Managing innovation within firms-Chapter 4 (Paul Trott).pptx

1. Managing
innovation
within firms-
Chapter 4
(Paul Trott)
AARTI

2. Organisations & Innovation
In particular, it emphasised the need to view innovation as a management process within the context
of the organisation. This was shown to be the case, especially in a modern industrialised society where
innovation is increasingly viewed as an organisational activity.
Pause for thought. (Page 119)

3. The dilemma of Innovation
Management (Page 118)
Within virtually all organisations there is a fundamental tension between the need for stability and the need for creativity. On the one hand,
companies require stabilty and static routines to accomplish daily tasks efficiently and quickly. This enables the organisation to compete today. For
example, the processing of millions of cheques by banks every day or the delivery of food by multiples to their retail outlets all over the country,
demands high levels of efficiency and control. On the other hand, companies also need to develop new ideas and new products to be competitive in
the future. Hence they need to nurture a creative environment where ideas can be tested and developed. This poses one of the most fundamental
problems for management today.
Here, then, is the dilemma: ‘The farther that any company seeks to innovate, as measured by the degrees of change from its base markets and
technologies, the greater the likelihood that its innovation efforts will fail. And yet, the less that a firm seeks to innovate, across the board, the
greater the likelihood that the corporation itself will fail.’
As usual, with dilemmas, the answer is difficult and has to do with balancing activities. The firm needs to ensure there is a constant pressure to
drive down costs and improve efficiency in its operations. At the same time, it needs to provide room for new productdevelopment and making
improvements.
Organisation is to engage in sufficient exploitation to ensure its future viability. Exploitation is about efficiency, increasing productivity, control,
certainty and variance reduction. Exploration is about search, discovery, autonomy, innovation and embracing variation. Ambidexterity is about
doing both.

4. Innovation dilemma in LT sectors
Research in the area of low technology intensive industries shows a dominance of incremental, mostly process-driven
innovations where disruptive innovation activities are scarce.
High returns on investment are generated from continuous optimisation of processes and of the existing technologies,
thereby reinforcing the development paths.
This cost-minimising orientation is particularly apparent in many mature industries, such as the food and FMCG
industries, where price-based competition is high. Benner and Tushman’s (2002) study within the paint and photographic
industries suggests that this focus can result in a shift in the balance of innovation, towards efficiency at the expense of
long-term adaptation. This, in turn,creates an emphasis on exploitative activities, crowding out more significant
innovations.
Whilst these activities may help firms learn and adapt quickly in the short term, they were seen to inhibit a longer-term
focus and lead to inertia. This creates a pressure on R&D to improve the product and production process to lower costs
over time, which can, in turn, stifle more significant innovation. Thus, arguably the innovation dilemma in low-tech sectors
is even worse than high tech sectors.

5. Dynamic capabilities
Incremental & radical innovations-Incremental innovation reinforces the capabilities of established
organisations, whilst radical innovation forces them to ask a new set of questions, to draw on new
technical and commercial skills, and to employ new problem-solving approaches.
The literature on dynamic capabilities seems to offer the most likely solution for firms. It has found that
that every firm has a zero-level or baseline set of routines, i.e., those that serve the purpose of
producing and marketing the given products and services currently in the portfolio (how we earn a
living now). Some firms have dynamic capabilities, i.e., those routines that relate to the innovation of
products and services, to the innovation of the production process, or to the search and attraction of
new customers, etc. – dynamic capabilities implement the change of old routines with new ones.

6. Managing uncertainity
Managing uncertainty is the central feature of mananing innovation.

7. Pearson’s uncertainty map
The map was developed following extensive analysis of case studies of major technological innovations, including Pilkington’s
float glass process, 3M’s Post-It Notes and Sony’s Walkman.
For example, Spencer Silver’s unusual adhesive remained unexploited within 3M for five years before an application was found.
Similarly, if a market opportunity has been identified, the final product idea may be fairly well-established, but much uncertainty
may remain about how, exactly, the company is to develop such a product.
So, Pearson’s framework divides uncertainty into two separate dimensions: uncertainty about ends (what is the eventual target
of the activity or project); and uncertainty about means (how to achieve this target). The development of Guinness’s ‘In-can
system’ clearly highlights the problems of managing uncertainty about means. Here, several projects were unsuccessful and
there were, probably, several occasions where decisions had to be taken regarding future funding. Decisions had to be made,
such as whether to cancel, continue or Figure 4.2 Pearson’s uncertainty map increase funding. In these situations, because the
degree of uncertainty is high, senior managers responsible for million-dollar budgets have to listen carefully to those most
closely involved and those with the most information and knowledge. Further information and knowledge usually are available
with the passage of time, so time is another element that needs to be considered. Indeed, it is because time is limited that
decisions are required. It is clear, however, that many decisions are made with imperfect knowledge, thus there is, usually, an
element of judgement involved in most decisions.

