Eindhoven University of Technology

MASTER

Becoming ambidextrousa way to simultaneously pursue radical and incremental innovation

de Vries, A.

Award date:2008

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https://research.tue.nl/en/studentthesis/becoming-ambidextrous(05441844-2cc3-465d-a7f2-4f1e29203a14).html

The Hague, October 2008

BSc Systems Engineering, Policy, Analysis and Management — Delft University of Technology 2005

Student identity number 0603082

in partial fulfilment of the requirements for the degree of

Master of Science

in Innovation Management

Supervisors:

dr. ir. J.J. Berends, TU/e, OSM

dr. J.D. van der Bij, TU/e, OSM

dr. J. Kroon, Royal KPN N.V., Business Strategy & Innovation

Becoming Ambidextrous:

A way to simultaneously pursue radical and

incremental innovation.

by

A. de Vries BSc

TUE. Department Technology Management.

Series Master Theses Innovation Management

ARW 2008 IM

Subject headings: innovation, ambidexterity, transition management & innovation roadmap.

i

Abstract

To survive the intensifying global economy, firms rethink their practices. Instead of solely learning

from the past and being the present, firms should create their future: Firms should pursue innovation.

However, mastering these practices is easier said than done. This thesis investigates how firms can

become ambidextrous: Represent the ability to simultaneously pursue incremental and radical change.

Specifically, we pursue the objective, “Contribute to literature in terms of specification and opera-

tionalization of the ambidextrous organizational design and process.” In pursuit of this objective, we

followed the logic of theory-based business problem solving. We conducted a case study within Royal

KPN N.V., where the issues surrounding the unsatisfactory innovation performance are investigated.

We found the primary causes in the interaction between the Business Strategy & Innovation unit and

the business units. The transition of the business opportunity to the portfolio house was difficult to

manage. Specifically, the uncertainty of the business case resulted in disfavouring radical initiatives.

The adoption, prioritization and resource allocation have been affected regardless of the opportunity’s

potential. As a result, a solution design is developed. The facilitation of more certainty and gaining

higher priority for radical innovation has been central issues in the design. Specifically, the implemen-

tation of an innovation roadmap, restructured innovation process and entrepreneurial team are pro-

posed.

ii

Executive Summary

This study aims at resolving the difficulties in pursuing both incremental and radical change, act am-

bidextrous. We investigate the underlying barriers and solution design of becoming ambidextrous. In

this we followed the theory-based business problem solving methodology: We conducted a case study

within the Royal KPN N.N. Specifically, the problem definition, empirical analysis, diagnosis and so-

lution design are addressed.

Problem Definition

In this era of intensifying competitive forces and growing pressure of share-holders, finding new

growth opportunities is crucial for the firm’s continuity. In this respect, KPN executes a “back to

growth” strategy. KPN is expected to increase turnover from 14 Billion in 2008 to 16 Billion Euro in

2010. In order to realize this objective, KPN looks beyond the autonomous growth of their current

businesses. Concurrent to the exploitation of their traditional portfolio, KPN is focusing on structural

change: Both selective acquisition of proven technology and radical innovation are pursued.

In 2005 KPN Business market designated the Business Strategy & Innovation (BS&I) unit to pursue

new business opportunities.An organizational design incorporating a clear separation between innova-

tion function and operations. Still, the unit resides in the context of the traditional organization, which

pursues autonomous growth of the existing portfolio. Despite of this intent and innovation successes,

KPN experienced difficulties in simultaneously pursing incremental and radical innovations: to act

ambidextrous. The business opportunities did not resulted in the prospected revenues to realize the

back to growth strategy.

From this perspective, the business problem solving project is executed to redesign the current inno-

vation system conform the ambidexterity objective. Specifically, we aim for, “Providing an organiza-

tional re-design aimed at improving KPN’s radical innovation performance without compromising

their short term focus.”

Empirical Analysis

The empirical analysis aims for the validation of the business problem and its causes. We investigated

five case studies: Zorg op Afstand, Tracking, Tracing & Identification, InBeeld, SchoolOnline and

Flexipark. This selection provides a heterogeneous overview of the innovation portfolio of KPN.

Three out of five initiatives transited to the portfolio house. Two are still situated in the context of

BS&I. The data was obtained through the interpretation of documents, archival records and participa-

tive observation. Moreover, interviews were held with critical positions in the organization.

The analysis has resulted in the following interpretations. First, the innovation performance of all cas-

es was unsatisfactory. The turnover generated was lower than 10% of what had been forecasted. The

portfolio analysis and project level analysis generically underlined the business problem’s existence.

Hence, it is appropriate to classify the innovation performance of KPN as unsatisfactory. This justifies

the analysis of the innovation system and pursuing the antecedents of the business problem.

Second, the foremost causes for the unsatisfactory innovation performance are the uncertainty of the

business case, the transition/adoption, priority issues, resource allocation and strategic behavior of

partners. This enumeration represents a complex system of relations between variables: A situation

which requires further explanation.

iii

In theory a proposition is defined into detail without leaving room for uncertainty, however, in prac-

tice, uncertainty remains. This makes the portfolio house rather insusceptible for radical innovation.

The analysis shows that the ability to decrease uncertainty and being able to handle uncertainty are

the foremost barriers to the innovation performance. The innovation division is not optimally organ-

ized for decreasing uncertainty. Furthermore, the portfolio house isn’t organized to deal with uncer-

tainty.

The transition plays a central role in this innovation trajectory. We found that the barriers to innova-

tion performance have different roles in different phases in the innovation trajectory. Hence, the dis-

cussion of the causes is based on the following classification: pre-transition, transition and post-

transition.

The pre-transition phase should be able to decrease the uncertainty to a minimum, at least to an ac-

ceptable level in terms of the portfolio house. The BS&I found difficulties in managing the focus of

the project. They were often led by opportunities, without objectively considering the scalability.

Hence, a strong vision about the optimal path to follow was lacking. Furthermore, the critical entities,

incorporating a certain field of knowledge, were lacking or became disputable in the first phase. Their

origin, which is found in the division, did not prioritize employees to highly uncertain developments.

Hence, critical knowledge functions were not properly vouched for in the first phases of the innova-

tion trajectory.

The transition is compromised with the low commitment to pursue radical change. The portfolio

house’s focus on the bottom line does not leave sufficient room for uncertain change. The chance for

large success does not fit in their rather short term perspectives. Another hampering aspect is found in

the difficult integration of systems. This aspect is often not fully crystallized in the first phases, which

makes it more difficult to implement. There is a knowledge gap between the entrepreneurial team and

operation’s practices. Furthermore, the existing system is not susceptible for change. It aims at effi-

ciency instead of flexibility.

The follow-up in terms of effort and concrete resource allocation has been lacking throughout several

projects. The post-transition phase requires the commitment to make the proposition a success. Hence,

product development should be accompanied with sufficient efforts of marketing and sales to promote

new products.

Solution design

The solution design is threefold. The implementation of an innovation roadmap, the alteration of the

innovation process and the entrepreneurial team are proposed.

The innovation roadmap represents the choice for future technology / market combinations. Based on

a structural forecast of technology development and market intelligence, priorities are aligned. The

innovation roadmap creates shared innovation goals, provides evaluation criteria and supports plan-

ning of innovation trajectories.

The altered innovation process intends to manage uncertainty. The first phases facilitate the appropri-

ate focus regarding propositions. Throughout the process the focus should increase and the process

should become more effective in finding knowledge about market, technology, organization and re-

sources. When the uncertainty gap between the portfolio house and the innovation function is medi-

ated, the transition should be established. The evaluation throughout the project isn’t solely found in

iv

financial criteria, but also in the prospects of the innovation roadmap. This should provide sufficient

insight about the progress and potential.

