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Strategic Innovation: Managing Innovation Initiatives

1. Managing Innovation : Enable effective implementation (execution) of your strategic intent. Ambidextrous Organizations
2. Responding to Different Types of Innovations
3. Teams and Innovation
4. Planning & Evaluation & Innovation Across Organizations

1. Managing Innovation

1. Reviewing key characteristics of new technologies and markets.
2. How uncertainty, among other such characteristics, fundamentally affects management and execution of innovation initiatives.
3. Managing innovation initiatives in firms which confront new technologies and markets while they simultaneously compete in established businesses - organizational ambidexterity.

1.1 Challenges in the Evolution of New Technologies and Markets

Young markets are : (1) Uncertain - Clarity is lacking about future success. direction, growth. (2) Dynamic - Rapidly changing and developing

Strategic choices (Conventional Wisdom):

• Timing of entry.
• Magnitude of commitment.
• Link to or separate from existing organization.
• Strategic Approach : How to compete?

1.2 How Organizations Succeed and Fail as Markets Grow and Change

How do we implement a strategy effectively? Alignment - Design the organization around that strategy.

• Strategy (key success factors : critical tasks that we need to succeed at)
• Structure & Systems (Functional structures vs. divisions/business units; Centralization vs decentralization; Measurements & rewards)
• People (who to hire? Competencies? How to motivate?)
• Culture (Shared expectations on what and how things work)

Inertia over time, as alignment and fit improve, we build more inertia. It takes more and more energy to change alignment. (1) Structure Inertia (actively try to preserve structure elements); (2) Cultural Inertia (actively preserve organizational beliefs)

1.3 Ambidextrous Organizations

• one hand : compete in mainstream market.
• other hand : develop new products & enter new markets.

Mainstream tends to UNDERMINING of new business:

• Resources:
  • Established business has voracious appetite for resources.
  • Mainstream business can point to relatively certain losses if it doesn’t receive resources, while new business can only point to uncertain gains if it does.
  • Mainstream business will have more executive who are also more powerful and credible.
• New business can appear as a problem, not a solution.
  • May threaten existing one (cannibalization).
  • May be a distraction from existing one.
• Inertia : mainstream business will hinder efforts to design a new organization. which needs different structures, systems, rewards, culture,that can execute the new-business strategy.

Form numerous, semi-autonomous small units to gain responsiveness & innovation. We need separation and integration (Enable differential alignment through separation but still maintain some integration).

1.4 Leading Ambidextrous Organizations

Establish a strategic intent & identity that :

• Makes clear the need for success in the existing businesses as well as the new businesses.
• Validates the need for experimentation & innovation.

Leaders can adopt one of three approaches: the leader does it (hub and spoke model), the team does it (collaborative leadership), or team members do it (delegated responsibility). The first two are more effective than the third. It’s crucial to consciously choose an approach and be adaptable as the organization evolves.

Key leadership challenges:

1. Engage and explain the intent and identity that connect innovation and mainstream efforts to foster understanding and buy-in.
2. Resolve tensions and conflicts that arise between innovation and established business units, creating forums for discussion and resolution.
3. Acknowledge and manage inconsistencies between the two types of units, treating them differently based on their unique goals and evaluations.
4. Allocate time and resources to address these leadership tasks, ensuring that discussions about interconnections are prioritized.

2. Responding to Different Types of Innovations

2.1 Disruptive Technologies

Types of Innovations

• Disruptive technologies are innovations that initially do not meet the needs of existing customers but eventually disrupt the market by appealing to new customer segments.
• Sustaining technologies, on the other hand, are those that improve existing products and meet the demands of current customers, ensuring that established firms can maintain their market position.

The Dynamics of Disruption

• Established firms often struggle to respond to disruptive technologies because they focus on satisfying their existing customers, which can lead them to overlook emerging market opportunities.
• The example of the disk drive industry illustrates how smaller, disruptive technologies can develop a separate market trajectory before eventually intersecting with the needs of mainstream customers, leading to disruption.

2.2 Responding to Disruptive Technologies

Understanding the Challenges

• Incumbent firms often recognize new technologies but fail to pursue them vigorously due to a focus on existing customers and their needs.
• Resource allocation systems prioritize larger, more certain markets, leading to neglect of emerging, lower-margin opportunities.

Response effectively:

1. Recognize possibility that new technology can be disruptive. (ask right people)
2. Ask about feasible market-technology intersections.
3. Locate the initial market. (use non-traditional means rather than traditional channels)

Strategies for Effective Response

• Firms should adopt a new perspective by engaging with engineers and technologists to evaluate the potential of disruptive technologies.
• Establishing independent organizations can foster flexibility and innovation, allowing firms to explore new markets without the constraints of traditional management structures.