8. Quadrant 1 & Quadrant 2,3,4.

9. Uncertainty map in practise
Quadrant 1 highlights an area of innovative activity where ideas and develop- ments may not be recognisable immediately as possible commercial
products. There are many examples of technological developments that occurred within organisa-tions that were not recognised. In Xerox’s Palo
Alto laboratories, the early com-puter software technology was developed for computer graphical interface as far back as the early 1970s. Xerox did
not recognise the possible future benefits of this research and decided not to develop the technology further. It was later exploited by Apple
Computer and Microsoft in the 1980s. This raises the question of how to evaluate research in this area. Technical managers may be better able to
understand the technology, but a commercial manager may be able to see a wide range of commmercial opportunities. Continual informal and
formal discussions are usually the best way to explore all possibilities fully, in the hope that the company will make the correct decision regarding
which projects to support and which to drop. This is a problem that will be returned to in Chapter.
At the other extreme is Quadrant 4, where scientists often view this type of activ-ity as merely tinkering with existing technology. However,
commercial managers often get very excited because the project is in a close-to-market form with minimal technical newness.
Between these two extremes lie Quadrants 2 and 3. In the applications engineerng quadrant, where the business is exploring the potential uses of
known technology, management efforts centre on which markets to enter; whereas in the development engineering quadrant, special project-
management skills are required to ensure that projects either deliver or are cancelled before costs escalate.
Pause for thought 134

10. Managing innovation projects
). Henderson and Clark (1990) divide technological knowledge
along two dimensions: knowledge of the components and
knowledge of the linkage between them, which they called
architectural knowledge.
Indeed, these types of low-uncertainty projects are so very
different from high-uncertainty R&D projects that it is evidently
clear why a classification of project types is necessary

11. Organisational characteristics that
facilitate innovation process (126)
Hopefully, readers of this book now recognise that innovation is
not a linear process where resources are fed in at one end and
at the other emerges a new product or process. Innovation
requires a variety of competencies at key stages in the
innovation cycle. Each of these requires its own space and time
but, along with specialised skills, comes the need for
coordination and management.

13. Factors facilitating innovation
process
1.Growth orientation
2.Organisational heritage
3.Vigilance and external links
4.Commitment to technology and R&D

14. 5.Acceptance of risks
6.Cross functional cooperation and coordination
7.Receptivity
8.Space for creativity

15. 9.Diverse range of skills
10.Strategy towards innovation

16. Industrial firms are different

17. Organisational structure and
innovation
It suggests that ‘organic’, flexible structures, characterised by the absence of formality and hierarchy, support innovation more effectively than do ‘mechanistic’ structures. The latter are characterised by long chains
of command, rigid work methods, strict task differentiation, extensive procedures and a well-defined hierarchy.
1.Formalisation
Following Burns and Stalker, there have been a variety of studies examining the relationship between formalisation and innovation. There is some evidence of an inverse relationship between formalisation and
innovation. That is, an increase in formalisation of procedures will result in a decrease in innovative activity. It is unclear, however, whether a decrease in procedures and rules would lead to an increase in
innovation. Moreover, as was argued above, organisational planning and routines are necessary for achieving efficiencies.
2.Complexity
For example, a university, hospital or science-based manufacturing company would represent a complex organisation. This is because, within these organisations, there would be several professional groups. In the
case of a hospital, nurses, doctors and a wide range of specialists represent the different areas of medicine. This contrasts sharply with an equally large organisation that is, for example, in the distribution industry.
The management of supplying goods all over the country will be complex indeed; but it will not involve the management of a wide range of highly qualified professional groups.
3.Centralisation
Centralisation refers to the decision-making activity and the location of power within an organisation. The more decentralised an organisation, the fewer levels of hierarchy are usually required. This tends to lead to
more responsive decision making closer to the action
4.Organisational size
Size is a proxy variable for more meaningful dimensions, such as economic and organisational resources, including number of employees and scale of operation. Below a certain size, however, there is a major
qualitative difference. A small business with fewer than 20 employees differs significantly in terms of resources from an organisation with 200 or 2,000 employees

18. The role of individual in
innovation

19. IT systems and impact on
innovation
Enterprise resource planning (ERP) business software has become one of the most successful products in the world. The
market leaders in this highly lucrative business-to-business market are SAP and Oracle. SAP has over 20,000 R/3 products
installed worldwide and Oracle has installed databases in nearly every one of the world’s top 500 companies. In some
creative working environments, where previously autonomous and creative minds were free to explore, they are now
being restricted to what is on offer via ‘pull-down’ menus.
In summary, some of the potential benefits of implementing ERP systems are: ● more efficient business processes; ●
reduction of costs to several business procedures; ● better coordination and cooperation between functions and
different company departments; ● better management monitoring and controlling functions; ● modification and
adaptation abilities accordingly to company and market requirements; ● more competitive and efficient entrance to
electronic markets and electronic commerce; ● possible redesigning of ineffective business functions; ● access to
globalisation and integration to the global economy; ● inventory visibility and better decision support; ● active
technology for market research and media environment; and ● improving communication between partners of the
channel.