The entrepreneurial team should be able to find the appropriate level of certainty and creating priority.

Their composition and role should guarantee the entrepreneurial competences to explore and proof the

business case. We propose a rather flexible structure. The entrepreneurial team’s composition should

evolve along the need for competences. However, we propose the implementation of a basic team,

which exists out of several strategic functions. This guarantees cross-functionality and the connection

with the existing business.

Recommendations

In line with the preceding analysis, we recommend the following implementations or changes:

• Introduction of the innovation roadmap, the future areas of priority regarding technology and

markets should be defined in consensus with top management’s vision and explicitly related

to the innovation process. Important is the interrelation with priority and resource allocation.

• Reconfiguration of the innovation process, a clear focus on the distinctive phases and their in-

tent. It is foremost important to grant ideas the time to be in a context of creativity as succes-

sively followed with focus. The application of the tool to assess uncertainty of new portfolio

should be executed by a fairly well integrated function in the entrepreneurial team.

• Creation of a basic entrepreneurial team, to find a balance between flexibility and sustain-

ability of knowledge, a basic team should be formed, with critical functions. They should be

allowed to include other functions if necessary. The entrepreneurial team should be able to ac-

tively pursue the appropriate focus and prove their right.

• Learning focus; complementary, to the primary aim of innovation, gaining new revenue

streams, KPN should incorporate a learning objective. Hence, accept innovation failure but

focus on the lessons learned. An innovation, which is stopped at the right time, is equally val-

uable compared to a successful innovation. The lessons and appropriateness of the process

have proven it self and could be used as input for the future.

v

Preface

This thesis is the result of my graduation project for the Master of Science degree in Innovation Man-

agement. The graduation project is performed at Royal KPN N.V., Business Strategy and Innovation

and was supervised by the sub-department Organization Science and Marketing (OSM) of Eindhoven

University of Technology (TU/e).

The master thesis project strongly resembles an innovation trajectory. The final proposition camou-

flages the uncertain, iterative and complex trajectory. Moreover, the process is characterised by col-

laboration. I found advice, motivation and support with several people. First, my gratitude goes out to

all colleagues at KPN. Their input, willingness to participate in the interviews as constructive com-

ments have all contributed to the end result. My gratitude is not solely founded in this thesis, but is

also found in personal experiences and lessons learned.

Specifically, my gratitude goes out to dr. Jan Kroon, the company supervisor. Jan’s experiences and

fruitful explanations have been very valuable. The experiences have taught me about KPN as aca-

demic practices and if not more about live.

Furthermore, I would like to express my gratitude to dr. ir. Hans Berends, my first supervisor from the

OSM department, TU/e. His knowledge and experience regarding the thesis trajectory and field of in-

novation management have resulted in useful feedback and the critical review of this report. Second, I

would like to express my gratitude to dr. Hans van der Bij, my second supervisor, for his critical re-

views. His unmarked opinion provided me with focus on guided me towards the most important as-

pects.

Very important has been the contributions of close family and friends. Specifically, I would thank my

parents, brother, friends and Astrid van der Schans for their unconditional support.

Allert de Vries Bsc

Den Haag, September 2008

vi

List of Abbreviations

B

BS&I Business Strategy & Innovation

BU Business Unit

C

CM Consumenten markt

D

DJ Decision to Justify

DF Decision to Fund

DP Decision to go Public

DH Decision to Handover

DWD Dutch Water Dreams

E

EBITDA Earnings Before Interests, Taxes, Deprecia-

tion & Amortization

ECS Enterprise Communication Services

EP Elevator Pitch

ET Entrepreneurial Team

EI External Involvement

F

FM Functional Manager

FT Field Test

G

GPS Global Positioning System

I

ICT Information & Communication Technology

IO Idea of Opportunity

IM Innovation Manager

IP Information Processing

IP Internet Protocol

J

JEV Jaar Einde Verwachting

L

L Liaison

N

NBD New Business Development

P

PAC Process Action Committee

P/L Profit / Loss

PM Product Manager

POC Proof of Concept

R

RES Real Estate Services

RFID Radio Frequency Identification

RvB Raad van Bestuur

S

SB Selection Board

SM Staff Manager

T

TT&Id Tracking, Tracing & Identification

U

UHF Ultra High Frequency

W

WIFI Wireless Fidelity

Z

ZM Zakelijke Markt

ZOA Zorg Op Afstand

Table of Contents Abstract ....................................................................................................................................................i

Executive Summary ................................................................................................................................ii

Preface .................................................................................................................................................... v

List of Abbreviations .............................................................................................................................vi

1.. Introduction.....................................................................................................................................1

1.1 Theoretical motive.................................................................................................................1

1.2 Business motive.....................................................................................................................2

1.1 Research design .....................................................................................................................3

1.2 Outline ...................................................................................................................................4

2.. Theoretical analysis ........................................................................................................................5

2.1 Key Issues in Innovation Management..................................................................................6

2.2 Becoming ambidextrous......................................................................................................10

3.. Problem Statement ........................................................................................................................14

3.1 Problem context...................................................................................................................14

3.2 Problem formulation............................................................................................................17

4.. Methodology .................................................................................................................................19

4.1 Research Strategy ................................................................................................................19

4.2 Research Scope....................................................................................................................19

4.3 Unit of analysis....................................................................................................................20

4.4 Data collection.....................................................................................................................21

4.5 Data analysis........................................................................................................................22

4.6 Design methodology............................................................................................................23

4.7 Discussion of methodology .................................................................................................24

5. Empirical analysis.........................................................................................................................25

5.1 Innovation performance.......................................................................................................25

5.2 Project level analysis ...........................................................................................................26

5.3 Cross-project analysis..........................................................................................................32

6. Diagnosis.......................................................................................................................................40

6.1 Ambidexterity......................................................................................................................40

6.2 Pre-transition .......................................................................................................................41

6.3 Transition.............................................................................................................................42

6.4 Post-transition......................................................................................................................42

7.. Solution Design.............................................................................................................................43

7.1 Design Specifications ..........................................................................................................43

7.2 Solution Design ...................................................................................................................44

7.3 Solution Justification ...........................................................................................................52

7.4 Change plan .........................................................................................................................52

8. Conclusion & Recommendations..................................................................................................55

8.1 Conclusion...........................................................................................................................55

8.2 Recommendations ...............................................................................................................56

9. Discussion .....................................................................................................................................57

9.1 Limitations...........................................................................................................................57

9.2 Scientific reflection..............................................................................................................57

9.3 Further research ...................................................................................................................58

References.............................................................................................................................................59

Appendices............................................................................................................................................63

Appendix A: Research context.....................................................................................................64

Appendix B: Preliminary Cause-and-effect diagram...................................................................66

Appendix C: Conceptual project design ......................................................................................67

Appendix D: List of Interviews....................................................................................................68

Appendix E: Sources of Evidence ...............................................................................................70

Appendix F: Portfolio of BS&I ...................................................................................................71

Appendix G: BCG evaluation of Business Market ......................................................................72

Appendix H: System level analysis..............................................................................................74

Appendix I: Project level analysis ..............................................................................................79

Appendix J: Design alternatives .................................................................................................92

Appendix K: Visualization innovation roadmap..........................................................................94

Appendix L: Innovation process..................................................................................................96

Appendix M: Uncertainty assessment tool ...................................................................................97

