1 Organising for Innovation Tuesday 20 th April 2010 Stephen Spring sfspring@mac.com

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Organising for Innovation

Tuesday 20th April 2010

Stephen Spring

sfspring@mac.com

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Stewardship vs. Entrepreneurship

• Stewards polish grandma’s silver – they buff up the assets and capabilities they inherited from entrepreneurs long retired or dead.

• entrepreneurial heroes – innovators - are obsessed with creating new wealth.

Stewards conserve. Entrepreneurs create

Hamel 1999

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Jack Welch CEO of GE 1981-1999

• “As we develop our strategies, I want general managers talking to general managers, not planners talking to planners”

• “A company can boost productivity by restructuring, removing bureaucracy, and downsizing, but it cannot sustain high productivity without cultural change”

• Wants GE known not as “lean and mean’, but ‘lean and agile’.

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In a Nonlinear World only Nonlinear Ideas will Create New Wealth

“I used to spend most of my time worrying about the how – how we did things, how we operated, how efficient we were.”

“Now I spend much of my time worrying about the what – what opportunities to pursue, what partnerships to form, what technologies to back, what experiments to start.”

A CEO in Hamel 2000

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Mission/Vision/Strategy (I)

• Mission:- Why the firm is in business

• Vision:- Where the firm will be in 5 years

• Strategy:- How the firm will get there

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Mission/Vision/Strategy (II)

• MissionHealing the wounded of contemporary society

• Vision:- Where the firm will be in 5 yearsChain of hospitals serving the poor

• Strategy:- How the firm will get thereRecruit team, raise money and build hospitals

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Create a Mission & Develop a Vision

• The mission is a written expression of what the owners stands for and believe in and how the company will reflect those values and beliefs.

• Mission emphasizes:– "What business are we in?”– “Why we’re here” and – “Where we are going.”

• Vision is based on this mission.

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Linking Vision to Strategy

Vision

Skills Strategy Structure

Staff

Style

Systems

Shared Values

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McKinsey 7 “S” Model

Strategy

Staff

Structure

Skills

Style

Systems

SharedValues

Waterman 1982

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Cockpit View

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Aligned Strategy

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Innovation

The Tool of the Entrepreneur

Drucker 1986

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Opportunity Roadmap

Entrepreneurship

Exploitation of Opportunities

Innovation

Evaluation of Opportunities

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Innovation

Innovation is the process that endows a recognised Opportunity

with the capacity to add-valueto an already existent

invention, product, process, or service

and at a ‘price’ a customer will pay

Gillin/ /Drucker

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Adapted from Patel 2005

Function of Strategy of Innovationis to Deliver Results

Founding state is data, information & opportunity recognition– with intervention of analysis & screening, opportunity

recognition is transformed into a state of knowledge– with intervention of non-linear experience, knowledge

is transformed into intuition– with intervention of wisdom & heart, intuition is

transformed into state of innovation– with intervention of strategy and action, innovation is

transformed into results

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Corporate Innovation

“Innovation requires us to systematically identify changes that have already occurred in a business – in demographics, in values, in technology or science – and then to look at them as opportunities.”“It also requires something that is more difficult for existing companies to do: to abandon rather than defend tomorrow.”

Drucker Inc. 1996

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Strategic Thinking

GAP

No change in strategies

Realistic strategy

Linear Strategy?

Trial concepts

% of Acheivement

Societal Learning

Organisation Learning

Vision2025

Now 2025

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Net New

Internal

Growth in

Earnings From

New Products

Net New Earnings

Growth from

Innovation

Partnering etc

Net new

Earnings Growth

from Innovative

Improvements

Target growth/ earnings

CurrentGrowth gap

Internal growth

M & A’s

Continuous improvement

Ear

nin

gs

Time

Closing the growth gap

Growth and Strategic Innovation

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No ChangeDiscontinuous Change (Breakpoint)

Continuous ChangeSporadic Change (Turning Points)

Status Quo

Agents Dominate

Change Agents

Dominate

Resistance Force

Strong

Weak

Weak Strong

Change Force Strebel 1992

Innovation Change Arena

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Discontinuous

Opportunities

Create new

markets

and new products

Discontinuous opportunities: The source of radical innovation...

