LEARNING DIARY STUDY PROGRAM IN PALO ALTO, NOVEMBER 15-19, 2010

STRATEGIC INNOVATIONS CREATING NEW BUSINESS

Student name: Petra Söderling Company: Nokia

(Student number: 201968) Date: February 20, 2011

TABLE OF CONTENTS 1 Introduction ............................................................................................... 3

2 Strategic Leadership of Corporate Innovation by professor Robert A. Burgelman ....................................................................................................... 3

3 Building Robust Business Clusters: Lessons from biotech by Professor Walter W. Powell .............................................................................................. 7

4 Dynamic Capabilities: Strategy Process Dynamism by Kathleen M. Eisenhardt ...................................................................................................... 10

5 Discovering Successful Business models, by William P. Barnett ............ 11

6 Good Boss, Bad Boss, Lessons for CEOs and other Senior Executives by Robert I. Sutton .............................................................................................. 12

7 Design process ....................................................................................... 13

8 Start-up process ..................................................................................... 14

9 Summary ................................................................................................ 14

1 Introduction This study program is one of two international modules as part of the TKK MBA program. The one week module in Palo Alto concentrates on strategy, innovations and entrepreneurship.

2 Strategic Leadership of Corporate Innovation by professor Robert A. Burgelman

Professor Burgelman is the Edmund W. Littlefield professor of management at Stanford University, and the Executive Director of the Stanford Executive Program. Corporate innovation is an interesting topic, some might say that innovation doesn‟t live in corporations but in smaller entities. Others claim that innovation is done by people, not by corporations, start-ups or by entrepreneurs. As pre-reading professor Burgelman had recommended three articles: “Managing Internal Corporate Venturing Cycles” by Robert A. Burgelman and Liisa Välikangas, published by MIT Sloan Management Review, “Intel Centrino in 2007: a new “platform” strategy for growth” by Robert A. Burgelman, Philip E. Meza and Evan Berrett, published by Stanford Graduate School of Business, and selected chapters from an unmarked Intel book. We began the day by posing the following strategic questions.

1. How to generalize the Intel case 2. Role of top management in innovation 3. How to manage emerging strategies 4. How to create and manage a strategic planning process 5. How to continue to innovate within financial constraints (crisis) 6. How to deal with top management‟s pressure to „make it big‟ 7. How to capitalize on „all‟ knowledge residing in the organization from

bottom to top (study knowledge power vs decision making power under the concept of constructive confrontation)

8. Strategy and regulation The group discussed the topics lively throughout the day, beginning by defining strategy from multiple perspectives. Strategy can be viewed as “mentality”, a state of mind or a way of looking at the world. If strategy is a mentality, then one can identify oneself as living in a culture of strategy. Strategy is a culture, a corporate culture or one‟s personal culture, way of being. Strategy without culture is just empty words, and culture without strategy is aimless.

When defining corporate strategies one must also bear in mind the national and geographical cultures surrounding. For example what is considered “constructive confrontation” in the US – encouraging people to confront their leaders in order to challenge thinking and create new – might work better in Japan if defined as “constructive conversation” – encourage free and open discussion to create new. Why is strategy then needed? Strategy helps leaders to manage downwards. This is, define and communicate a direction to their teams. After all is said and done, leaders must help their teams to win. Strategy helps leadership upwards. Without a defined, agreed and articulated strategy owners and top managers of a company must be committed to taking the company to the direction agreed. Managers can always justify new innovative ideas, or basic business-as-usual requests in line with the strategy. Strategy also helps leaders to interact with peers. Many companies depend their success on individual contributors, these are professional people in the organization who have influential power, and often are the ones introducing constructive confrontation. A strategy helps these individuals to discuss around correct assumptions. Strategy becomes real only when implemented. Strategy is about long term commitment, but the world is dynamic and doesn‟t stop to wait that your strategy is ready and implemented. This is why the „mentality‟ of it is so important. Long term can become very short in an instance, so one needs to define their own critical time horizons (e.g. in the Intel Centrino case their chip development took 4 years). Strategy can help us maintain a control of our destiny. The familiar Porter model is here enhanced as “Porter +” taking into account strategic business realities outside of the usual diamond.