List of figures

Figure 1, Reflective cycle 4

Figure 2, The S-curve 5

Figure 3, Knowledge perspective on process phasing 8

Figure 4, Antecedents of innovation performance 9

Figure 5, Research Objective 18

Figure 6, Case study positioning 21

Figure 7, Triangulation 21

Figure 8, Data analysis method 23

Figure 9, Solution process 23

Figure 10, ZOA innovation performance 25

Figure 11, TT&Id innovation performance 26

Figure 12, InBeeld innovation performance 26

Figure 13, Generic cause-and-effect diagram 333

Figure 14, Diagnosis 41

Figure 15, Innovation roadmap composition process 45

Figure 16, Innovation roadmap development 47

Figure 17, Innovation process 48

Figure 18, Choosing innovation 49

Figure 19, Entrepreneurial team structuring 51

List of tables Table 1, Main causes per project 40

Table 2, Design specifications 43

Table 3, Delta-analysis 53

1

1. Introduction

“Learn the past, be the present and create the future.”1

In the context of technology developments, globalization and hyper-competition, firm continuity is

found in the strategic competence to pursue radical change (Ahuja & Lampert, 2001; Leifer & Rice,

1999; D’Aveni, 1994). Instead of solely learning from the past and being the present, firms should

create the future. Firms have to identify and commercialize new growth options that go beyond con-

ventional product development (O’Connor & DeMartino, 2006). Hence, firms intent to act ambidex-

trous: Simultaneously pursue the enhancement of traditional business concepts next to radical innova-

tion. Successful firms pursue a balance between exploitation and exploration (March, 1991, Tushman

& O’Reilly, 1996; He & Wong, 2004). Take up the challenge: become ambidextrous!

This thesis describes the interaction between the execution of a case study research project within

Koninklijke KPN N.V., and the theoretical context of ambidexterity. A balance is found between the

business and scientific motive as described hereafter.

1.1 Theoretical motive

The innovation hype continues. Numerous articles have stressed the importance of innovation in find-

ing sustainable competitive advantages (Abernathy & Clark, 1985; Gatignon et al, 2002). Popular

press adopted innovation as an inevitable practice for continuous success (Brown & Eisenhardt,

1995). Firms, managers and investors acknowledge innovation as premises of a successful future

(KPN, 2007; NRC, 2008). In return, the broad array of attention has evolved into an even broader re-

search base. Insights in forms, purposes and practices regarding innovation management have been

proven and adopted generically throughout the academic community. The high potential of managing

new product development initiatives has been acknowledged and investigated more thoroughly as we

speak.

Formerly, academic papers reported about the need and ability to pursue rather radical change, with or

without the consideration of the incumbents’ context (Christensen, 1992). Specifically, academics

have acknowledged that structure and practices should be designed in line with the propositions. The

identification of factors, which contribute to the chance of innovation success, played a central role in

the discussion. Several authors have provided a rather complete overview of antecedents, which in

turn have been extensively tested and sharpened by other scholars (Brown & Eisenhardt, 1995;

Montoya-Weiss & Calantone, 1994; Cooper & Kleinschmidt, 1995).

1 After “Learn the past, watch the present and create the future.” (Source: Jesse Conrad www.innovationwatch.com)

2

Currently, a focus on simultaneously pursuing incremental and radical change is identified (Gilsing &

Nooteboom, 2006). Operating ambidextrous does not represent a simple solution, but if implemented

correctly continuity on the short run and long run is assumed (Tushman & O’Reilly, 1996; Henderson,

2006). Finding a balance between explorative and exploitative activities is considered highly valuable.

In this respect, the contradictory characteristics of innovation and their requirements for the organiza-

tion should be overcome. Several propositions are identified which focus on the balance between in-

cremental and radical change. Solutions are found in cross-functional teams, entrepreneurial teams,

spin outs and, ambidextrous organizational

design.2 Still, researchers observe that the

available solutions do not suffice to the re-

quirements and aren’t properly specified or

even defined yet (Gibson & Birkinshaw,

2004).

The ambidextrous organizational design corresponds with the ability to simultaneously pursue both

incremental and radical change, due to the separation of activities. A specific interpretation of the am-

bidextrous organization is proposed by Tushman & O’Reilly (1996), which has proven to be effective

in terms of firm success (Gibson & Birkinshaw, 2004; He & Wong, 2004; O’Reilly & Tushman,

2004). This overview, defines organization, culture and leadership roles in terms of ambidexterity: A

view incorporating a clear separation between innovation function and operations. However, this in-

terpretation of the ambidextrous design leaves many uncertainties regarding the specific operationali-

zation and conceptualization. As de Vries (2007) has identified, there has been little focus on the em-

bedding of radical innovations within the traditional organization. Innovations will be integrated in

the current practices eventually. From our perspective, no specific academic research attention has

been allocated to the specific ambidextrous innovation processes and coordination between functions.

Solely, the differences between the radical and incremental innovation process have been topic of dis-

cussion (Veryzer, 1998; Brentani, 2001).

Hence, the ambidextrous design should be put in a broader perspective. Beyond the discussion of the

ambidextrous organizational design and strategy, the ambidextrous innovation process is considered.

We pursue further insight in the phasing and decision making within the innovation process comple-

mented with the interaction between process and other aspects of the organizational design. Specifi-

cally, we refer to the transition from the innovation function to operations.

Overall, this paper’s scientific aim is to contribute to literature in terms of specification and opera-

tionalization of the ambidextrous organizational design and process.

1.2 Business motive

The changing industry conditions, global intensification of competition and need for sustainable

growth has triggered KPN3 to reconsider their vision on continuity. From solely pursuing efficiency

2 Clearly, overlap exists between initiatives and no intention to be complete is pursued. The enumeration only underlines the

broad range of initiatives and is selected from the most promising initiatives (He & Wong, 2004).

3 KPN is the incumbent ICT service provider of the Netherlands, both in terms of business to consumer and business to busi-

ness.

Scientific aim:

“Contribute to literature in terms of specification

and operationalization of the ambidextrous or-

ganizational design and process.”

3

improvements to a strategic intent with growth through acquisitions and new product development

(KPN, 2006): Innovation has a fundamental position in KPN’s perspective on growth.

From this perspective, the staff position,

Business Strategy and Innovation (BS&I) is

designated with their specific innovation

processes and governance practices. A struc-

ture incorporating a clear separation between

innovation function and operations BS&I is

held responsible for the development of the

radical product initiatives within KPN. These propositions have a long-term focus and have no appar-

ent relation with existing portfolio. In their development, propositions follow a different trajectory,

which in due course requires the integration with the generic trajectory.

Preliminary, BS&I indicated that their innovation performance represents a higher innovative poten-

tial than currently utilized. The radical innovation initiatives seemed unsatisfactory in terms of time to

market, specifically targeting mass markets (high growth potentials) and revenues from new prod-

uct/service initiatives. Barriers are related to the transition through the process, the powerless pursuit,

the uncertain nature of the innovations and the strategic behaviour of partners.

The unsatisfactory situation requires the pursuit for a solution, explicitly defined in terms of condi-

tions, process alterations and the alteration of other antecedents of innovation performance. Hence, we

pursue the following practical aim: “Providing an organizational redesign aimed at improving KPN’s

radical innovation performance without disfavouring their short term focus.”

1.1 Research design

The logic followed throughout this business

problem solving (BPS) project is based on

the interpretation of van Aken et al. (2006)

regarding theory-based case study research.

The case study strategy requires a logic

which links the data to be collected to the

initial questions of a study: An action plan,

which pursues a logical model of proof,

wherein “data” implies the use of academic

theories as well case specific data gained

from the inquiry (Yin, 1994). This implies a

structured and feasible approach for BPS in-

tegrated with, and aiming to contribute to

academic literature. Specifically, this results

in the reflective cycle or learning cycle, fig-

ure 1, as presented in van Aken et al. (2006).

