LEARNING DIARYSTUDY 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 CONTENTS1 Introduction ............................................................................................... 32 Strategic Leadership of Corporate Innovation by professor Robert A.Burgelman ....................................................................................................... 33 Building Robust Business Clusters: Lessons from biotech by ProfessorWalter W. Powell.............................................................................................. 74 Dynamic Capabilities: Strategy Process Dynamism by Kathleen M.Eisenhardt ...................................................................................................... 105 Discovering Successful Business models, by William P. Barnett ............ 116 Good Boss, Bad Boss, Lessons for CEOs and other Senior Executives byRobert I. Sutton .............................................................................................. 127 Design process ....................................................................................... 138 Start-up process ..................................................................................... 149 Summary ................................................................................................ 14
1 IntroductionThis study program is one of two international modules as part of the TKKMBA program. The one week module in Palo Alto concentrates on strategy,innovations and entrepreneurship. 2 Strategic Leadership of Corporate Innovation by professor Robert A. BurgelmanProfessor Burgelman is the Edmund W. Littlefield professor of management atStanford University, and the Executive Director of the Stanford ExecutiveProgram.Corporate innovation is an interesting topic, some might say that innovationdoesn‟t live in corporations but in smaller entities. Others claim that innovationis 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 andLiisa Välikangas, published by MIT Sloan Management Review, “IntelCentrino in 2007: a new “platform” strategy for growth” by Robert A.Burgelman, Philip E. Meza and Evan Berrett, published by Stanford GraduateSchool 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 regulationThe group discussed the topics lively throughout the day, beginning bydefining 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 amentality, 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 ofbeing. Strategy without culture is just empty words, and culture withoutstrategy is aimless.
When defining corporate strategies one must also bear in mind the nationaland geographical cultures surrounding. For example what is considered“constructive confrontation” in the US – encouraging people to confront theirleaders in order to challenge thinking and create new – might work better inJapan if defined as “constructive conversation” – encourage free and opendiscussion to create new.Why is strategy then needed?Strategy helps leaders to manage downwards. This is, define andcommunicate a direction to their teams. After all is said and done, leadersmust help their teams to win.Strategy helps leadership upwards. Without a defined, agreed and articulatedstrategy owners and top managers of a company must be committed to takingthe company to the direction agreed. Managers can always justify newinnovative ideas, or basic business-as-usual requests in line with the strategy.Strategy also helps leaders to interact with peers. Many companies dependtheir success on individual contributors, these are professional people in theorganization who have influential power, and often are the ones introducingconstructive confrontation. A strategy helps these individuals to discussaround correct assumptions.Strategy becomes real only when implemented. Strategy is about long termcommitment, but the world is dynamic and doesn‟t stop to wait that yourstrategy is ready and implemented. This is why the „mentality‟ of it is soimportant. Long term can become very short in an instance, so one needs todefine their own critical time horizons (e.g. in the Intel Centrino case their chipdevelopment took 4 years). Strategy can help us maintain a control of ourdestiny.The familiar Porter model is here enhanced as “Porter +” taking into accountstrategic business realities outside of the usual diamond.
Barriers can be tangible such as money, or intangible like reputation. Eachleader should ask themselves how dependent they are on these forces, andhow much power do I have over them.Strategic situations can be classified over dependence and influence asfollows:An example of this is the 1973 US oil prediction case, where the governmentstated that by 1980 US would be foreign oil independent. High dependency ongulf oil high, but high influence through US manufactured oil fleets. Howeverthis 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 thestrategy of increasing bandwidth on D-RAM and begin to allocatemanufacturing capacity to the new wireless chip Centrino.
Professor Burgelman introduces also another enhanced version of atraditional business model, the Strategy Diamond. He calls this the “rubberband model”, as each of the arrows here are flexible and accommodate thecurrent 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 followingpoints: - 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 strategicleadership to enable all that was discussed during the day. Whether it isbottom up leadership where one is strong in constructive confrontation but canbe a drifting culture, or a top down leadership with strong constructiveconfrontation, but in the worst case a lock-step situation where everyonemoves into the same direction.Leadership style determines much of the ability to commit to decisions. Toolittle debate leads to an authoritarian CEO calling all decisions, or everyone isjust doing their own thing, whereas too much debate can result an internallyfocused company where people compete who has the nicest slides with littleaction. 3 Building Robust Business Clusters: Lessons from biotech by Professor Walter W. Powell
Walter Powell is the professor of education and sociology, organizationalbehavior, management science and engineering, and communication atStanford University.His part of the week was one of the most interesting to me. He and hisstudents had studies the formation of business clusters in a number of USstates/cities, using biotech companies, universities and public authorities asplayers.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 systemThe start of biotechnology companies in the US concentrates aroundgeographical hubs.1978 – East coast was strong: Boston, NY, Philadelphia. Some companies inTexas and California.1984 – San Francisco area and East Coast getting much bigger and ahead ofthe other areas. There are some new spots in the middle of the country. Nowtotal of 130 companies.1990 – San Francisco area, San Diego and East Coast are still growing whileother hubs stabilize. Now 253 companies.2002 – Extreme geographical concentration: More than 50% of the 368 USbased 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 capitalfirm to companies. In an unsuccessful local area there is no baton beingpassed, but status quo is kept.A common process for all areas was job mobility, local competitorscollaborating, mashup of private and public, all independent of the control of adominant organization. 1+1=3 ideas, this is 2 and the possibility of thecombination of the two.Interesting note from the professor was that both Helsinki and New York havethe potential of clusters forming, except that they are both well connecting
externally and globally, but poorly connected locally. Here‟s a though to AaltoUniversity and other in the Helsinki region players working for a cluster.Virtuous cycleIn Silicon Valley, the lawfirms have a tendency to negotiate a mutual benefitfor both parties. They do not go for the “winner takes all” approach, whichleads to the other party being left with nothing. This is the way many NYCbased 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): highrates 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 thelist of recipients for government originated public funding.Cross-network transportation: in the 1950‟s Stanford was not part of the top100 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 marketIn Europe there are three (bio)tech clusters: Cambridge UK (rivalry betweenOxford), Munich (rivalry between Munich Uni and Munich Tech Uni), andBasel. European research institutions tend to measure their success ininternational links. Local links are not considered important, therefore clustersare not forming. (e.g. All successful Irish companies leave Ireland).