Adjacent

Opportunities

Exploit current assets

and capabilities

Status QuoGrow marketshare and profit(expansion, not new business development)

Adjacent

Opportunities

Increase primary

market demand

Existing products/Technology

New products/Technology

ExistingMarkets

NewMarkets

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… which create disproportionate wealth relative to adjacent opportunities

0

50

100

Type of newBusiness

launch

Revenues Profits

61%

39%

38%

62%

14%

86%Adjacentopportunities

Discontinuousopportunities

Source: Chan & Mauborgne (1997)

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Innovation

Radical

• An entirely new set of performance features

• Improvements in known performance features of 5X or more

• A significant (30%+) reduction in cost

Leifer et al.

New Product Function

• The introduction of a new good;

• The introduction of a new method of production;

• The opening of a new market;• The conquest of a new source

of supply of new materials;• The carrying out of a new

organisation of any industry. Schumpeter

.

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Beyond Continuous Improvement

NonlinearInnovation

BusinessConcept

Innovation

ContinuousImprovement

BusinessProcess

Engineering

Rad

ical

Incr

emen

tal

Component System

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Business Concept Innovation

• Not strictly about competitive strategy,

• Not a way of positioning against competitors,

• But of going around them.

• It’s based on avoidance not attack.

• What is not different is not strategy

• No longer between products or services

• It’s between competing business concepts

Hamel

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The Business Concept

• Customer interface – fulfillment and support,

relationship dynamics, pricing structure

• Core strategy – business mission, product/market scope,

basis for differentiation

• Strategic resources – core competencies, strategic assets,

core processes

• Value network – suppliers, partners, and coalitionsHamel

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Automobile Industry

ENTREPRENEUR BUSINESS CONCEPT

1904 Rolls Royce ‘Cachet of Royalty’

1908 Ford Mass produced, Owner maintained

1905 Crapo Durant Professionally managed, Integrated, GM

1899 Agnelli Fiat, Staff cars for military

1960-80 Japanese Comfort, style, fuel economy, service

1980-90 Companies World Car, global efficiencies

2000 ? ? ? Environmentally friendly

Drucker

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Innovation strategies that focus on management

• Scientific management (time & motion studies)• Cost accounting and variance analysis• Commercial research laboratories• ROI analysis & capital budgeting• Brand management• Large-scale project management• Divisionalisation• Leadership development• Industry consortia• Radical decentralisation• Formalised strategic analysis• Employee-driven problem solving

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The adaptable corporation?

• Most companies are far better at executing their current activities than at adapting to long-term changes in the business environment. Very few can do both well.

• Managers face an unending competition for money, people, and time to address the need to perform in the short term and the equally vital need to invest in the long run.

• Is it possible to do both well or is there an inevitable trade-off between executing and adapting

Beinhocker 2006

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Executing versus adapting

• “Loose - Tight” organisationIn Search of Excellence - Peters & Waterman (1982)

• “Creativity” versus “Control”Built to Last - Collins & Porras (1997)

• “Operating” versus “Innovating”Creative Destruction - Foster & Kaplan (2001)

• “Ambidextrous” organizationWinning through Innovation - Tushman & O’Reilly (2002)

• “Exploration” versus “Exploitation”Exploration and exploitation in organizational learning - March (1991)

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Why is adapting and performing well so hard?

The demands of execution create deep barriers to adaptability and these barriers affect every organization

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Barriers to adaptability

• People - mental models become more rigid and more locked in and more adverse to novelty as we gain experience

• Structure - highly independent systems can sometimes become so complicated that they go into gridlock and change becomes impossible

• Resources - companies acquire and maintain the resources required to perform its existing business. They may not have the resources required for a new opportunity.