The reflective cycle’s first phase aims at determining the foremost academic issues in the innovation

management field of interest. This provides the foundation for initiating academic research. Accord-

ing to the reflective cycle the next step entails the choice of case, which relates the initial problem

Practical aim:

“Providing an organizational re-design aimed at

improving KPN’s radical innovation performance

without disfavouring their short term focus.”

The research questions:

“Is KPN negatively affected in its innovation

performance”

&

“What causes the unsatisfactory innovation per-

formance of radical new product initiatives?”

&

“How should KPN organize their innovation sys-

tem in order to improve the radical innovation

performance without compromising their short

term focus?”

4

with a practical context. Practically, the case should be active in a highly dynamic and competitive in-

dustry and actively pursuing innovations.

Figure 1, Reflective cycle (van Aken, 2006)

In line with the reflective cycle, the problem solving activities are emphasized on next. These are

gathered in the regulative cycle of van Strien (1997), which is completely incorporated in the reflec-

tive cycle of van Aken et al. (2006). The regulative cycle entails five subsequent phases: Problem

definition, analysis and diagnosis, plan of action, intervention and evaluation. The cycle aims at ad-

dressing the appropriate research questions and their answering.

The outcomes of the regulative cycle leave room for a reflective phase, putting the outcomes in an

academic perspective and contribute to development of technological rules. We pursue the verifica-

tion of premises or reformulation of premises.

1.2 Outline

The following thesis structure is founded upon the phasing of the research design. First, the relevant

discussions in the innovation management literature are depicted. These provide the academic context

in which both aims can be addressed. Second, the problem statement is drawn up, providing bounda-

ries and focus throughout this project. Moreover, the perceived issues are put in the research context,

which is discussed in detail. Third, the research methodology is discussed. Specifically, data collec-

tion and data analysis are considered. Complementary, the solution design process is depicted. Fourth,

the analysis, results and the interpretation of the diagnosis are discussed. The results are generalized

through the application a cross-project analysis and translated into diagnostic statements. Further-

more, the general description allows the subsequent phase to implement the optimal design solution.

Fifth, the optimal solution design is illustrated. Specifically, implications for the strategic intent, inno-

vation process and operational execution are discussed. Finally, conclusions are drawn and recom-

mendations are made. Moreover, the solution is put in perspective of the limitations of methodology

and contributions to literature are included.

5

2. Theoretical analysis

“If the facts don't fit the theory, change the facts.”4

Innovation management is crucial to moderns firms. To survive the hyper-competitive environments,

the active pursuit for competitive advantages is required. Firms need to offer what no one else can or

offer it in distinctive ways. Innovation, the successful creation of a product, service or process (Tidd

et al., 2001; Veryzer, 1998), is presumed to deliver relief. Kay (1993) indicates that success is increas-

ingly coming to favor organizations, which can mobilize knowledge, technological skills and experi-

ence to create new products, processes and services: manage innovation.

Traditionally, established firms focus on the exploitation of their existing products (Christensen,

1997). They refine their products and processes to outperform their competitors. The so-called incre-

mental innovation is, however, bounded by the limit of competitive value (Hinks et al., 2007). Only a

small increase in the competitive advantage can be found. As a result, traditional technologies are

caught up with “superior” initiatives, with technologies which represent a higher potential. Figure 2

depicts this situation in detail.

Figure 2, the S-curve (based on Christensen (1997))

This development requires firms to be also focused on more drastic change, radical innovation. Re-

cently, an emphasis on the simultaneous pursuit of radical and incremental innovations, acting ambi-

dextrous, evolved (Gilsing & Nooteboom, 2006). Many researchers have identified a significant effect

of ambidexterity in terms of firm success (Gibson & Birkinshaw, 2004; He & Wong, 2004; O’Reilly

& Tushman, 2004). Complementary to the firm’s incremental innovation’s efforts, radical innovation

should be pursued to be able to react to drastic change in the firm’s context.

4 Source: A. Einstein (www.quotationspage.com)

6

To find a complete understanding of this phenomenon an in-depth consideration of the theoretical

perspective on innovation management is essential.

We address several objectives in the following analysis:

• Defining the academic context in which this project resides.

• Validation and suggestion of causes.

• Providing directions for the redesign.

• Resolve misconceptions regarding concepts definitions.

In addressing these objectives, we provide a general introduction in the innovation management, in-

cluding our interpretation of innovation and new business development. Furthermore, innovation per-

formance and its antecedents are discussed. Next, ambidexterity and its determining factors are made

explicit. Finally, we discuss the almost unexplored field of transition management: managing the tran-

sition from innovation to operations.

2.1 Key Issues in Innovation Management

2.1.1 Characterizing innovation

The most basic discussion is found in the characterization of innovation. This discussion aims at re-

solving the “conceptual misconception” of innovation, where ambiguous definitions often had a nega-

tive effect on the impact and reliability of research (Gatignon et al., 2002).

Specifically, “innovation is an iterative process initiated by the perception of a new market and / or

new service opportunity for a technology-based invention which leads to development, production

and marketing tasks striving for the commercial success of the invention” (Garcia & Calantone,

2002). In this perspective, several academic scholars have applied various bases for determining inno-

vativeness. This endeavor has, however, not resulted in the embracement of a generic typology (Gar-

cia & Calantone, 2002).

The most common view is the classification in terms of newness to the firm (Abernathy & Clark,

1985; Garcia & Calantone, 2002). Here, newness varies over two dimensions: newness of market and

technology. In Comparison, Henderson & Clark (1990) describe the newness of core concepts and

linkages between core concepts as dimensions. Nonetheless, both interpretations induce a general

classification into four types of innovation; incremental, modular, architectural and radical innovation,

where incremental and radical innovations are positioned at the extremities of the continuum. This

classification is best discussed by Henderson & Clark (1990), who couple firm competences to differ-

ent levels of innovativeness. “Incremental innovation (Exploitation) introduces relatively minor

changes to the existing product, exploits the potential of the established design, and often reinforces

the dominance of the established firms, although it draws from no dramatically new science, it often

calls for considerable skills and ingenuity and, over time, has very significant economic conse-

quences. Radical innovation (Exploration), in contrast, is based on a different set of engineering and

scientific principles and often opens up whole new markets and potential applications.”

Another relevant perspective is provided by Katila & Ahuja (2002), who interpreted innovation as a

learning process diversified along two dimensions: learning depth and learning scope. Specifically,

learning depth is “the degree to which existing knowledge is re-used or exploited” and learning scope

is “the degree to which the exploration of new knowledge is useful; it is, however, incomplete” (Kati-

7

la & Ahuja, 2002). This vision on innovation, an information processing perspective, relates innova-

tiveness to the ability to obtain and exploit knowledge. A view in line with Cohen & Levinthal (1990)

and March (1991). In terms of the innovation process, the exploration and exploitation debate is main-

ly founded on these dimensions (March, 1991). Where in-depth and relatively standardized learning

will relate to the exploitation extremity and the opposites will lead to exploration. This vision has,

however, not resulted in a clear distinction of innovation types, only the interpretation of the innova-

tion continuum.

2.1.2 New Business Development

Another discussion refers to the common innovation practices. In this respect, we distinguish innova-

tion in the start-up and established firm context. Where the start-up is solely involved in radical inno-

vation, the established firm has to focus on either incremental or both types of innovation. This re-

quires a different set o capabilities and practices. Hereafter, we will focus on radical product innova-

tion from an established firm perspective, new business development.