Connecting to Ambidexterity

• The concepts of disruptive technology and ambidexterity complement each other, highlighting the need for different strategies to manage innovation effectively.
• Recognizing the distinction between new markets as opportunities versus threats is crucial for navigating internal political dynamics and ensuring organizational alignment.

2.3 Effective Management of Innovation Streams

Capabilities : something an organization can do well.

• Resources : tangible & intangible valuable assets; people, equipment, product designs, brands, customer, supplier relationships, etc.
• Processes: how in the organization, people make things done. Exist in all functions. Processes create inertia.
• Values : (1) The ‘Software’ of the organization; (2) values about what gross margins are acceptable; (3) what size the business needs to be to be interesting.

Building Capabilities: (1) Independent organization. (2) Heavyweight team. (3) Acquisitions.

quadrantChart
  title Fit with organization's values (x) - processes (y)
  x-axis "Good (sustaining innovation)" --> "Poor (disruptive innovation)"
  y-axis "Good (processes fit)" --> "Poor (processes fit)"
  quadrant-1 "C"
  quadrant-2 "B"
  quadrant-3 "A"
  quadrant-4 "D"
  %% for C
  "Use a heavyweight team" : [0.75, 0.9] radius: 0
  "in a separate spinout organization" : [0.75, 0.85] radius: 0
  %% for B
  "Use a heavyweight team" : [0.25, 0.9] radius: 0
  "within the existing organization" : [0.25, 0.85] radius: 0
  %% for A
  "Use a lightweight or" : [0.25, 0.4] radius: 0
  "functional team"      : [0.25, 0.35] radius: 0
  "with in the existing organization"  : [0.25, 0.3] radius: 0
  %% for D
  "Development may occur in-house": [0.75, 0.4] radius: 0
  "through a heavyweight team, but": [0.75, 0.35] radius: 0
  "commercialization almost": [0.75, 0.3] radius: 0
  "requires a spinout": [0.75, 0.25] radius: 0

2.4 Corporate Entrepreneurship

Corporate Entrepreneurship (CE): Firm relies on & enables employees to build new businesses that leverage resources of the parent firm (happens within the firm, leverage the resources within the firm). Extend the range of tools we have for building an innovative firm.

• Where lies the responsibility for corporate entrepreneurship?
• Where do the resources come from?

quadrantChart
  x-axis "Diffused (ownership)" --> "Focused (ownership)"
  y-axis "Ad Hoc (resource authority)" --> "Dedicated (resources authority)"
  quadrant-1 "C: The Producer"
  quadrant-2 "A: The Enabler"
  quadrant-3 "B: The Opportunist"
  quadrant-4 "D: The Advocate"
  %% for C
  "The company builds a full-service" : [0.75, 0.9] radius: 0
  "group with a mandate for corporate" : [0.75, 0.85] radius: 0
  "entrepreneurship. (i.e. Cargill)" : [0.75, 0.8] radius: 0
  "Responsible for entire CE process" : [0.75, 0.7] radius: 0
  "and has resources from corporate." : [0.75, 0.65] radius: 0
  "Work on ideas directly." : [0.75, 0.60] radius: 0
  %% for A
  "The company provides funding & senior" : [0.25, 0.9] radius: 0
  "executive attention to prospective" : [0.25, 0.85] radius: 0
  "projects. (i.e. Google)" : [0.25, 0.8] radius: 0
  "Support employees across the organization" : [0.25, 0.7] radius: 0
  "to enable development of new concepts" : [0.25, 0.65] radius: 0
  "Executive council - receiving executive" : [0.25, 0.6] radius: 0
  "attention & funding." : [0.25, 0.55] radius: 0
  %% for B
  "The company has no deliberate approach." : [0.25, 0.4] radius: 0
  "Internal & external networks drive concept"      : [0.25, 0.35] radius: 0
  "selection and recourse allocation."  : [0.25, 0.3] radius: 0
  "How firm starts. Not dependable."  : [0.25, 0.2] radius: 0
  %% for D
  "A corporate unit strongly evangelizes": [0.75, 0.4] radius: 0
  "for corporate entrepreneurship,": [0.75, 0.35] radius: 0
  "but business units provide the primary": [0.75, 0.3] radius: 0
  "funging .(i.e. DuPont)": [0.75, 0.25] radius: 0
  "Established corporate group facilitates": [0.75, 0.15] radius: 0
  "CE in business unit.": [0.75, 0.1] radius: 0
  "Good ideas get hearing.": [0.75, 0.05] radius: 0

3. Teams and Innovation

• Common approaches to team design in product development.
• How to design and lead “heavyweight” cross-functional development teams.
• Recent research on the execution side of innovation.
• Key idea: Design a dedicated team that works in partnership with functional groups to effectively address challenging innovation situations.

