How risk aversion robs packaging machinery buyers--and builders--of innovation

February 20, 2007

I've heard from several end user and supplier sources that packaging machinery customers are becoming more risk-averse. This is really too bad. Risk-aversion is one of those insidious diseases, like cancer, that can eat away at a company's growth and development.

Risk-aversion can develop for a number of reasons including: a knowledge gap between the technologies that a buyer is familiar with and the technologies being offered by a seller; unrealistic time constraints or staffing levels for project implementation; or a corporate culture of 'kill the wounded'.

These issues are linked and can and often do feed on one another. For example, corporate downsizing has taken out many of the skilled engineers who had knowledge of the latest technologies and who had developed mechanisms for managing risk during their years on the job. These folks were risk-aware, but not necessarily risk-averse.

I have seen two extreme and pervasive periods of risk-aversion in manufacturing over the years, both involving computer technology. The first, during the 80's, was characterized by the phrase "No one ever got fired for buying IBM". Even though there were better and more cost effective solutions being offered for manufacturing, risk-aversion, prevented them from being implemented and kept the mainframe as king.

IBM played upon people's fears in this environment and, at the same time, drew a cloak around an account, by placing an IBM employee in your data center. (Some controls vendors take a similar approach.) This operating mode impeded new and better technologies, but at the same time, allowed Intel and Microsoft to make a revolutionary end-run around the establishment.

The second example of extreme and pervasive risk aversion is the experience of Y2K. Lack of knowledge and fear on the part of boards of directors everywhere drove spending way beyond what was necessary to correct the problem. Lack of knowledge and a kill the wounded attitude made risk taking a dangerous proposition.

So, how do we take these experiences and apply it to packaging machinery? From the user side, the message is this: if you let risk-aversion hold you back from stretching a bit on every project and applying best of breed technology, eventually your infrastructure of both machines and people will become obsolete. If you are lucky, your company will have the opportunity to undergo a painful recapitalization of both people and equipment. If you aren't so lucky, some risk-aware company in another part of the world may be packaging your product or one just like it.

From the supplier side, risk-aversion is survivable if all of your competitors are also risk-averse. This is an unlikely scenario in our flattened world where new competitors may arise every day in places that you may never have heard of or visited. In our Web-enabled society, the best new technologies are instantly and equally available everywhere--the only impediments being one's own ignorance or fear.

Machine builders must be constantly on the lookout for new ways of adding value to their potential customers' supply chain. If your present customers are risk-averse, beware of them holding you back. Every supplier should have some customers that force you to push the envelope just a little bit on every project. Be risk-aware, not risk averse. Take those risks and manage them to success.

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End users are risk-averse for a number of reasons: to wait for the technology to be field-proven, to see what the next generation will offer, to wait until change is a necessity or until costs are driven down by competition. A gap in knowledge is the worst case scenario because progressive ideas drive the market, and keeping a finger on the pulse is the key to longevity. Whatever the reason, risk aversion is a battle for any technology company, packaging and otherwise.

Posted by: Adrienne Lutovsky on February 20, 2007

Keith,

The common rule of thumb is that change occurs when the pain of the current situation outweighs the risk of change. If the CEO is embracing change then the risk to an employee will be less, Look to the top and don't blame the engineer making the decision. He is trying to please as many parties as possible and keep his job.

Having said that, we have seen the fear of change for 6 years since we introduced a 6 axis servo wrapping machine in 2001. It lessens with familiarity.

Kate

Posted by: Katherine Putnam on February 20, 2007

Good article...in a hightech or biotech I look to the executives to champion a philosophy to make operations / packaging etc as technologically advanced as the products it offers to the customer. Seems a bit skewed to build industry leading products on 20+yr old platforms....but it happens...it is just not as efficient,productive or as ergonomic as it sould be.

Posted by: Karl Eberhardt on February 20, 2007

I agree with you 100%. Thank you very much for taking the time to right down what most of us know but do not recognize or know how to explain.

Posted by: Doug Stufflebean on February 20, 2007

the only way to move forward is take a calculated RISK, if you dont you'll be left behind.....these days its survival of the fitest...either sink or swim.