New business development is the set of activities intending to successfully introduce new products. It

describes how innovation is pursued. The discussion regarding the nature, sequencing and structuring

of activities has proven to be highly relevant, where it contributes to the understanding and manage-

ment of innovation. An abstract discussion is found in the following instances. NBD can be inter-

preted as a successive set of engineering activities (Khurana & Rosenthal, 2003; Ulrich & Eppinger,

2004). This perspective depicts innovation as a set of development and design activities. Allen (1977)

and Daft & Lengel (1986) interpret NBD as a sequenced set of information processing activities.

Whether the innovation will be successful depends on the firm’s capability to process information.

This view requires the ability to apply new knowledge in their existing practices. These interpretations

have resulted in the coming interpretation of NBD, specified over the innovation process, uncertainty

& risks and innovation in the established firm context.

2.1.2.1 NBD project & process

New business development is often performed as a project, which is a temporary structure formed to

achieve a certain goal (Pinto & Prescott, 1988). The project has a formal position within the organiza-

tion, including funding in terms of employees and / or other resources. Moreover, the project is con-

tinued until certain goals are met. The specific pursuit of the goals is often performed along a prede-

fined, subsequent set of activities: a process (Adler et al., 1999). Cooper & Kleinschmidt (1986) have

assessed the activities in their effectiveness. They distinguished a best practice sequencing of 5 phas-

es, the stage gate process. Specifically, they prescribe the idea generation, business case, develop-

ment, testing & validation and launch phases, separated by strict gates. The stage gate process is a ra-

ther formalized and sequential skeleton of phases and decision making. Hence, critiques are found in

the applicability to more radical innovations. These require a more iterative sequencing. In reaction,

Burgers et al. (2007) distinguish three common phases, development, commercialization and business

phases. The development phase imposes the idea creation until the market introduction. The commer-

cialization phase goes from the market introduction until profitability is met. This will evolve into the

final phase, which aims at the exploitation of the product, allows the proposition to become self-

sustaining, to become business as usual.

8

Start of the

project

Market

introduction

Profitability

achieved

ExploitationExploration

Figure 3, Knowledge perspective on process phasing (Burgers et al, 2007)

More important, the phases require other abilities, in terms of knowledge exploration and exploitation.

The first phases require an emphasis on exploration where new knowledge should be combined in

finding creative solutions. This implies the combination of technological and market knowledge. As

the picture depicts, the commercialization phase requires the integration of explorative and exploita-

tive activities, which requires different competences and other evaluation criteria. The final phase is

solely aiming at exploitation activities. The product has been launched and requires product manage-

ment, primary focused on product improvements. Regarding Burgers et al. (2007), the different focus

throughout the phases requires different transition-criteria, which correspond with the activities.

2.1.2.2 Uncertainty & Risks

Uncertainty plays an important role in the NBD trajectories. The ability to perform task or to make

justifiable solutions is compromised by the gap between the need for information and the available in-

formation, uncertainty (Daft & Lengel, 1986). Hence, the innovation capability of a firm is dependent

of its ability to fulfill the information processing requirements (IP) of the innovation. If the innovation

is characterized with a high level of uncertainty, IP requirements are high as well. New knowledge

should be found through the execution of explorative activities.

From this perspective, innovation is interpreted as a sequence of information processing activities to

overcome knowledge gaps (Allen, 1977; Leifer, 1999). Finding the right knowledge and diversifica-

tion throughout the organization are central issues. Where new product development is characterized

with uncertainty in a higher degree than incremental change, issues could arise with the firm IP com-

petences (Rice et al. 2002; Leifer, 1999). A firm should represent the ability to incorporate IP capa-

bilities on a high level. However, to facilitate efficiency, many IP skills have been formalized; the

firm has closed their open social system, which resulted in the necessary and limited IP capacity (Daft

& Lengel, 1986). The concurrent development of more innovative propositions with higher level IP

requirements is therefore often complicated in the established firm context, which is characterized

with formalization and efficient IP capabilities. In this respect, uncertainty is a situational aspect

which could complicate the innovation process.

Risk is a consequence of uncertainty, where the probability of success is described. Moreover, poten-

tial is often closely related with the risk concept; high risk, high reward (O’Connor & Demartino,

2006). Where innovativeness is strongly related with potential/reward, and a higher level of uncer-

tainty, firms should also represent the ability to estimate risks. In this respect, risk becomes a decision

argument: The balance between uncertainty and reward should be the reason on which decision mak-

ing should be executed.

9

2.1.3 Innovation performance

Another important theme throughout in-

novation literature is the discussion of

drivers of innovation performance. From

an organization-oriented tradition, interest

is taken in the structures and processes

which drive a firm’s innovation perform-

ance (Brown & Eisenhardt, 1995). How-

ever, the abundance of academic attention

has resulted in a large diversity and even

in redundancy. In this respect, several au-

thors have pursued a generic overview of

the determinants of innovation perform-

ance: a meta/analysis is provided of what

is currently known. Brown & Eisenhardt

(1995), Cooper & Kleinschmidt (1995),

Montoya-Weiss & Calantone (1994) are

forerunners in this respect. Consensus is

found about factors correlating to the stra-

tegic, market environment and process

performance themes. Cooper & Klein-

schmidt (1995), Montoya-Weiss & Calantone (1994) and Damanpour (1991) found a complementary

correlation between innovation performance and several organizational factors.

Nevertheless, all writers focus on the single consequence: radical innovation performance. In practice,

firms do not act solely in the perspective of radical innovation performance, but also act in the per-

spective of short term results, the bottom-line. The preceding articles have contributed strongly to un-

derstanding innovation and its antecedents, however, a balance must be found between innovation and

the business excellence of daily practices: a complete portfolio should be pursued (Cooper et al,

1999).

2.1.4 Innovation in the established firm context

The established firm’s ability to innovate radically is often not sufficient. Established firms often per-

ceive difficulties in adapting to the dynamic business environment. Christensen (1997) first explicitly

introduced the innovator’s dilemma. In the context of the electronics industry, Christensen (1997)

found that established firms are less effective in reacting to drastic changes in the industry. Where

firms should pursue a complete portfolio, making strategic choices in favor of a heterogeneous inno-

vation portfolio (Cooper et al., 1999), established firms tend to focus on incremental change (Leifer &

Rice, 1999). A common phenomenon is the established firm’s focus on solidifying their current port-

folio with incremental change (Chandy & Tellis, 2000). This recognition has not been unique of its

kind, others have found comparable relations (Utterback, 1994; Abernathy & Clark, 1985; Tushman

& Anderson, 1986; Henderson & Clark, 1990) and practices, where examples can be found in the disk

drives (Christensen & Bower, 1996), personal computers (Bower & Christensen, 1995), telephone in-

dustries (Christensen et al., 2002), automobiles (Abernathy & Clark, 1985), semiconductors

(Tushman & O’Reilly, 1997) and the pharmaceutical industry (Gilsing & Nooteboom, 2006).

Strategy

Product advantage

Technological synergy

Marketing synergy

Comapny resources

Strategy of product

Market environment

Process performance

Organizational factors

Innovation

performance

Market potential/size

Market competitiveness

External environment

Proficiency of technical

activities

Proficiency of marketing

activities

Proficiency of up-front

(homework) activities

Protocol (product definition

Top management support

Speed to market

Financial/business analysis

Internal/external relations

Organizational factors

Figure 4, Innovation performance antecedents (Based on Cooper

& Kleinschmidt, 1995)

10

Contradictory, established firms are assumed to have advantages over new entrants. With their knowl-

edge, competences and resources, it should not be an issue to develop a succeeding competitive ad-

vantage. Their precedent experiences are assumed to provide the capabilities which enable the firm to

change along technology cycles as well transiting between technology cycles. Moreover, established

firms could utilize their market power (Brown & Eisenhardt, 1995). They are build on know-how,

have other unique resources and create new competencies continuously (Dougherty & Hardy, 1996).