4 Dynamic Capabilities: Strategy Process Dynamism by Kathleen M. EisenhardtKathleen Eisenhardt is the Stanford W. Ascherman M.D. Professor atStanford University, and a Co-Director of the Stanford Technology Venturesprogram. She is also a visiting faculty member within INSEAD‟sEntrepreneurship and Family Enterprise area.As pre-reading for her class, we read “Competing on the edge – Strategy asStructured Chaos” by Shona L. Brown and Kathleen M. Eisenhardt.Asking yourself the question where do you want to go, and how to get therecan 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 selectiveStrategy 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 “commonexperience => Myths => Best practices. For example, a common experiencemight be that Innovative ideas suffer from poor execution. The myth is thatsuccessful companies are run by a braintrust of a few, smart seniorexecutives. A corresponding Best practice for this is to focus on a few keystrategic 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. PrioritiesFor 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 rulesSuccessful 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 youalready know. Mix old and new people, change only selected things, use newbusiness to refresh old ones, every so often exit, and remember modularity.For example, the most innovative solar energy companies are those with amix of people from ICT, internet etc, and the least innovative are those whoemploy 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 cycleRhythm helps to align R&D, sales, and marketingRhythm makes you feel focused and confidentCo-evolving, a cross business synergyBest approaches to co-evolving are a few temporary collaborations withexceptional payoffs, manage the number of your collaborations, and seniormanagement as the creators of business environment but business decide theoutcome. Remember not to incentive collaboration per se, but incentivize byyour own business. 5 Discovering Successful Business models, by William P. BarnettMr. Barnett is the Thomas M. Siebel professor of Business Leadership,Strategy and Organizations, BP faculty fellow in Global Management, SeniorFellow of Woods institute for the Environment at Stanford, Director f theCenter for Global Business and Economy, Director of the Business Strategiesfor Environmental Sustainability Executive Program, and Co-director of theExecutive Program in Strategy and Organisation at Stanford.Our pre-reading for this class included a number of case studies: EstablishingNetwork Appliance, Cemex, Global competition in local business, and
Seagate Technology 2004, all published by Stanford Graduate School ofBusiness.The class was almost entirely a conversation, a dialogue within the class. OnNetApp, we discussed their initial strategy, how it developed over time andwhat triggered these changes. This was a company who completely changedeverything from the product, their channel, their business model and eventheir 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 successfulbusiness models emerge, like Cemex‟s time based delivery model whichallowed the customers to preplan the construction site so that when thecement arrived, everything was ready for it.With Seagate, the class looked again at a high-tech industry company, withmuch similarities to the Intel case studied earlier in the week. The Red Queencompetition came up, and we debated time-based competition where theimportance lies in using strategic rationale to diagnose performance. 6 Good Boss, Bad Boss, Lessons for CEOs and other Senior Executives by Robert I. SuttonRobert Sutton is the Professor of Management, Science and Engineering atStanford University, and a co-director of Center of Work, Technology andOrganisation faculty of the Stanford Technology Ventures Program. He is alsothe 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 learnnew skills, can‟t get smarter, and can‟t alter your style, then you probablywon‟t.” Or as Henry Ford put it, “whether you think you can, or cannot, you areright”.While creativity enhances variance, experiment, and failure (especially cheapand fast failure), implementation drives out variance, and failures are notwanted. 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 applesAs a parting exercise the professor asked us to diagnose ourselves bythinking about what it feels like to work for me, and if my people had a choicewould they elect to work for me again. 7 Design processPerry Klebahn is a Consulting Associate Professor at Stanford d.School (theStanford institute of Design). He, and his partner ran a hands-on exercise andlesson on designing a product that fits your customer‟s needs.First we formed pairs, and each told the other partner what gift they had givenrecently, outlining to whom the gift was for, on what occasion, how it wasselected, how much it cost, where bought, how did the receiver feel about thegift etc.During the interviews we captured findings, defined a problem statement, andthen sketched 3-5 radical ways to meet the other partner‟s user needs. Afterdiscussing the sketched ideas with the partner, they were fine tuned into onebig idea, and then built into actual products using whatever was on the table.The lesson on listening to the customer, contemplating their real need andmatching the product with that need, was well received.
8 Start-up processThe week in Stanford finished with Professor Garth Saloner, the PhilipH.Knight Professor and Dean from Stanford Graduate School of Business.Professor Saloner has worked in a number of startups as an advisor, boardmember, or an investor, and has taught entrepreneurship at Stanford Centerfor Entrepreneurial Studies since 2004.Our morning with Professor Saloner was most interactive one, discussingdifferent ways to start a company (product-led, business-led, innovation-led,or simply enthusiasm-led), and what distinguishes Silicon Valley from otherhigh tech hubs in the world. 9 SummaryThe entire week was absolutely fantastic, with top professors with a lot ofmaterials and knowledge to give, a wonderful opportunity to discuss anddebate with them, as well as an innovative environment for our Finnish groupto reflect the drive and energy of Silicon Valley and plan for how that isbrought back to Finland.