The Why, What And How Of Management Innovation

The Why, What and How of Management Innovation

by Gary Hamel by Gary Hamel Harvard Business ReviewHarvard Business Review

February 2006February 2006

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Why Management Innovation Matters

General Electric, DuPont, Procter & Gamble, General Electric, DuPont, Procter & Gamble, Visa, LinuxVisa, Linux

What makes them stand out? Great Products? Great people? Great leaders?

More fundamental reason for their success….Management Innovation

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General ElectricGeneral Electric• brought management discipline to the chaos of scientific brought management discipline to the chaos of scientific

discoverydiscovery

DuPontDuPont • developed standards of comparing performance of its product developed standards of comparing performance of its product

departmentsdepartments

Procter & GambleProcter & Gamble• creates value out of intangible assets creates value out of intangible assets

VisaVisa • formed a consortium in the US in the early 1970’s that created formed a consortium in the US in the early 1970’s that created

one of the world’s best known brandsone of the world’s best known brands

LinuxLinux• open source development is highly effective in coordinating open source development is highly effective in coordinating

the efforts of geographically dispersed individualsthe efforts of geographically dispersed individuals

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Management Innovation creates lasting Management Innovation creates lasting advantage when it is:advantage when it is:

• a novel principle that challenges management a novel principle that challenges management orthodoxyorthodoxy

• systemicsystemic• part of on-going inventionpart of on-going invention

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Harnessing employee intellect at ToyotaHarnessing employee intellect at Toyota– Employees are more than cogsEmployees are more than cogs

• They are problem solvers, innovators and change agentsThey are problem solvers, innovators and change agents

– Gave every employee the skills, tools and the Gave every employee the skills, tools and the permission to solve problemspermission to solve problems

– Real advantage was ability to harness intellect of Real advantage was ability to harness intellect of “ordinary” employees“ordinary” employees

– More unconventional the principle, the longer it takes More unconventional the principle, the longer it takes for competitors to respondfor competitors to respond

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Building community at Whole FoodsBuilding community at Whole Foods– Create an organization based on love rather than fearCreate an organization based on love rather than fear– Community working together to create value for other peopleCommunity working together to create value for other people– Managers consult teams on all store level decisionsManagers consult teams on all store level decisions– Bonuses are paid to teams not individualsBonuses are paid to teams not individuals– Members have access to comprehensive financial data, including Members have access to comprehensive financial data, including

the details of every co-workers compensationthe details of every co-workers compensation– 94% of all stock options have been granted to non-executives94% of all stock options have been granted to non-executives– Distinctive management not a single management processDistinctive management not a single management process

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Growing great leaders at GEGrowing great leaders at GE– PersistentPersistent

– Dedicated training facility in Crotonville, NYDedicated training facility in Crotonville, NY

– 360-degree feedback360-degree feedback

– Power law: Innovation numbers gamePower law: Innovation numbers game• the more you do, the better your chances of reaping greater the more you do, the better your chances of reaping greater

paybackpayback

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Management Innovation is…

A marked departure from traditional management A marked departure from traditional management principles, processes, and practices or a principles, processes, and practices or a

departure from the customary organizational departure from the customary organizational forms that significantly alters the way the work forms that significantly alters the way the work

of management if performed.of management if performed.

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Operational versus Management Innovation

Operations innovation focuses on business Operations innovation focuses on business processes while management innovation processes while management innovation

targets the company’s management targets the company’s management processesprocesses

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Whirlpool

Whitwam ‘s challenge to leadership team:Whitwam ‘s challenge to leadership team:

Turn Whirlpool into a font of rule-breaking, Turn Whirlpool into a font of rule-breaking, customer-pleasing innovationcustomer-pleasing innovation

““innovation from everyone, everywhere”innovation from everyone, everywhere”

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Whirlpool’s First Innovation CzarNancy Snyder created a

• Innovation central topic in Innovation central topic in Leadership developmentLeadership development

• Requiring sizable new-to-market Requiring sizable new-to-market product development planproduct development plan

• Setting aside substantial share of Setting aside substantial share of capital for projects that meet capital for projects that meet tougher innovation standardstougher innovation standards

• Training more than 600 innovation Training more than 600 innovation mentorsmentors

• Enrolling every salaried employee Enrolling every salaried employee in an online course on business in an online course on business innovationinnovation

• Tying innovation to top Tying innovation to top management’s bonus plansmanagement’s bonus plans

• Setting aside time in quarterly Setting aside time in quarterly business meeting to focus on business meeting to focus on innovation performanceinnovation performance