Overall, industry leaders posses a major assumed advantage over new entrants, but one which has

proven to be a burden rather than to be sufficient to stay on top.

The dilemma is caused by the firm’s inability to act flexible. Their bureaucratic structures aren’t or-

ganized to handle uncertainty. The systematic approach, which is utilized to manage uncertainty, is

most often inappropriate (Leifer & Rice, 1999). Others relate the incumbent’s reluctance towards rad-

ical change to the theory of the technology cycle and found a lower perceived incentive, organiza-

tional filters and incompatible organizational routines (Chandy & Tellis, 2000). For instance, re-

sources should be allocated optimally, which requires a trade-off between risks and potential of

propositions. The established firm should have implemented a system to allocate resources in the op-

timal way. Complementary, the system is expected to nurture new ideas and continuously raise and

solve problems (Dougherty & Hardy, 1996). This implies the deliberate allocation of resources to

more radical innovation. Dougherty & Hardy (1996) also found in the ability to innovate intra- and in-

ter-units, where resources specifically addressed to innovations are freely distributable. This allows

innovation to have multiple chances to find their success and collaboration finds its way throughout

the organization. However, with the current focus on short term share-holders values, the pursuit of

operations excellence mostly requires the allocation of all resources available and neglecting the need

for new product initiatives. As a result established firms often neglect the need to pursue radical inno-

vation.

Hence, several academics have provided incomplete visions on innovation management, where they

are focused on start-ups (Chandy & Tellis 2000; Ahuja & Lambert, 2001) or do not consider the in-

fluence or incremental innovation (de Vries, 2007) Their existing routines, employee base, focus on

traditional business and less incentive to innovate require other drivers of innovation performance

(Ahuja & Lampert, 2001). This distinction differentiates between the economic motivation and a lack

of ability regarding radical innovation (Henderson, 1993). Established firms require a different view

or approach of radical innovation. In essence issues are found in the allocation of resources, collabora-

tive structures and processes and strategic value and meaning (Dougherty & Hardy, 1996).

2.2 Becoming ambidextrous

How to become ambidextrous? After recognizing the need for radical and incremental innovation, the

pursuit for the ambidextrous organization had been initiated. This resulted in a shift from trade-off to

manageable tension (Adler et al., 1999; Kyriakopoulos & Moorman, 2004; Knott, 2002). Researchers

focus on finding a liaison between both concepts in order to fuse both concepts into a manageable

concept. Overall, the solution has been and will be subject of researcher’s attention for several years

to come (Adler et al., 1999). What does this imply for the conceptualization of the ambidextrous or-

ganization? We foresee the creation of dynamic thoughts about optimal solutions and their character-

istics. From this perspective a clear definition of the ambidextrous organization is provided.

11

2.2.1 Definition of Ambidexterity

The solution initiatives are roughly classified in separation, integration and integration of both (Wes-

terman et al., 2006). Separation implies the absence of cross-fertilization and integration would imply

cross-contamination (O’Reilly and Tushman, 2004). The latter classification, integrative solutions, in-

corporates the ambidextrous organization which combines, both integration as well separation. The

ambidextrous organization is defined by its capacity to simultaneously pursue an explorative as well

an exploitative strategy regarding change, intra- and inter-firm boundaries (Tushman & O’Reilly,

1996; O’Reilly & Tushman, 2004; Gibson & Birkinshaw, 2004; Gilsing; He & Wong, 2004; Bierly &

Daly, 2007). From this perspective, the ambidextrous organization has proven to discard the tensions

in an effective way and to create the necessary circumstances for a positive effect between exploita-

tion and exploration, (Tushman & O’Reilly, 1996; O’Reilly & Tushman, 2004; Gibson & Birkinshaw,

2004; Bierly & Dali, 2007; He & Wong, 2004). Where other initiatives fail to facilitate the dynamic

nature of the task environment (Gibson & Birkinshaw, 2004), the ambidextrous organization reflects

the capacity to overcome the tensed situation between different types of change. More specifically,

this implies an optimal balance between both contradictory types of innovations and every instance in

between. The optimal balance between resources allocated to explorative and exploitative activities,

in the perspective of environmental demands on the short as well long term, should guarantee the con-

tinuation of a firm. Overall, the tensed situation, which occurs between the opposing types of innova-

tion, is proven to be best overcome by implementing an ambidextrous organizational design (Tush-

man & O’Reilly, 1996; Gibson & Birkinshaw, 2004, O’Reilly & Tushman, 2004; Bierly & Dali,

2007).

2.2.2 How to become ambidextrous?

An overview of the ambidextrous organization is provided, founded upon multiple interpretations.

Tushman & O’Reilly (1996) have provided a major contribution to the concept of ambidexterity in the

management literature. They introduce three conclusive characteristics, structure, culture and manage-

rial ambidexterity, founded upon several case studies. The organizational architecture of an ambidex-

trous firm shows a clear separation of the explorative and exploitative division of the firm. A distinc-

tive positioning of both “functions” being coordinated through a higher management level. The im-

portance of structural independent units, with their own structure, culture, people and processes, is

founded upon their contradicting necessities. Opposing types of innovation requires separation upon a

certain level, where advantages can be found in selectively transferring knowledge between units, co-

ordinated by higher management levels. The decentralization of the decision making process and clear

division of both functions are an outcome. A second facet of the ambidextrous organization is the bi-

focal culture within one company. There is strong focus on separating both cultures. This results in

the creative and dynamic context for radical innovation, contradictory to the efficiency driven context

of incremental innovation. The last decisive facet of ambidexterity is the influence of managers who

are responsible for the controlled and useful information and other resource flows between the differ-

ing functions or divisions. The management should integrate both functions and facilitate the cross-

fertilization resulting in the optimal balance between incremental and radical innovation.

He & Wong (2004) interpreted and implement ambidexterity as a hypothesis, to overcome the ten-

sions between the opposing forces, without explicitly defining the ambidextrous organization. They

adopted the view of Tushman & O’Reilly (1996). Their independent variable specified the ambidex-

trous organization in terms of resources allocated to different types of innovation. Beyond this inter-

12

pretation no further Gibson & Birkinshaw (2004), who provide a simplified analysis of the traditional

ambidextrous organization, identify a new interpretation of ambidexterity. They interpreted ambidex-

terity as the allocation of time to innovation of the individual employee. Adler et al. (1999) provide a

classification of ambidexterity, dividing it into four organizational mechanisms in crossing the chasm

between incremental and radical innovation; meta-routines, switching, enrichment and partitioning.

This classification represents, in a rather conclusive way, the paradigms which exist regarding ambi-

dexterity. Meta-routines strive for transforming standardized and more efficiency focused jobs into

flexible and non-routine jobs. The other initiatives are more focused on developing non-routines

without affecting the efficiency related jobs (Adler et al., 1999). Enrichment is an ambidextrous solu-

tion which introduces development, improvement or innovative goals to the standardized routine

goals. Employees enrich their activities through leaving room for improvement. Switching is less in-

trinsic compared to enrichment. Switching allows the employees to switch between innovative and ef-

ficiency related activities, which implies a sequential way of combining both aspects. The last ambi-

dextrous solution is separation. This is a separated organization, where both “division” have their own

goals, innovation versus efficiency and the corresponding organizational design.

