Organisation and Innovation The dilemma of innovation management

Organisation and Innovation

The dilemma of innovation management Managing the tension between the need for creativity and efficiency Figure 3. 1

Pearson’s uncertainty map (1991) provides a framework for analysing and understanding uncertainty and the innovation process. The framework is divided into two separate dimensions Uncertainty about ends Uncertainty about means

Figure 3. 2 Pearson’s uncertainty map Source: A. W. Pearson (1991) ‘Managing innovation: an uncertainty reduction process’, in Managing Innovation, J. Henry and D. Walker (eds), Sage/OU.

Pearson’s uncertainty map Quadrant 1 � � � High degree of uncertainty Ultimate target not defined, and how to achieve the target is also not clear. Labeled as exploratory research or blue sky research. Conducted at universities or large organizations Ex: A high-profile contemporary example of blue-skies research is the Large Hadron Collider, or LHC, at CERN in Switzerland. It’s the largest scientific experiment ever built, an incredible engineering feat which accelerates protons to 99. 999999% the speed of light— very nearly the fastest it’s possible to go—to probe the inner structure of matter and understand the fundamental workings of the Universe. Indeed, 2012 saw the discovery of a particle called the Higgs boson which explains why other particles like electrons have mass. This confirmed a theoretical prediction made in the 1960 s, and won Peter Higgs and François Englert the 2013 Nobel prize.

Quadant 2 � The end or target is clear � A commercial opportunity identified but as yet the means of fulfilling this has yet to be established.

Quadrant 3 � In this area there is uncertainty regarding ends. � It is associated with attempting to discover how the technology can be most effectively used.

Quadrant 4 � This area covers innovative activities where there is most certainty. � Activities may be dominated by improving existing products. � Speed of development is the key to success.

Organisatinal stimulus � If firms wish to improve innovation performance they first need to put in place and then develop factors that stimulate innovation Figure 3. 5 Innovation stimulus, capacity and performance Source: D. I. Prajogo and P. K. Ahmed (2006).

Factors that stimulate innovation Figure 3. 6 Critical factors for innovation success Source: van der Panne et al. (2003).

Table 3. 1 Innovation management measurement areas Source: Adams et al. (2006).

Organisational characteristics that facilitate the innovation process � Growth orientation ◦ Actively plan for the long term. ◦ Innovation a means to achieving growth � Organisational heritage and innovation experience ◦ Heritage and culture is indisputably considered crucial to the firm’s technological capabilities as it fosters and encourages widespread recognition of the need to innovate � Vigilance and external links ◦ Vigilance requires continuous external scanning. ◦ A open communication system ◦ Extensive external linkages with the market, competitors , customers , suppliers and others will contribute to the flow of information into the firm

Organisational characteristics that facilitate the innovation process( cont. . ) Commitment to technology and R&D intensity � ◦ Exhibit patience in permitting ideas to germinate and develop over time. ◦ Accompanied by a commitment to resources in terms of intellectual input from science, technology and engineering. � Acceptance of risks ◦ Willingness to consider carefully risky opportunities. ◦ Make risk assessment decisions , to take calculated risks and include them in a balanced portfolio of projects. � Cross functional cooperation and coordination within organisational structure. ◦ Interdepartmental conflict is a barrier to innovation ◦ Ability to confront and resolve frustration and conflict is required. ◦ A supportive organisational structure underpinned by a robust information and communication technology system facilitate cross functional cooperation

Organisational characteristics that facilitate the innovation process( cont. . ) � Receptivity � Space for creativity � Strategy towards innovation � Diverse range of skills ◦ The capability of the organisation to be aware of , identify and take effective advantage of externally developed technology is key. ◦ Along with emphasis on the need for efficiency, there is also a need for a certain amount of ‘slack’. ◦ Long term planning and investment with regard to technology and markets distinguishes such firms from their “short termism” counterparts. ◦ Ability to manage diversity of knowledge and skills effectively is at the heart of the innovation process. ◦ Ex: managing or conducting an orchestra

Summary of the organisational characteristics that facilitate the innovation process Table 3. 2

Organisation structure and innovation � Formalisation : There is some evidence of an inverse relationship between formalisation and innovation. � Complexity: This refers to the complexity of the organisation. In particular it refers to the number of professional groups or diversity of specialists within the oranisation.

