Infosys - Enterprise Business Innovation & Evolution | Corporate DNA


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Businesses bear much resemblance to living organisms from an evolutionary, biological perspective. Alas, all too often, innovation in companies is hampered by misaligned incentive systems or inadequate organizational design, which don’t encourage creative thinking. By taking a broader view of innovation and realizing that the key enabler at the end of the day is corporate culture, we also realize that any process, system or employee is only as good as the corporate culture allows. Changing and improving corporate culture is one of the hardest undertakings one can pursue. Read the whitepaper to explore more.

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Infosys - Enterprise Business Innovation & Evolution | Corporate DNA

  1. 1. www.infosys.comIn one of his famous quotes on natural selection, Charles Darwin once said: “In the struggle for survival, the fittest winout at the expense of their rivals because they succeed in adapting themselves best to their environment.” Interestingly,this statement holds equally true for biology as for business; companies that fail to change and adapt to a changingenvironment will eventually be forced to exit the market due technology shifts. History is replete with such examples, forinstance when horse carriages were replaced by automobiles, fixed-line phones by mobiles, typewriters by PCs, and soforth. Put simply, in a business setting, innovation is the process through which firms evolve, hopefully for the better.InsightsInnovation and Evolution- Dr. Martin Lockstrom
  2. 2. 2 | InfosysThe Corporate DNAIn living organisms, genes in the form of DNA form the“source code”which dictates how cells should divide and develop; starting as stemcells, some develop to become muscle cells whereas others developinto brain cells, and so on. What science shows is that DNA alsoconstantly changes over time, in a process called mutation. Someof these changes go unnoticed, whereas others make a noticeableadverse or beneficial impact on the organism.Those belonging to thelast category help the organism improve its chances of survival andthereby pass on this beneficial trait to future generations.In a business setting, the corporate DNA is nothing but the corporateculture of values, beliefs and subjective norms permeating theorganization. Instead of genes, there are memes (a genericinformation fragment), a term introduced by well-known Britishevolutionary biologist Richard Dawkins. Memes are not designed,but can only be observed and classified retrospectively through themere process of long-term survival – memes simply survive becausethey contribute to the effectiveness of the organization.Corporatecultureisthesourceofintention(suchasstrategy),whichinturn dictates business decisions.This fundamental principle is knownas the theory of reasoned action, developed in academic circles in the1970s. As we all know, although DNA mutations happen sporadicallyandspontaneouslyallthetime,theprocessisratherslowandveryfewturn out to be beneficent to the organism.This is also the reason whyit’s incredibly hard to alter corporate culture – to make a comparison,it even dwarfs a global SAP roll-out! Add the intangible nature ofcorporate culture as another complicating factor, and it’s easy tounderstand why many firms don’t even bother trying to change it,leading to stagnation and decline as a best-case result.Why Companies ExistLike living organisms, companies exist because it helps themaccomplish things that they would not have been able to accomplishotherwise.SoifcultureisthecorporateDNA,whatistheverypurposeof doing business at all? From an evolutionary, biological perspective,the answer would probably be“survival”or“in order for genes (or in abusiness context, memes) to replicate”. Interestingly, the two are notmutually exclusive, but actually go hand in hand; the basic survivalmechanism of a species is replication. In other words, species try tosurvive not by placing a single bet on the survival of an individualorganism, but by hedging their bets on a large number of differentlyconfigured organisms.Whereas species try to survive through replication and constantadaptation of constituent organisms, the ultimate goal (explicit orimplicit) of any firm is to maximize profit, regardless of other goalssuch as shareholder value, sustainability etc., which at the end of thedayareallsubordinate.Thenotionofprofitmaximizationaccordingtoclassical economics omits one of the core tenets of evolution, namelyreproduction. If reproduction is one of the fundamental processesof evolution, why is it so uncommon in a business context? Havemanagers missed something?