• Building an innovation portalBuilding an innovation portal

• Developing a set of metrics to track Developing a set of metrics to track innovation inputs, throughputs and innovation inputs, throughputs and outputsoutputs

five year quest to reinvent company’s management processes included:

Estimated that by 2007, innovation will add more than $500 million a year to Whirlpool’s top line

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Increasing the odds of “Eureka”

• Bewitching problem that demands new thinkingBewitching problem that demands new thinking• Novel principles or paradigms that have power to Novel principles or paradigms that have power to

illuminate new approachesilluminate new approaches• Careful deconstruction of conventions and dogma Careful deconstruction of conventions and dogma

that constrain creative thinkingthat constrain creative thinking• Examples and analogies that help redefine Examples and analogies that help redefine

possibilitiespossibilities

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Elements of Management Innovation

• Commit to a big problemCommit to a big problem• Search for new approachesSearch for new approaches• Deconstruct your management Deconstruct your management

orthodoxiesorthodoxies• Exploit the power of analogyExploit the power of analogy

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Commit to a big problemCommit to a big problem• What are the tough tradeoffs that your What are the tough tradeoffs that your

company never seems to get rightcompany never seems to get right• What are big companies bad at?What are big companies bad at?• What are the emerging challenges the future What are the emerging challenges the future

has in store for your company?has in store for your company?

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Search for new approachesSearch for new approaches• Uncover unconventional principles that open up Uncover unconventional principles that open up

new seams of management innovationnew seams of management innovation– What things exhibit the attributes or capabilities that What things exhibit the attributes or capabilities that

you’d like to build into your organization?you’d like to build into your organization?– What is it that imbues those things with their enviable What is it that imbues those things with their enviable

qualities?qualities?• Find ways to drive passion, ingenuity, and self-Find ways to drive passion, ingenuity, and self-

direction in your organizationdirection in your organization

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Deconstruct your management orthodoxiesDeconstruct your management orthodoxies• Able to distinguish between what is apparently true Able to distinguish between what is apparently true

and what is eternally trueand what is eternally true– Is belief toxic to ultimate goal?Is belief toxic to ultimate goal?

– Can you imagine an alternative to the reality the belief Can you imagine an alternative to the reality the belief reflects?reflects?

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Exploit the power of analogyExploit the power of analogy• Hunt down unlikely analogies that suggest Hunt down unlikely analogies that suggest

new ways of tackling problemsnew ways of tackling problems• Study the unconventionalStudy the unconventional• Push autonomy and self-directionPush autonomy and self-direction

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Three dimensions for whittling down the list of management innovations

• Was it a marked departure from previous Was it a marked departure from previous management practices?management practices?

• Did it confer a competitive advantage on Did it confer a competitive advantage on pioneering company?pioneering company?

• Could it be found in some form in Could it be found in some form in organizations today?organizations today?

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12 innovations that shaped modern management

• Scientific management Scientific management (time & motion studies)(time & motion studies)

• Cost accounting and variance analysisCost accounting and variance analysis• Commercial research laboratory Commercial research laboratory

(industrialization of science)(industrialization of science)

• ROI analysis and capital ROI analysis and capital budgetingbudgeting

• Brand managementBrand management• Large scale project managementLarge scale project management

• DivisionalizationDivisionalization• Leadership developmentLeadership development• Industry consortia Industry consortia (multi-company (multi-company

collaborative structures)collaborative structures)

• Radical decentralization Radical decentralization (self-organization)(self-organization)

• Formalized strategic analysisFormalized strategic analysis• Employee-driven problem Employee-driven problem

solvingsolving

Just missed the list: skunk works, account management, business process reengineering and employee stock ownership plans.

Quite promising recent innovations: knowledge management, open source development, and internal markets.

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Getting Started

• Who owns the process?Who owns the process?• Who has power to change it?Who has power to change it?• What are the objectivesWhat are the objectives• What are the success metrics?What are the success metrics?• Who are the customers of the Who are the customers of the

process?process?• Who gets to participate?Who gets to participate?• What are the data or What are the data or

information inputs for this information inputs for this process?process?

• What analytical tools are used?What analytical tools are used?• What events and milestones What events and milestones

drive this process?drive this process?• What kind of decisions does What kind of decisions does

this profess generate?this profess generate?• What are the decision-making What are the decision-making

criteria?criteria?• How are decisions How are decisions

communicated and to whom?communicated and to whom?• How does this process link to How does this process link to

other management systems?other management systems?

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