20. There is also a problem with the impact of ERP on the innovative climate in organisations and on the existent company operations (Johannessen et al., 2001). In
short, ERP systems very often require a reconfiguration of work processes and routines. Many people, however, feel unhappy when they are asked to change
established ways of doing things and they may, rightly, feel that new standardised work processes may undermine their autonomy enjoyed in current non-
standardised operations. ERP systems, however, can deliver only the promised efficiency gains with a standard information set and leave no alternatives to a
standardised approach. But it is not only that information processing and work routines have to be standardised; with an integrated system, everyone’s
performance and achievements become much more visible. Information sharing easily can be perceived as serving the purpose of tightening management
control if the organisational climate has deteriorated in the ERP implementation process. If employees feel that they are losing their autonomy and that they are
subjected to a culture of instant accountability, then this may have dramatic effects on their productivity and creativity and may nullify some of the potential ERP
gains.
If ERP leads to a culture of instant control and accountability, then this may undermine the intrinsic motivation of employees and may lead to a culture where risk
taking and experimentation becomes increasingly less desirable. It will always be safer to use the available ERP data than to look elsewhere for inspiration.
Diligent users of the ERP system are more difficult to blame for their mistakes or lack of achievement. ERP can become a very useful legitimating tool. More
significantly, firms must recognise that ERP systems (like any database) are driven from master data, such as customer records, bill of material records (BoM),
and, like other databases, are unforgiving. Get a field entry wrong and it can cause serious problems. Most likely, the internal logic of ERP systems will require
large amounts of time being devoted to ensuring the correct entry is made.
The architect develops a variety of homes for consideration and specifies the building design and materials required. Whilst, in the past, the architect may have
flicked through some trade catalogues or contacted suppliers for what might be available, now all possible options available are prescribed via a pull-down menu.
The advantages are clear to see: reduced time searching, order processing at the press of a few keys. But what about the impact on the creativity of the design of
the building?

21. Management tools of innovation
We do not have to look very far to draw up a lists of successful firms that later became less successful. Indeed, Peters
and Waterman’s (1982) famous study of successful firms in the 1980s that were less than successful in the 1990s is a
useful reminder. Firms such as Disney, IBM, Ford, General Motors, AT&T and Philips can all be found here. If we focus on
technology-intensive industries where firms are innovative for a period and then stagnate, the list may take slightly
longer to compile, but it, too, provides us with a timely reminder of the need for good management and the impact that
poor management can have. Firms like 3M have an impressive record of innovation. It frequently received accolades as
the most innovative firm in the 1980s and 1990s, but struggled to deliver a return for its shareholders in 2000 and
beyond. Pilkington Glass, similarly heralded as a world leader in glass technology as a result of its float glass process in
the 1960s and 1970s, failed to follow up this technology development. It was sold in 2006 to Nipon Glass. Even Apple
Inc., whilst extremely successful at present with its iPod and iPhone, struggled in the late 1980s with a series of product
failures including the Pippin (a games consul) and Newton (a personal digital assistant). Most high profile of all was the
dominant position once enjoyed by Nokia, only for it to fail to keep pace with Apple and Samsung.

22. Applying guidelines and tools
Developing successful innovative products does not always mean using the latest patented
technology. Being successful at managing innovation is rather a way of thinking and finding creative
solutions within the company.
innovation management can benefit from well-established management principles to help the
leaders of an organisation sustain innovativeness and even recover from a period of stagnation,
The use of these tools and techniques to improve the management of innovation within the firm
cannot be considered in isolation. Firms often will use combinations of tools and techniques to
ensure a particular project is successful. In addition, techniques are continually trialled, adopted
and/or dropped.

24. Applying tools and guidelines
Other research has found that the models serve a variety of different purposes other than that
originally intended: for example, creating legitimacy, attracting support for a project, disciplining the
project team and providing an illusion of a sense of control.
the urge to do new things; ● the obsession to redefine customer value; ● the courage to take risks; ●
an ability to manage risk; ● speed in spotting opportunities and project execution; ● a shift in focus
and mindset from business optimisation to business creation.
Even within extremely successful companies that have had many years of innovation success, top
managers have to be reminded of their responsibility to support and champion innovation leaders:
those people who exercise their initiative and create change. Such people will make mistakes, but
many of the tools and techniques discussed in this chapter can help firms manage risks and reduce
the level of mistakes

25. Innovation audit