  3. 3. Infosys | 3Resolving the Innovator’s DilemmaHarvard professor Clayton Christensen founded the term“innovator’s dilemma”to denote the phenomenon where companies do everythingright but still fail.Why? Because as companies grow larger and become more and more successful, managers tend to stick to practices that madethem successful in the past, without considering whether they might continue to do so in the future.On a day-to-day basis, companies are facing even more dilemmas, most importantly the struggle between creativity and efficiency: On the onehand, companies have to ensure quality and low cost through standardization and stable business processes. On the other hand, companiesalso have to ensure future revenue streams, which can only come into existence through innovation and creative thought processes. Alas, thetwo do not always go well together (see Table 1).Table 1. Corporate dilemmasBuild on past vs. Learn from past & realignDeliberate strategy vs. Emerging strategyHands-on leadership vs. Direction only leadershipBuild on strengths vs. Search out new opportunitiesDifferentiate for high value added vs. Beat competition on costsDiversify vs. FocusSize for critical mass vs. Small & entrepreneurialProfit for shareholders vs. Consensus outcome for many stakeholdersMass market vs. Niche marketGlobal vs. LocalCulture of stability vs. Culture of chaos through innovationCentralised for control vs. Decentralised for flexibilityRelying on logic & following vs. Being creative & pioneeringRevolutionary change vs. Incremental change
  4. 4. 4 | InfosysFurthermore, disruptive technologies, which may seem irrelevantand non-threatening in the early stages are often neglected as theycatertonewmarketsegmentsthatcannotbeanalyzedeasily.Inmanycases,therootcauseofthisorganizationalrigidityiscorporateculture.Most innovation experts agree that in order to succeed with anythingbeyond incremental innovation, a new unit within the existingorganization has to be set up and eventually spun off. The ideais to create a unit (Type B organization) which can operate moreindependentlyandavoidtheconstraintsthatoftenhinderinnovationfrom taking place in traditional organizations (Type A organization)(see Figure 1). In other words, the Type A organization serves as anincubator forType B organizations, that are later spun off as separateentities.Overtime,thesespin-offswillthemselveseventuallyturnintoType A organizations as they mature.Figure 1. The Type A organization as incubator for innovationThereasonsforthisaremanifold.Firstly,inordertonurtureinnovationandcreativityingeneral,theremustbeahightoleranceforambiguityand an acceptance of the fact that the organization would haveto operate without clear rules; many innovations are generatedrandomly, so without random activities, there can be no innovation.Secondly, the traditional approach to investment is to set specificobjectives and develop a single path – in order to enable innovation,processes have to be iterativeand multiple alternative innovationpaths must be pursued. Finally, and most importantly, those whoare driving innovation must be allowed to fail (preferably fast), andtake risks. Table 2 shows a comparison of traditional vs. innovativeorganizational characteristics.Table 2. Traditional versus innovative organizationsTypeA(Traditional)Organization TypeB(Innovative)OrganizationOperates within mentalframework based on clear andaccepted set of rules of thegameNo clear rules – these emergeover timeHigh tolerance for ambiguityStrategies path dependent Path independent, emergent,probe and learnClear selection environment Fuzzy, emergent selectionenvironmentSelection and resourceallocation linked to cleartrajectories and criteria for fitRisk taking, multiple parallelbets, tolerance of (fast) failureOperating routines refined andstableOperating patterns emergentand‘fuzzy’Strong ties and knowledgeflows along clear channelsWeak ties and peripheral visionimportantDegree of instabilityDegreeofuncertainityType AType BTraditional OrganizationInnovativeOrganization