2.2.3 Transition management

From a rather limited research base it is known that the transition from innovation function to opera-

tions is often a major obstacle in the innovation trajectory (Rice et al., 2002). Where operations have a

short term focus and pursue business excellence for their initiatives, they are optimally organized for

exploitation. High degrees of certainties allowed strong and formalized practices to control and man-

age the organization. On the contrary, the innovation function pursues initiatives, which are character-

ized with organizational, resourcing, market and technology uncertainty. Inevitably, the integration

should take place, where the proposition should become part of the firm’s product portfolio. The ideal

situation asks for the development until all uncertainties are diminished, however in practice this is a

utopia (Rice et al., 2002). Innovation is always characterized with more uncertainty than the daily

practices of the portfolio houses, which implicates the transition. The portfolio house isn’t organized

to allow uncertainty in their practices and is often intending to reject innovation. A barrier to innova-

tion, which has not been subject to discussion that often. Nevertheless, we consider this theme as ex-

tremely important in becoming ambidextrous. It represents, besides all other antecedents of innova-

tion performance an important barrier to successful innovation.

However, transition management implies the ability to handle the uncertainty in a most effective way.

Rice et al. (2002) propose seven practices for increasing the effectiveness of the transition.

• Transition team, a team which fills up the gaps in capabilities. The critical transition phase

requires another team composition than the initial and discontinuous phases of the innovation

trajectory. Specifically, a focus on the appropriate competences and skills is proposed, which

are required to decrease uncertainty.

• Transition oversight board, The effectiveness and performance of the transition team is eva-

luated by the oversight board. These are expected to qualitatively assess the team for its per-

formance. Moreover, the coordination is also facilitated with the strategic positions in the

oversight board.

• Transition readiness assessment, both the sending and receiving actor should be assessed on

their transition readiness. This requires a negotiation process, with information sharing as the

13

main driver. Uncertainty should be decreased along their concurrent development of “early

receiving capacity.”

• Development of a transition plan, the rather detailed plan should define tasks, a timetable,

roles and the responsibilities. This drives team members to effectively execute the transition,

where goals and responsibilities are clear. Moreover, this allows management to assess the

team upon the standards set in the transition plan.

• Funding is found in corporate resources, the operation’s unwillingness to invest in uncer-

tainty is founded upon their focus on business excellence. If resources are gained from a cor-

porate level, a broader perspective can be included.

• Transition team lays groundwork for a big market, in the search for large new revenues

sources, the first revenues are most important. These provide a little certainty and confirma-

tion of the needs and match with the product specifications.

• The inclusion of firm’s champions, senior management has the ability to include experience as

well authority to the project. This will “safeguard” the project against the forces of resistance,

which are found in the internal and external firm environment. Important, however, is the in-

clusion of firm champions of at least both sides of the transition.

These propositions may provide useful solution concepts for the design phases. Interchangeably, we

should be able to provide proof or contributions to their findings.

14

3. Problem Statement

“An undefined problem has an infinite number of solutions.”5

Defining the appropriate business problem is crucial for this thesis’ success. The first phase in the

regulative cycle of van Strien (1997) is expected to define the research aim and provide structure and

boundaries to the analysis in succession. In this respect, we specifically address the problem context

and problem formulation

3.1 Problem context

3.1.1 Company description

“KPN is the leading multimedia company in the Netherlands, providing consumers and consumer

households with fixed and mobile telephony-, internet- and TV services. To business consumers, KPN

delivers voice-, internet- and data services as well fully-managed, outsourced ICT solutions. Both na-

tionally and internationally, KPN provides wholesale network services to third parties, including op-

erators and service providers” (KPN, 2007). KPN employs around 28.368 individuals, which equals

25.976 fte’s. KPN finds its origin in a state-owned telecommunication company, which evolved

throughout all technological progressions. An overview of the KPN history is provided in appendix A.

3.1.1.1 KPN now

Solely “Changing” is printed on the front cover of the annual report 2006 of KPN. This title strongly

affiliates with their vision, mission and situational context in which they are operating. KPN’s current

vision is best depicted with the following statement.

“In a relatively short period of time, KPN has taken some major steps to transform itself

from an incumbent technology and product-orientated telecommunications provider into

an independent commercial enterprise that provides a wide range of multi-media services

for consumers and managed ICT and network services for businesses” (KPN, 2006).

Specifically, three core aspects can be obtained from this statement. First, KPN has transformed from

telecommunications, to multimedia and ICT service provider. This has broadened their focus and need

for innovations. Second, KPN distinguishes the business market from the consumer market, which

significantly affects their perspective on innovation. Third, KPN has transformed from a technology

focused firm into a service provider, with technology as supporting platform. The latter implies their

dependence on traditional infrastructure and again their perspective on innovation.

For the future, KPN has expressed the “back to growth vision” in order to guarantee continuity. This

will be characterized by efficiency improvements, affecting the direct bottom-line, as well initiatives

to tap into new sources of revenues.

5 Source: R.A. Humphrey (www.quotationspage.com)

15

3.1.1.2 Competitive and technological environment

“The telecommunications industry has been changing rapidly and fundamentally, princi-

pally through technological advances and deregulation, and is to some extent unrecog-

nizable from that of even five years ago. Indeed, we are nearly at the stage when it is no

longer accurate to classify it as ‘the telecommunications industry’: the traditional

boundaries between communication, information and entertainment have almost disap-

peared, and any company which wants to compete in this new environment has to wel-

come change and make it work to its advantage” (KPN, 2006).

The trend of change, which is found in the depreciation of national and technology borders and more

symmetry in terms of knowledge, has characterized the KPN environment. KPN is active in a segment

where traditional borders between industries diminish. Firms seek growth opportunities abroad, where

synergy and new customers weight out the costs. Furthermore, the entertainment, information and

telecommunication industries evolved into one segment. This resulted in the restructuring of market

power, where more parties are competing for the same market shares. It is even inappropriate to clas-

sify competitors solely to one industry, where almost all competitors have crossed the traditional

boundaries.

Overall, KPN is active in a highly dynamic and intense competitive and technological environment.

Several “established firms” are competing without the consideration of national and technological

borders and are concurrently threatened by innovative parties addressing niches and new technologies.

3.1.2 Organizational structure

The organizational structure plays a major role in innovation success (Cooper & Kleinschmidt, 1995;

Jansen et al., 2005). In this respect, we discuss the position of BS&I, portfolio houses and the entre-

preneurial team in detail. A graphical presentation is provided in appendix A.

A critical remark refers to the complexity and large size of the KPN organization. This has resulted in

a limited view, solely discussing the most relevant divisions and functions. We adopted a focus on the

business market segment. The other business units are not completely discarded. They affect the in-

novation process as well innovation function6.KPN is divided in the following divisions:

• Wholesale and operations

• Business Market

• Consumer market

• IT Netherlands

• Mobile International

The business market division is an ICT service provider in the Dutch business market segment. In do-

ing so, the business market division designated the following units:

6 For instance, the Wholesale and Operations division often acts as a preferred supplier, which implies the inter-

dependency. Their services often yield as complement of the new proposition, which requires the coordination

in the innovation process.