Barriers can be tangible such as money, or intangible like reputation. Each leader should ask themselves how dependent they are on these forces, and how much power do I have over them. Strategic situations can be classified over dependence and influence as follows:

An example of this is the 1973 US oil prediction case, where the government stated that by 1980 US would be foreign oil independent. High dependency on gulf oil high, but high influence through US manufactured oil fleets. However this changed rapidly as the Chinese began to build and operate fleets. In the Intel case D-RAM become commoditized through forces in the industry. Intel loses influence and grows on dependence until they abandon the strategy of increasing bandwidth on D-RAM and begin to allocate manufacturing capacity to the new wireless chip Centrino.

Professor Burgelman introduces also another enhanced version of a traditional business model, the Strategy Diamond. He calls this the “rubber band model”, as each of the arrows here are flexible and accommodate the current market situation. All of these four elements of business strategy are in place simultaneously, but their influence and interdependence vary.

The internal selection environment has four distinct characteristics:

1. Resource allocation should reflect competitive reality 2. Allows debating new opportunities between those who make money

today, and those who promise to make money tomorrow 3. What is the capacity in my organization, senior and top mgmt for

strategic recognition 4. Take strategic recognition to action (=strategy leadership)

The internal selection happens at a point called Strategic Inflection Point.

Also, we discussed in class about intuition vs. strategy, with the following points:

- Bring structure to an unstructured situation - Be faster, gain time - Intuition can be a burden - Keep intuition fresh by talking to diverse people from different

industries - Most of us look for confirming information but successful leaders look

for discomforting information (Warren Buffet: if you don‟t have a future today, you won‟t have a future tomorrow).

To summarize, one must create a unique culture and style of strategic leadership to enable all that was discussed during the day. Whether it is bottom up leadership where one is strong in constructive confrontation but can be a drifting culture, or a top down leadership with strong constructive confrontation, but in the worst case a lock-step situation where everyone moves into the same direction. Leadership style determines much of the ability to commit to decisions. Too little debate leads to an authoritarian CEO calling all decisions, or everyone is just doing their own thing, whereas too much debate can result an internally focused company where people compete who has the nicest slides with little action.

3 Building Robust Business Clusters: Lessons from biotech by Professor Walter W. Powell

Walter Powell is the professor of education and sociology, organizational behavior, management science and engineering, and communication at Stanford University. His part of the week was one of the most interesting to me. He and his students had studies the formation of business clusters in a number of US states/cities, using biotech companies, universities and public authorities as players. There are three elements for successful clusters:

1. Mix of different organizations (governmental, private, non-profit etc). it needs to be a rich soup, and diversity matters

2. There needs to be a catalyst anchor tenant, just like a successful mall has an anchor store that pulls customers to the mall. This anchor tenant protects the openness of the community, and allows multiple views to flourish

3. Cross-cutting local networks (e.g. job movement in the Silicon Valley), movement across organizations, “rewiring”, all of which leads to good ideas circulating through the decentralized system

The start of biotechnology companies in the US concentrates around geographical hubs. 1978 – East coast was strong: Boston, NY, Philadelphia. Some companies in Texas and California. 1984 – San Francisco area and East Coast getting much bigger and ahead of the other areas. There are some new spots in the middle of the country. Now total of 130 companies. 1990 – San Francisco area, San Diego and East Coast are still growing while other hubs stabilize. Now 253 companies. 2002 – Extreme geographical concentration: More than 50% of the 368 US based biotech companies can be found in just three areas: Boston, Bay Area, and San Diego. This encompasses employees, patents and products. In successful clusters the baton is passed from university or a venture capital firm to companies. In an unsuccessful local area there is no baton being passed, but status quo is kept. A common process for all areas was job mobility, local competitors collaborating, mashup of private and public, all independent of the control of a dominant organization. 1+1=3 ideas, this is 2 and the possibility of the combination of the two. Interesting note from the professor was that both Helsinki and New York have the potential of clusters forming, except that they are both well connecting

externally and globally, but poorly connected locally. Here‟s a though to Aalto University and other in the Helsinki region players working for a cluster. Virtuous cycle In Silicon Valley, the lawfirms have a tendency to negotiate a mutual benefit for both parties. They do not go for the “winner takes all” approach, which leads to the other party being left with nothing. This is the way many NYC based law firms operate, often destroying the other player. Spillover effects of expansive local clusters:

- New high tech companies - Growing labor market for well educated - Suppliers, research tools, equipment - Services (law, IP), finance, (VC, angel, investment bank), accounting,

architecture (green buildings), universities (tech transfer) Red Queen effect (running as fast as you can just to stay where you are): high rates of foundings and disbanding raise the bar. Successful clusters are not the ones who had more money to begin with (SFO, Philly and and Seattle had the most money). MIT was only #47 in the list of recipients for government originated public funding. Cross-network transportation: in the 1950‟s Stanford was not part of the top 100 universities in the world. It grew with the mix of business, risk etc. Implications

- Host tenant is not the loudest, but host of the party (e.g. in Boston it was the Public Research Organizations, in Silicon Valley it was the Venture Capital firms)

- Mix of Public Research Organizations and small firms - Relational vs. transactional ties - Institutional diversity - Transposition, using coin of the realm of one network in a new one - Cross-cutting multiple network, fluid labor market

In Europe there are three (bio)tech clusters: Cambridge UK (rivalry between Oxford), Munich (rivalry between Munich Uni and Munich Tech Uni), and Basel. European research institutions tend to measure their success in international links. Local links are not considered important, therefore clusters are not forming. (e.g. All successful Irish companies leave Ireland).

4 Dynamic Capabilities: Strategy Process Dynamism by Kathleen M. Eisenhardt

Kathleen Eisenhardt is the Stanford W. Ascherman M.D. Professor at Stanford University, and a Co-Director of the Stanford Technology Ventures program. She is also a visiting faculty member within INSEAD‟s Entrepreneurship and Family Enterprise area. As pre-reading for her class, we read “Competing on the edge – Strategy as Structured Chaos” by Shona L. Brown and Kathleen M. Eisenhardt. Asking yourself the question where do you want to go, and how to get there can result two kinds of answers: Static or Dynamic. In either case, there are various sources of ambiguity, such as

- Extreme uncertainty about future - Blurred timing and paths - Shifting competitive basis, from products to business models - Increasing penalty stock market is more selective

Strategy as a structured chaos

- Strategy is simple: The more ambiguous markets, the simpler strategies

- Time: Longer time horizons, rhythm not speed (changing your rhythm can distract your opponent)

- Organization drives strategy: Organization is poised “on edge of chaos” Improvising the business strategy as simple rules. Follow “common experience => Myths => Best practices. For example, a common experience might be that Innovative ideas suffer from poor execution. The myth is that successful companies are run by a braintrust of a few, smart senior executives. A corresponding Best practice for this is to focus on a few key strategic processes and a few simple rules to exploit opportunities. For Yahoo, these simple rules where

1. Look, brand 2. Launch in a structured way 3. Every developer works on every product 4. Priorities

For Miramax movies (Crying Game, Pulp Fiction, English Patient, Shakespeare in Love ), the simple rules are

1. Center the movie on a basic human condition 2. Flawed but sympathetic character 3. Have a clear beginning, middle and end

4. Disciplined financing (50% more efficient than industry standard) Have only a small number of central rules

Successful companies implement an inverse power law for scale of change: Lots of small changes, some mid-size changes and only few big changes. Key ideas for changes are, if you want to grow, leverage something you already know. Mix old and new people, change only selected things, use new business to refresh old ones, every so often exit, and remember modularity. For example, the most innovative solar energy companies are those with a mix of people from ICT, internet etc, and the least innovative are those who employ only strictly solar energy experts. Examples of time-pacing, the rhythm of growth strategies:

- Intel opens new manufacturing facilities every 9 months - Starbucks open 300 new cafes per year - Gillette gets 40% of sales from products launched within the past 5

years - Dell would synchronize their production with major CE magazine

review cycle Rhythm helps to align R&D, sales, and marketing Rhythm makes you feel focused and confident Co-evolving, a cross business synergy Best approaches to co-evolving are a few temporary collaborations with exceptional payoffs, manage the number of your collaborations, and senior management as the creators of business environment but business decide the outcome. Remember not to incentive collaboration per se, but incentivize by your own business.