  5. 5. Infosys | 5Making it all HappenGoing back to our earlier context of evolutionary biology, theapproach makes perfect sense, as it helps companies to“reproduce”through new entities which can grow and adapt to a changingenvironment. What’s more, the clear legal boundaries betweenthe parent and the spun-off entity also allow the latter to operatemore freely, while reducing legal and financial risk to the former. Ifthe spin-off fails, the effects will not propagate. Finally, the parentcompany can provide managerial capacity, industry and governmentrelationships, and assistance with administrative activities, whichfrees up the capacity of the subsidiary’s management to concentrateon products and markets. An overview of some notable examplesis shown in Table 3. The reasons for these spin-offs vary, but theleast common denominator is to obtain more strategic leeway forexploiting innovation and to provide more transparency to investorsand shareholders.Table 3. Spin-off examplesParent Organization Spin-off YearEli Lilly Guidant 1994Hewlett-Packard Agilent Technology 1999Encana Corporation Cenvous Energy 2009Dryships Inc. Ocean Rig UDW 2011Oxford University Oxford Nanolabs 2005IBM Shugart Associates 1973Shockley Transistor FairchildSemiconductor1957Time Warner AOL 2009DreamworksStudiosDreamworksAnimation2004In a business context, spin-offs happen relatively seldom. Why isthis the case? The reason is three-fold. Firstly, incentives of seniormanagers are often misaligned with the enablers of innovation.Executives are usually rewarded by considering KPIs like revenue,revenue growth, profitability and return on assets. Therefore, anyundertaking that may jeopardize these metrics is usually not activelypromoted.Secondly,astheaverageCEOtenureis8.4years,accordingto data from The Conference Board, executives will unlikely supportinvestments with a longer pay-back period and let someone elseharvest the fruits. Finally, for personal reasons, decision makers havea tendency to avoid giving up management control which mightoccur in the case of spin-offs.
  6. 6. 6 | InfosysSummary and ConclusionBusinessesbearmuchresemblancetolivingorganismsfromanevolutionary,biologicalperspective.Alas, all too often, innovation in companies is hampered by misaligned incentive systems orinadequate organizational design, which don’t encourage creative thinking. As we have seen fromthe discussion, evolutionary biological can provide us with many valuable insights and analogiesthat can help us better understand the meaning of concepts such as corporate DNA, and ways topromote longevity despite the pressure to think short-term. By taking a broader view of innovationand realizing that the key enabler at the end of the day is corporate culture, we also realize thatany process, system or employee is only as good as the corporate culture allows. Changing andimproving corporate culture is one of the hardest undertakings one can pursue.
  7. 7. Infosys | 7About the AuthorDr. Martin LockstromPrincipal Consultant, Building Tomorrow’s Enterprise, Infosys LabsMartin is a specialist in Supply Chain and Operations Strategy,Outsourcing/Offshoring and International Management. During asix-year stint in China, he established the research and educationactivities at the SCM, Sustainability and Automotive academiccenters at China Europe International Business School, Shanghai.He established the first endowed chair for Purchasing and SCM in China at TongjiUniversity, Shanghai, and was also responsible for setting up Supply Chain ManagementInstitute China, an international network of SCM research and education hubs.Martinco-foundedProcurisSolutions,anITcompanyspecializinginSCM-relatedsolutions,offering consulting services to companies like Accenture, Ariba, BMW, Clariant, Dell, Dow,Ernst & Young and Intel, among others.He has a Ph.D. in Supply Chain Management from European Business School, Germany, abachelor’sandmaster’sdegreeinIndustrialEngineeringandManagement,fromChalmersUniversity of Technology, Sweden. He speaks Swedish, English, German and Chinese,has published over 50 articles and papers and presented at more than 60 conferences.
  8. 8. © 2013 Infosys Limited, Bangalore, India. All Rights Reserved. Infosys believes the information in this document is accurate as of its publication date; such information is subject to change without notice.Infosys acknowledges the proprietary rights of other companies to the trademarks, product names and such other intellectual property rights mentioned in this document. Except as expressly permitted,neither this documentation nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, printing, photocopying, recording orotherwise, without the prior permission of Infosys Limited and/ or any named intellectual property rights holders under this document.About InfosysInfosys partners with global enterprises to drive their innovation-led growth.Thats why Forbes ranked Infosys #19 among the top 100 most innovativecompanies. As a leading provider of next-generation consulting, technologyand outsourcing solutions, Infosys helps clients in more than 30 countriesrealize their goals. Visit and see how Infosys (NYSE: INFY),with its 150,000+ people, is Building Tomorrows Enterprise® today.For more information, contact