3.1 Product Development Teams

Integration of different capabilities.

1. Functional Team Structure (have a team for each function with function manager, the traditional approach)
2. Lightweight Team Structure (simply add lightweight project manager, for cross-function management)
   • Lightweight project manager can communicate with function manager, but cannot make key decisions.
   • Challenging innovation could easily be ignored.
3. Heavyweight Team Structure (truly a cross-functional team)
   • Heavyweight project manager has more influence. Could break the inertia.
   • While it makes the functional organization complicated.
4. Autonomous Team Structure (pull people out off the functional structure entirely)
   • May cause confliction with the major organization.

3.2 Cross-Functional Team

• LEADER:
  1. The leader is the ultimate owner of the project.
  2. The leader has to be comfortable in different functional areas.
  3. The leader has to be very active.
• EXECUTIVE SPONSORSHIP - GOVERNANCE PROCESS (rather than a manager)
  • Clarify areas where the team is empowered to make decisions as opposed to the executive leadership being very involved.
  • Clarity in these areas helps the team move forward in a way that avoids violations of expectations and maintains confidence of executive leadership.
• TEAM MEMBERS’ ROLES & RESPONSIBILITIES.
  • The functional areas AND for the performance of the project as a whole.
  • Required to take an executive view.
  • Team members can vary sharply in their comfort with the idea of putting on a team hat. Therefore, coaching and development is critical.

3.3 Innovation through Partnerships between Dedicated Teams and Mainline Functional Groups

Innovation = Idea + Execution

• Mainstream Organization, Performance Engine, built to be Repeatable specialization & efficiency; Predictable result based management.
• Complex Innovation initiatives are : Non-Routine and Unpredictable.
• So for Innovation we must do things differently :
  1. Custom Organizational Model (Design-processes, culture, etc).
  2. Custom Plan (Goals, measurement, accountability).

block-beta
columns 3
M["Model"] EX["Examples of Successes"] WL["What Limits it"]
M1["Innovation = Idea + Motivation"] EX1["Continuous improvement \n metaphor (Nucor)"] WL1["Efficiency pressures mean only limited \n resources available for innovation here"]
M2["Innovation = Idea + Process"] EX2["Repeated (e.g. product \n generations) innovation"] ML2["Need for (some) predictability \n means past must forecast future"]
M3["Innovation = Idea + Leader"]  EX3["Frequent failures, lead to (ineffective) \n 'break all the rules' approach"]  ML3["Fails because mainstream organization \n built to fight dramatic innovation"]

classDef front fill:#696,stroke:#333;
class M,EX,WL front

3.4 Building the Dedicated Team & Managing the Partnership

• The dedicated team is custom built for the initiative.
• The shared staff retains its existing responsibility and supports the initiative.

3.4.1 What is the team’s scope?

How people embedding is more important than individual skills.

Tendency to overestimate mainstream organization’s capabilities, though underscope the dedicated team. Since they focus too much on individuals & talents, while what is important is relationships between groups and functions.

block-beta
columns 3
R["Reason for separation"]
EX["Explanation"]
EXA["Example"]
A[" Lack of needed work relationships"]
B["Building new relationships takes much \n time & effort, pressed out by demands\n of mainstream organization"]
C["New product architecture: BMW splits out \n regenerative braking initiative for hybrid car"]

D["Power structure doesn’t fit \n needs of innovation initiative"]
E["Power is deeply embedded in relationships \n and work, need to create a new context \n if power structure is to change"]
F["Need to compete in new way: Electrolux splits out \n customer insight teams to develop high-end markets"]

G["Operational tempo doesn’t fit \n innovation opportunity"]
H["Tempo is built into planning and evaluation \n processes and difficult to work against"]
I["Need extensive exploration: Timberland \n splits out trail shoe development"]

classDef front fill:#696,stroke:#333;
class R,EX,EXA front

3.4.2 How to build the team

For Task 1: Identify needed skills and hire the best people

• Bias: Towards insiders due to pride, familiarity, comfort, expediency, compensation norms, valuable opportunity.
• Trap: Danger of skill deficit and more importantly, recreating existing perspectives, power structures, and processes.

For Task 2: Design the new organization

• Bias: Towards drawing on components from the mainstream organization because it is expedient, familiar, required.
• Traps:
  • Recreating old roles and responsibilities.
  • Reinforcing dominance of old power centers.
  • Assessing performance using established measures.
  • Failing to create a distinct culture.
  • Using existing (inappropriate) processes.
  • Tyranny of conformance to system and standards.
• Solution: Design a dedicated team with a clean sheet of paper (“zero-based design”). Conscious redesign of each component. PLUS:
  • Rebalance power by strategically hiring outsiders and choosing the most powerful insider to fit the needs of the new initiative.
  • Gain executive support to break from systems and standards.