Beinhocker

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Cognitive Infrastructure:

Organisations do not see opportunities, individuals do

(Kreuger and Brazeal 1984)

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Cognitive Infrastructure:

(Organisations do not see opportunities, individuals do)

Personal Desirability

Perceived SocialNorms

Perceived Self-Efficacy

Perceived Collective Efficacy

Perception of Opportunity

Intentions Action

Perceived Desirability

PerceivedFeasibility

Propensity to Act

Krueger 2003

Exogenous Factors(Personal, Situational

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To build organisational capability,

Large global firms must look beyond structure to

vision, values and processes.Bartlett & Ghoshal

Biological Metaphor

Organisation (Company)

• Formal structure

• Interpersonal relationships and management processes

• Shared vision together with a set of common norms

Biological (Person)

• Anatomy

• Physiology

• Psychology

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Strategy vs. Purpose

Strategy Purpose

Structure Process

Systems People

Chandler Bartlett and Ghosal

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Building Structure in a Managers Mind

“Managers are losing control of their companies because the companies are organisationally incapable of carrying out the sophisticated strategies they have developed.

Strategic thinking has outstripped organisational capabilities.

Some managers have responded to this by trying to manage complexity with complex structures.”

Bartlett & Ghoshal

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The Result

“The matrix seemed ideal as a structure for managing complexity.

In practice it proved almost unmanageable, especially in the international context.

Dual reporting created conflict and confusion, communication channels were jammed and overlapping responsibilities produced turf battles and loss of accountability.

These problems were difficult to solve over barriers of time, language, distance and culture.”

Bartlett & Ghoshal

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Impact of Structure

GM

MfngSales

Prod 2Prod 1Prod 2Prod 1

GM

Prod 2Prod 1

MfngSalesMfngSales

•Pricing decisions

•Resource allocation

•Appropriate skills

•Who does the customer call

•Which decisions are raised to GM level

•How are resources allocated

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Design as particular Organisation

• Entrepreneurial – coordinate by direct supervision, dominated by apex, flexible, dynamic

• Machine – coordination by standardisation of processes, key part

is techno-structure, very formalised

• Professional – operating core of professionals who coordinate

using standardisation of skills, training

• Diversified – set of independent entities (divisions) connected by

loose admin. Structure, key middle line, standardisation of outputs • Innovative – skilled support staff collaborate with others in

organisation - key part, coordination by mutual adjustment, dynamic

• Missionary – members identify with mission, standard norms

• Political – dominated by politics, no key coordination

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Opportunity Focused Organisation

Internal Markets Integration & Resource Allocation Coaches

Top Management

ENTREPRENEURIAL BUSINESS UNITS

PRODUCT Markets

• Flat

• Focused

• Flexible

• Fluid

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Customers/Partners

Frontline Entrepreneurs

Hierarchical Pyramid Entrepreneurial ‘Pyramid’

Administration Finance

CEO

Entrepreneurial Inversion

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Customers/Partners

Top Level Institution Builders

Sen

ior

Lev

elD

evel

opm

ent C

oach

es

Frontline Entrepreneurs

From Inverting the Pyramid…………Toward an Individualized Corporation

Ghoshal & Bartlett

Customers/Partners

Frontline Entrepreneurs

Administration Finance

CEO

Welch at GE

New Organisation Models

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ContactPersons

Contact Persons

NODES

NODES

Spider’s Web

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Change TeamsProject Teams External Customer

TeamsStaff Unit

Internal Customer Team

Core C E OTeam

Business Units

Technology Team

External Relations(Public) Team

Alliance Team

CLUSTER ORGANISATION

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CoreCompetencyNew Companies

2nd Generation Companies

STARBURST ORGANISATION

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TCG (Technical Computer Graphics) Peter Fritz, CEO

TCG-ILED

1992

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Principle

“The critical strategic requirement is not to devise the most ingenious and well coordinated plan but to build the most viable and strategic process;

the key organisational task is not to design the most elegant structure but to capture individual capabilities and motivate the entire organisation to respond cooperatively to a complicated and dynamic environment.”

Bartlett & Ghoshal

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Management's challenge is to cope with the fact that personal drivers will never completely align with business drivers

Business success

Personal “success” vectors

THE HUMAN FACTOR DIMENSION – THE BIG OPPORTUNITY FOR APPROPRIATE ENTREPRENEURIAL STRUCTURES

Invetech 2003