� Centralization : centralization refers to the decision making activity and the location of power within an organisation. the more decentralized the organization , the fewer the levels of hierarchy usually required. � Organizational size: size is a proxy variable for meaningful dimensions such as economic and organizational resources, including number of employees and scale of operation.

� � � � Organic Structures Characterised by: Informality Flexible and fluid (easy to change) Favours informal (e. g. ) verbal communication Associated with decentralised decision-making & employee empowerment Find change easier to handle Mechanistic Structures Characterised by: More formality & bureaucratic Associated with centralised decision-making & supervision Reliance on formal communication methods Favours standardised policies and procedures Little perceived need to change Greater resistance to change when implemented

Figure 3. 3 Matrix of complexity of architectural/component knowledge Source: Architectural Innovation: The Reconfiguration of Existing Product Technologies and the Failure of Established Firms, Administrative Science Quarterly, Vol. 35, No. 1 (Henderson, R. and Clark, K. 1990). Reproduced with permission of Johnson at Cornell University.

� Component vs. Architectural Innovations � A component innovation results in modular changes within the system without altering the overall design of it. Whereas, an architectural innovation accompanies a modification in the overall system and/or linkages between different components of it. For example, electric vehicle is an architectural innovation whereas a novel petrol filter is a modular innovation. �

� Incremental vs. Radical Innovations � Increment innovation involves a minor change to existing practices whereas a radical innovation is a larger leap in the practices. This perspective of classifying innovations is a relative one and could vary based on the observer. For example, Digital photography is a radical innovation for Kodak but perhaps not for Sony. �

Figure 3. 4 A two-dimensional typology of innovation projects

and Tushman’s book Lead and Disrupt, the authors advocate differently: the incumbent organisation must both continue to run its legacy business while investing in and developing an innovator business that may well cannibalize it. They call this the ambidextrous organization. � In O’Reilly �

The Difference between Exploitation and Exploration � � � According to the authors, successful companies become very adept at exploiting. That is, once established in their market with successful products or services, they become highly proficient at making steady and continuous improvements. They organize for this by developing their culture, their people, structure and internal measurement systems to incrementally build upon their market success. But for new or emerging markets, firms must explore what products, business models, customers, etc. , are the right ones to pursue. Once that is determined, these companies can transition from an exploratory to a growth and thence to an exploitation stage. The problem for mature companies is that they are so tightly bound to the exploitation ethos that they cannot successfully explore, even as their established markets are threatened and even as they can perceive this. In short, companies that decline inevitably do so because they fail to explore

Ambidextrous org example � � � � � In two further cases, IBM and Cisco, IBM got right about its Emerging Business Opportunity (EBO) process; and how Cisco, through a mix of excess complexity, lack of accountability and inadequate senior leadership support, fell short. In summary, IBM’s EBO did the following well: Rigorous and organic way to identify and nominate potential EBOs. Frequent and active senior sponsorship of the EBO. Dedicated leadership for the EBO. Process for cross-company alignment and leveraging of assets. Resources in the EBO fenced off (protected from arbitrary cuts). Actions tied to milestones. Clear guidelines to stop EBOs that weren’t meeting milestones.

Role of individual in the innovation process

Roles in innovation management � Innovation manager as an architect ◦ The innovation manager as process owner and caretaker is one of the most important roles in the innovation process. ◦ As an architect of the innovation system, he is responsible for the framework conditions so that innovations can be created successfully in the company. ◦ This includes tasks such as developing the innovation strategy, collecting and evaluating ideas, introducing an innovation process and managing the project portfolio including innovation controlling. ◦ The innovation manager is not necessarily the one who drives the ideas and projects himself, but is regarded as an enabler. It sets measures and shapes structures and culture so that ideas are generated and transformed into successful new products and services. Metaphorically speaking, he is the heart of the innovation organization. �

Managers as promoters � � Innovations can experience many resistances in companies. Even if colleagues are enthusiastic about a new idea, the associated changes can trigger defensive reactions. Unfortunately, people are naturally opposed to innovations because they have to move out of the comfort zone, for example, or have to abandon established habits. In such situations, innovation managers are often tied to their hands because they lack the necessary authority. This is where promoters come into play who actively support and help to shape the innovation process in order to overcome resistance and set the track for success. Power promoters in concrete terms are mostly from the board of directors or management and work against the barrier of not wanting. They exert influence through power, persuasion, incentives and sanctions. They can also make the necessary resources available. Thus, the power of managers in innovation processes is an important enabler. Even if you don't want to admit it, it is a very effective wayfinder. That's why top management as a sponsor of innovation is indispensable.