16

Business units:

• Sales

• Business market (Marketing)

• ICT services

• Infrastructure services

• Corporate solutions

Staff units:

• Business Process Management

• Business Strategy & Innovation

• Finance

• Human resources, Legal & Purchasing

The business units are the recipients of innovation and suppliers of resources and knowledge, concur-

rently to their product management activities. They all represent a complex and large organizational

structure, which is organized in the perspective of efficiency: they are highly differentiated over mar-

ket segment, type of portfolio and functions. This is, however, not further specified. We focus on their

function in the innovation system. ICT services and Infrastructure services yield as innovation recipi-

ents, they are so-called product houses. They manage their own portfolio and carry responsibility for

its success. Sales and business market are considered as suppliers of resources. They are involved in

managing existing portfolio and carry the same responsibilities.

Specifically, the business units have a profit and loss responsibility towards the management board. In

addition to their bottom-line target, they are responsible for sustainable growth of their current and

new businesses. In this respect, they are autonomous in decision-making, regarding resources, priori-

tization and balance their attention between incremental innovation and more radical initiatives.

The staff functions are relatively unambiguous regarding their organizational structure and corre-

sponding function and goals. Besides finance and HR, Legal and purchasing, which have no specific

interest in innovation, the business market division employs the functions of Business Strategy and

Innovation and Business Process Management. The latter is responsible for the management and op-

timizing business processes as currently deployed within KPN. BPM is pursuing efficiency and con-

trol regarding processes as well the inclusion of customer driven incremental innovation as well radi-

cal innovation. BS&I is discussed into detail hereafter.

3.1.2.1 Business Strategy & Innovation

Business Strategy & Innovation is entrusted with the more radical innovation trajectories within the

business segment. They are required to identify and develop promising trends or high growth business

opportunities. Furthermore, this case study resides in the context of Business Strategy & Innovation

(BS&I), which underlines the need for the specific discussion of its position, role and goals.

BS&I is positioned as staff function in the organizational architecture, which implies the direct gov-

ernance of the management board. This implies inter-divisional coordination at the highest manage-

ment level possible. Moreover, they do not have to comply with the regular profit and loss account-

ability; a negative result is more or less expected. This implies a focus on revenue and cost efficiency,

without the objective to contribute to the EBITDA. The division employs 15.4 fte’s

Overall, they pursue four core objectives;

• Identification of major trends in the relevant market segments,

• provide a strong vision for the business segment,

17

• commercialization of innovations and

• partnering.

This is in line with their organizational diagram which structures the BS&I department into two busi-

ness lines, innovation and business strategy. Primarily, our scope includes the innovation line.

Currently, they are actively pursuing opportunities in the following themes, Healthcare, Mobile pay-

ments, Security and Education. Within these themes more specific proof of concepts are initiated,

which ultimately should evolve to a product. Until now, they have initiated several propositions, for

instance narrowcasting and applications online. The complete research portfolio throughout the exis-

tence of BS&I is depicted in appendix F.

3.2 Problem formulation

Initially, KPN stated that “the innovation potential of Business Strategy & Innovation represents a

higher potential than realized.” The radical innovation performance does not live up to their expecta-

tions. KPN formulated that new product initiatives from BS&I straggle to gain their prospected reve-

nues. KPN has been confronted with the rigorous character of radical innovation and its interdepend-

ence towards the traditional business.

3.2.1 Preliminary analysis

The initial problem statement does not provide sufficient ground to found the analysis (van Aken et

al., 2006). In this respect, a first assessment of the business problem and causes is executed. The pre-

liminary analysis utilizes open interviews with members of BS&I complemented with a review of

documentation. The respondents have a broad range of experiences and knowledge. However,

boundaries are found in the limited scope of the research project as well validity of initial opinions.

Therefore, throughout the project, the problem definition is iteratively sharpened.

Primary, the issues evolve from the need to integrate new product initiatives in the established product

portfolio. The new product initiatives are assumed to transit to existing product houses and comply

with their strategy intent. From this assumption two main issues for the unsatisfactory revenues can be

found, hampered transition of product initiatives through the innovation process and the powerless

pursuit of new product initiatives. Still, the classification is relevant, where they are distinctive in

terms of their focus. The first mentioned considered the deficiencies of the complete process, where

the second mentioned focuses upon the facilitating aspects of the process.

Furthermore, the respondents related the ineffective management of focus explicitly to the innovation

performance. The focus is interpreted as the proposition pursued in terms of specifications. Several

propositions did pursue the wrong focus, where the product specifications differed from the customer

requirements. Others lacked the focus on scalability, where the vision of a single customer was pur-

sued.

Moreover, the innovation performance is directly associated with the behaviour of strategic partners,

where innovations are pursued in the context of a collaborative network. This approach beholds sev-

eral advantages in terms of competence, knowledge as other resources, but entails an extra dimension

regarding management and exerting control.

18

The preceding analysis has resulted in the following problem statement:

“KPN has conformed itself to exponential growth, in which innovation could play a major role. In

this respect BS&I pursues the more radical innovation initiatives. Nevertheless, the radical new

product initiatives from BS&I result in a lower innovation performance than expected.

This yields as guiding principle for the primary aim of this thesis as well it specific research ques-

tions. The specific cause-and –effect diagram is depicted in appendix B.

3.2.2 Case study objectives

In the perspective of the theory-based business problem solving

methodology, a focus will lie on the business objective with the

scientific aim as equivalent surplus. This implies the conforma-

tion to practical applicability, plausibility and possible financial

suitability (van Aken et al., 2006). The primary aim will entail

the solution design accompanied with the insights gained from

the BPS methodology. Hence, the innovation performance has a

central position in the case study objective.

The primary aim is:

“Providing an organizational re-design in improving KPN’s radical innovation performance without

compromising their short term focus.”

Fulfilment of the aim requires the consideration of the causes, of which drivers can be found in the in-

novation process with the consideration of complementary aspects, commitment, cultural, strategic

and organization related aspects. Furthermore, a solution is pursued. Therefore the following research

questions are addressed:

Question 1

“Is KPN negatively affected in its innovation performance?”

&

Question 2

“What causes the unsatisfactory innovation performance of radical new product initiatives?”

&

Question 3

“How should KPN organize their innovation system in order to improve the radical innovation per-

formance without compromising their short term focus?”

The arguments, which underline the answers, are explicitly discussed in the coming sections. Subse-

quently, the conclusion is formed, which intents answering these questions.

Commercial

disconituous

Technological

discontiuous

Incremental

Innovation

Ability

to

innovate

Radical

innovation

Acquisation

Figure 5, Research objective

19

4. Methodology

“The case has, in some respects, been not entirely devoid of interest.”7

Where choices concerning research methods affect validity, reliability and generalizeability, it is cru-

cial to acknowledge advantages and disadvantages of the applied research methods. Following the lo-

gics of van Aken et al. (2006) and Miles & Huberman (1984), the operational project plan is dis-

cussed. This includes a complete overview of the applied data collection and data analysis methods.

Furthermore, the “discussion section” will depict the implications of the methodology in terms of pro-

ject validity and reliability. The conceptual project design is depicted in appendix c.

4.1 Research Strategy

To address the practical as theoretical aim in the best possible way, the case study research approach is

most appropriate research strategy to follow. It allows researchers to study examples and experiences

from the practical context and translating them into generic statements (Yin, 2003). The application of

case study research is based on the following argument. Most important, is the question addressed. In

the perspective of Yin (1994) the case study research project is most appropriate for “how and why”

questions. Other rationales are found in lack of control over behavioural events as the focus on con-

temporary events as opposed to historical events (Yin, 1994). Moreover, in comparison with other re-

search strategies, no classification is possible in terms of academic value (Yin, 2003). In this respect,

we conclude that the arguments in favour of the case study research correspond best to the research

project methods as discussed hereafter.

4.2 Research Scope

Innovation in all its functions, antecedents and consequences entails a complex construct. The contin-