5 Discovering Successful Business models, by William P. Barnett

Mr. Barnett is the Thomas M. Siebel professor of Business Leadership, Strategy and Organizations, BP faculty fellow in Global Management, Senior Fellow of Woods institute for the Environment at Stanford, Director f the Center for Global Business and Economy, Director of the Business Strategies for Environmental Sustainability Executive Program, and Co-director of the Executive Program in Strategy and Organisation at Stanford. Our pre-reading for this class included a number of case studies: Establishing Network Appliance, Cemex, Global competition in local business, and

Seagate Technology 2004, all published by Stanford Graduate School of Business. The class was almost entirely a conversation, a dialogue within the class. On NetApp, we discussed their initial strategy, how it developed over time and what triggered these changes. This was a company who completely changed everything from the product, their channel, their business model and even their customers. We looked at their organizational strengths and weaknesses, and compared those to our own. Cemex is a company operating in the cement industry where products, markets, customers and technologies are well understood. Still successful business models emerge, like Cemex‟s time based delivery model which allowed the customers to preplan the construction site so that when the cement arrived, everything was ready for it. With Seagate, the class looked again at a high-tech industry company, with much similarities to the Intel case studied earlier in the week. The Red Queen competition came up, and we debated time-based competition where the importance lies in using strategic rationale to diagnose performance.

6 Good Boss, Bad Boss, Lessons for CEOs and other Senior Executives by Robert I. Sutton

Robert Sutton is the Professor of Management, Science and Engineering at Stanford University, and a co-director of Center of Work, Technology and Organisation faculty of the Stanford Technology Ventures Program. He is also the author of Good Boss, Bad Boss book, which we received as pre-reading. First, setting the stage with talking on mindset. “If you believe you can‟t learn new skills, can‟t get smarter, and can‟t alter your style, then you probably won‟t.” Or as Henry Ford put it, “whether you think you can, or cannot, you are right”. While creativity enhances variance, experiment, and failure (especially cheap and fast failure), implementation drives out variance, and failures are not wanted. Steve Jobs has been quoted to say that it is easy to kill lousy ideas, but to be a great company one must kill most of the good ideas too. Good bosses and bad bosses can be viewed through seven themes:

1. Assertiveness – be in tune with reactions to your words and deeds, and make the right adjustments

2. Small wins strategy – frame big hairy goals into small manageable steps

3. Wisdom – the courage to act on what you know in concert with humility to doubt your assumptions and actions

4. Avoiding the smart-talk trap – link talk to action and make it simple

5. Strive for small and stable teams – best performing teams between 4 to 6 people

6. Got their backs ? – protect your people 7. Stars and rotten apples – on average there are 5 bad apples to 1 star,

fix or toss the apples As a parting exercise the professor asked us to diagnose ourselves by thinking about what it feels like to work for me, and if my people had a choice would they elect to work for me again.

7 Design process

Perry Klebahn is a Consulting Associate Professor at Stanford d.School (the Stanford institute of Design). He, and his partner ran a hands-on exercise and lesson on designing a product that fits your customer‟s needs. First we formed pairs, and each told the other partner what gift they had given recently, outlining to whom the gift was for, on what occasion, how it was selected, how much it cost, where bought, how did the receiver feel about the gift etc. During the interviews we captured findings, defined a problem statement, and then sketched 3-5 radical ways to meet the other partner‟s user needs. After discussing the sketched ideas with the partner, they were fine tuned into one big idea, and then built into actual products using whatever was on the table.

The lesson on listening to the customer, contemplating their real need and matching the product with that need, was well received.

8 Start-up process

The week in Stanford finished with Professor Garth Saloner, the Philip H.Knight Professor and Dean from Stanford Graduate School of Business. Professor Saloner has worked in a number of startups as an advisor, board member, or an investor, and has taught entrepreneurship at Stanford Center for Entrepreneurial Studies since 2004. Our morning with Professor Saloner was most interactive one, discussing different ways to start a company (product-led, business-led, innovation-led, or simply enthusiasm-led), and what distinguishes Silicon Valley from other high tech hubs in the world.

9 Summary The entire week was absolutely fantastic, with top professors with a lot of materials and knowledge to give, a wonderful opportunity to discuss and debate with them, as well as an innovative environment for our Finnish group to reflect the drive and energy of Silicon Valley and plan for how that is brought back to Finland.