem by allocating funding and personnel without overly interfering in local drone pilots. Step 2. Start with the use case but keep a close eye on the business case. Organizations are used to looking aggressively for the business case in technology acquisition projects. You can easily miss an opportunity by asking “What’s the return on investment?” too early in the process. It’s tough to answer that question before piloting the technology. Instead, consider what the business case could become if the use case is successful. Step 3. Select partners strategically. Many vendors offer technology that is attractive but won’t necessarily address the problem at hand. IKEA’s early local trials with different drone vendors were often unsuccessful; selecting a few strategic vendors allowed for closer interaction and, critically, a greater commitment from the vendors, who saw the potential to serve the whole company. Eventually, IKEA actively engaged with one of those vendors to co-mature the technology until it was fit for purpose. Step 4. Iterate the use case until the business case evolves. Moving from a use case to a business case isn’t always a linear process. It requires negotiation and problem-solving between business decision makers and operational and technological change agents. Technological implementation and economic viability may have to be modified across different locations. And, Step 5. Take a phased approach to scaling. As soon as a technology is operationally functional and robust and the benefits outweigh the costs, it’s time to start scaling. Because disruptive technologies develop so rapidly, a phased rollout that allows for further operational iteration is more advisable than direct corporatewide adoption. IKEA’s phased rollout of drones has ensured that they are first deployed in locations where they are expected to be most cost-effective. This five steps approach goes a long way toward ensuring that companies don’t get bogged down in years of uncoordinated trial and error. |
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