3.4.3 How is the partnership managed?

1. Gain formal access to resources.
2. Gain attention from individual people.
3. Manage conflicts.
4. Start with a positive leadership style that emphasizes the partnership.
5. Most important: Senior leadership.

Challenges:

1. Competition for Scarce Resources
2. Divided Attention of Shared Staff
3. Disharmony in the Partnership

Solutions:

1. Leader’s Style:
   • Be Collaborative, Persuasive, and Positive
2. Ongoing Senior Executive Support:
   • Provide support beyond just the launch; mediate ongoing conflicts, celebrate successes, and emphasize the importance of the team.
   • Ensure day-to-day involvement is critical, even for small units.
3. Set up Processes & Systems for partnering success:
   • Establish a single document and process for resource allocation to avoid fragmentation.
   • Clearly define responsibilities to avoid confusion and overlap.
   • Protect mainstream units from the uncertainties associated with innovation.
   • Implement a system to pay for resources used or committed, possibly through transfers.
   • Utilize incentives, special bonuses, or payments to motivate and reward team members.
4. Win Hearts & Minds through your style AND:
   • Reinforce common values and a shared sense of purpose.
   • Position dedicated teams as distinct but not superior to other teams.
   • Assign insiders to roles that require heavy collaboration.
   • Arrange for teams to work in separate but nearby locations to facilitate interaction.
   • Establish metrics to measure and encourage cooperation.

4. Planning & Evaluation & Innovation Across Organizations

1. How to plan and evaluate innovation initiatives in a way that supports their effective execution. The key principle in planning and evaluation is to find ways to encourage experimentation and learning.
2. Innovation initiatives that cross firm boundaries. Cross-boundary efforts are very common, as seen in alliances, joint ventures, and what are generally known as virtual firms generally.

4.1 Planning & Evaluation in the context of challenging innovation initiatives : The Importance of Experimentation and Learning

Four Functions of Management

• Planning: Choose appropriate organizational goals and courses of action to best achieve those goals.
• Organizing: Establish task and authority relationships that allow people to work together to achieve organizational goals.
• Leading: Motivate, coordinate, and energize individuals and groups to work together to achieve organizational goals.
• Controlling: Establishing accurate measuring and monitoring systems to evaluate how well the organization has achieved its goals.

Challenges of Learning : (1) people are not good at learning in complex situations; (2) learning is not normally valued as a central goal.

4.1.1 Planning

Custom Plan： Planning for Innovation Initiatives Over Time

• Need to iterate, experiment, learn, and adjust at a fast pace
• Establish a fast review cycle
• Separate planning forums for innovative initiatives, with different orientation & tempo
• Discuss data and assumptions
• Focus on trends & revise predictions
• Revisions to cause-and-effect model through formal process
• Use cause-and-effect model as the central anchor in the planning process

4.1.2 Evaluation

• Evaluation is Central to “control” function of management.
  • Falling short: poor execution (Bias in Evaluation) or poor prediction.
• Involves gathering & interpreting data.
• Confirm or revise the cause and effect model.

4.2 Innovation Across Firm Boundaries:

4.2.1 Virtual Firms & Open Innovation

• Alliances & Joint Ventures : Firms agree to cooperate with other firms through sharing specific resources and setting up some type of separate organization. There may even be shared equity as in joint ventures.
• Contractual Agreements: Other firms act as suppliers, but supplier and buyer firms work together closely to develop new products and services. Capitalize on their joint capabilities.

Virtual Firm : innovating through building a virtual independent firm act as a coherent innovation system.

• Resources : firms can pool their resources & capabilities to access opportunities that would be relatively inaccessible for a single firm.
• Ability to take risk : independent firms characterized by taking more risk, moving faster, and working harder to succeed in a new market.
• Weakness : ability to resolve conflicts and coordinate activities decreases.

quadrantChart
  title How to choose type of innovation
  x-axis "Autonomous innovation" --> "Systemic innovation"
  y-axis "Capabilities must by created" --> "Capabilities exist outside"
  quadrant-1 "Ally with caution"
  quadrant-2 "Go virtual"
  quadrant-3 "Ally or bring in-house"
  quadrant-4 "Bring in-house"

4.2.2 Case of Alliances and JVs

Alliances and JVs are often under-designed and there is insufficient attention to organization building.

• Strategic Alignment Problem - Go FURTHER as part of the deal-making process.
• Resource Sharing Problem - Make strong effort to identify shared resources & inter-dependencies, and reach shared understanding of how there will be handled. Minimize unneeded interdependencies as part of the process. Having control of resources.
• Governance & Decision-making Problem - Think through & streamline decision-making beyond the contractual mechanisms.