Management team as gatekeeper � � � Management has not only the role of an innovation promoter in organisations, but also a strategic function. A selected management group with representatives from all the most important functions such as production, sales, marketing and many more is responsible for the management of innovation activities. They decide on the innovation strategy, release ideas for implementation, determine their goals and decide on the next steps in the gates of the innovation process. As a result, they make all important strategic decisions in the innovation process and thus have a decisive influence on and control the success of innovation activities. They use the innovation manager for the operative management, development and design of innovation structures and the moderation of innovation processes.

Innovation project manager as coordinator � � � The project manager is the key person who turns an innovation concept into a successful product. If the innovation manager is responsible for the overall framework conditions, the project manager drives a single project. He has operational responsibility for planning, execution and control and is responsible in his role for achieving the material, time and cost targets. The project manager is not the person who carries out the tasks in an innovation project himself, but acts as the coordinator. An innovation project places high management demands on the project manager, because he has to juggle with a high degree of interdisciplinary activities, high uncertainties and uncertainties.

External key roles in innovation management � In addition to the internal innovation roles, external stakeholders are also important players in innovation management that influence the success of innovation activities. � On the one hand, these include customers and users. Nearly all innovation tasks have to be oriented towards them, because in the end they decide on the success of an innovation with their purchase or nonpurchase. � Particularly important is the involvement of customers to research customer needs and to test and evaluate new developments for their marketability.

Innovation Projectowner as Enabler � The innovation project-owner is the head of the project manager. He manages the innovation project on a strategic level and controls the project manager. In his role, he represents the interests of the company and thus also of the customers. Therefore, the project worker should come from the highest possible level, the second level is optimal. He should also be in a position where he understands how the company works and what the customer and the company need. For this reason, board members and managers from the sales environment are predestined for project ownership. Like the innovation manager, the innovation project leader may encounter resistance or lack of support. The project manager leads his project team without disciplinary responsibility and is dependent on services from other functional areas. If he does not receive the necessary support, his hands are often tied because of the lack of power. Here too, the promoter plays an important role. Together with technical and authoritarian support, it is an enabler of innovation. The bigger and more complex a company or project is, the more sensible it is to use a project steering committee in addition to the Project owner. The steering committee for an innovation project is headed by the project officer and consists of executives representing the most important areas such as production or sales.

Innovation project team as an innovation driver � � � As initially described, people are the most important resource in innovation activities. An individual can make an innovation project fail, and a great team can lead an innovation project to high performance. The success of an innovation project therefore depends above all on the quality of the support and cooperation of the important functions. And since innovation projects are highly interdisciplinary and involve almost every area, many employees have to be involved. Thus, the project team also plays a very important role. A wellconsidered team with the most important stakeholders in the sense of participants and affected parties, experts and employees who represent the interests of customers and understand the needs of the market perfectly can pave the way for innovation success.

IT Systems and their impact on innovation � Enterprise resource planning (ERP) is defined as the ability to deliver an integrated suite of business applications. ERP tools share a common process and data model, covering broad and deep operational end-to-end processes, such as those found in finance, HR, distribution, manufacturing, service and the supply chain. �

Benefits of ERP

� � � � The benefits of Enterprise Resource Planning (ERP) software go beyond the capabilities of the system itself. The planning, implementation and eventual adoption of an ERP solution, by its very nature, causes a company to innovate. Innovation through ERP can make your company work smarter, faster, and ultimately achieve more. 1. Consolidating Independent Systems 2. Business Process Improvement 3. Real-time Information 4. Collaboration 5. Efficiency

IT Systems and their impact on innovation

Establishing an innovative environment and propagating this virtuous circle