Posted by: Brad Meadows on February 21, 2007

Keith,

Regarding risk aversion, could not agree with you more. The willingness to experiment, and possibly fail, comes from the very top. Lots of lip service is given to this in management books, but organizations that really support innovation are rare.

Posted by: Jim Chrzan on February 21, 2007

One of the hardest risk adversions to over come is the "we tried that years ago and it didn't work". What the people using this line fail to remember is the exact cause of the failure, and that the current application maybe total different that the failed one.

Posted by: Ellis Labuza on February 21, 2007

Keith, keep up the great work. The information is very timely and important for end users and suppliers.

Posted by: William O'Connell on February 21, 2007

"The only constant is change"....and with all change comes a certian amount of risk. As a vendor we realize, if we don't push the envelope, our competition will.

Posted by: Aristotle on February 21, 2007

Years ago I was taking the Keptner-Tregoe problem solving course and Appollo 13 was playing in the theatres -Talk about Risk and problem solving - there is a movie to watch - Many great lines in the movie - One of my favourites - I don't care what it was designed to do - I want to know what it can do. - Best advice on new technology - Call someone who is using it. When we converted to a beltless corrugator I talked to a PM who had one for about 4 months - He said if I had called him 2 months prior he would have advised us not to go there - He said "Throw out all the things you learned about using the belt type and learn the new way - We traded tips and had a very successful implementation.

Posted by: Tim Lobzun on February 21, 2007

Keith:
Excellent comments and hopefully your blog will help strengthen the packaging automation discussion between end-users and OEM's.

Posted by: Joe Angel on February 21, 2007

People do what they are paid to do. For a machine or automation specifier at a plant to buy technology that will make more than an incremental improvement in the bottom line, the SBU owner must start encouraging the behavior and actively manage away that perceived risk.

Risk aversion otherwise becomes its own risk. And while risk aversion is alive and well, there are capabilities out there that just aren't possible with status quo technology. This is the classic leapfrogging, as when the wall came down and instead of bringing landline telephone systems up to Western standards, the former Soviet bloc countries jumped right to advanced cell phone technology.

The moral? If you and your most visible competitors are all in your comfort zones, beware the upstart willing to trade an acceptable amount of technology risk for a market-making, game-changing business move.

Posted by: John Kowal on February 22, 2007

I think that risk Aversion is something that we are prone to. We as human beings always remember the one thing that went wrong, and not the many other things that went right.
If a company is risks adverse then they need to establish partnerships with vendors to work through the risk together. I'm not saying get something for nothing, but if I would help companies develop new functionality, I would like some loyalty in return. When an established level of profit for the partners involved has been achieved, then reevaluate the partnership. Stay and Grow, or Go and Grow!

Posted by: David Arens on March 1, 2007

Keith:

Great article and keep up the good work. Job security and risk aversion a lot of times prevent technolgical advancement. Europe for example is way passed analog command interface and analog command interface is still a requirement here in the USA.

Posted by: Rami Al-Ashqar on March 1, 2007

I agree, too much attention is paid to a brand name as opposed to true innovation. The short term lesson is that it's better to spend money advertising than into your product. The problem with that is there are too many other people around the world who will focus on making their product better instead, like Toyota did. I wonder what those displaced white collar and blue collar GM/Ford/DCX people think about brand names now.

Monte

Posted by: Monte Swinford on March 2, 2007

Keith,

Great article. As you suggest, risk aversion is a risk unto itself.

Posted by: Keith Jacobs on March 2, 2007

Great article on open technology features. Many packaging OEM's are required to use a specified controller dominated by a major US supplier. This is a safe route but it hampers good engineers to be creative in design features that can be implemented to better productivity. They allow themselves to be in a position like their competition, selling metal and a standard safe control.

Posted by: Ed Schultz on June 1, 2007

About Keith Campbell

Leaders learn from the past while looking to the future - and bring both to bear on the here and now. This is the philosophy that has steered Keith Campbell's 30+ years in manufacturing. It has worked for him in operations, maintenance, engineering, R&D, education, consulting and professional organizations--and now he's putting it to work for you--taking you to the edge of his thoughts on packaging operations.

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How risk aversion robs packaging machinery buyers--and builders--of innovation

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