How do Organisations link Innovation and Strategic Renewal? A Social-Practice Perspective
Marc Thompson, Rafael Ramirez, Peter Lednor*, Leo Roodhart*, Eric Allen** Saïd Business School University of Oxford
Oxford OX1 5NY *Shell International
** European Patent Office
e-mail: [email protected]
Draft Paper: Not to be quoted or reproduced without prior permission
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Introduction One of the fundamental challenges facing established organisations is how to renew their strategy in order to prosper and grow. Strategic renewal has been defined in many ways but at its core it involves the transformation of the organisation’s capabilities that can reposition the firm in terms of its market or product mix which ultimately develops new markets or industries (Ramirez and Wallin, 1999). One source of strategic renewal that tends to be underplayed in the literature is innovation. Whilst the literature sometimes associates the concepts of innovation and strategic renewal (Floyd & Lane, 2000), it rarely analyzes how they relate to each other. We have addressed this gap through co-research with senior executives, reviewing literature and undertaking case studies of European-based firms in non-competing industrial sectors, as well as a number of practitioner workshops. This paper is based on the first 18 months of the research. At a methodological level, the research project is informed by a co-production of knowledge perspective where researchers and practitioners work together to develop research questions and analyse data and evidence. As such it responds to Pettigrew’s call for more research on managerial practice and co-research with practitioners (Pettigrew, 2001). The research connects with the emerging strategy-as-practice literature which calls for a research agenda that ‘sees strategy through the eyes of the practitioner’ (Jarzabowski, 2005). An advantage of our methodological approach is that it has enabled us to jointly determine the social practices to be included within the study of the links between innovation and strategic renewal. This process avoids many of the criticisms levelled at strategy research for its strong positivist and micro-economic bias which tends to overlook the role of strategists and other actors in the organisational context that ‘make’ strategy. The paucity of research linking innovation and strategic renewal means that we have only a partial understanding of the practices and processes underpinning their relationship. The literature is predominantly focused on either innovation or strategy renewal, but rarely explores how innovation can sustain renewal and/or vice versa. Thus, some writers explore the innovative journey from idea creation to new offering launches (Salaman & Storey, 2004; Van de Ven, Polley, Garud, & Venkatraman, 1999). Others explore processes underlying innovation, such as creativity management (Bangle, 2001; Hargadon & Sutton, 2000), cross-functional team management (Keller, 2001; Lovelace, Shapiro, & Weingart, 2001), locating innovation in and/or outside the organization (Chesbrough, 2003; Huy, 2001), managing innovation in the multinational enterprise (Cantwell & Molero, 2003; Nobel & Birkinshaw, 1998), or establishing effective metrics to learn from and track innovations (Azzone & Maccarrone, 2001). On strategic renewal, scholars have examined the tensions between selection and adaptation (Burgelman, 1991) or renewal journeys (Volberda & Baden-Fuller, 2003), but there is little on how innovation and renewal relate to each other. The objective of this paper is to provide grounded empirical insights and evidence on how organisations are approaching this linkage. The paper also seeks to add to the
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emerging strategy-as-practice field by presenting case study data on how strategising takes place. Through this social practice lens it makes a contribution to the Resource Based View (RBV) of strategy which privileges the role of internal capabilities and socially complex assets such as knowledge, culture and the learning routines of organisations. However, this literature tends to overlook the more fine-grained analysis of process and practice within the ‘black box’ of the firm because of its predominant focus on the links between measures of RBV and organisational performance. Our grounded approach to exploring one of the most important strategic challenges facing established firms can put flesh on the bones of RBV by providing insights on how strategising happens and its consequences for the building of unique, not easily replicable firm-level resources. The paper contributes to this symposium because of its focus on value creation through strategic renewal and its consequent interest in how different knowledges are co-ordinated to achieve this goal. A Social-Practice Perspective on the link between Innovation and Strategic Renewal The strategic renewal literature is at an early stage of development but two broad themes can be discerned, at least in terms of the level of analysis. The first focuses on macro-level mechanisms and in particular the strategic management practices that may trigger renewal such as mergers and acquisitions, joint ventures, alliances and portfolio management (Baden-Fuller et al, 1997, Volberda et al 2001, Stopford et al 1994). A further perspective in the literature deals with the context of strategic renewal, understanding the conditions in which renewal is likely to happen. Huff et al (1992), for example, identify the tension between inertia and the pace of environmental change which builds pressures for adaptive change. Yet other views in the literature define strategic renewal as the recombination of resources that can enable an improved competitive position (Burgleman, 1991). At a micro-level, there has been a focus on cognition and learning connected to the issues raised by the RBV and also the dynamic capabilities (Teece et al, 1997) perspectives. For example, Crossan and Bedrow (2003) suggested that four processes (intuiting, interpreting, integrating and institutionalising) are important for strategic renewal. Barr et al (1992) have modified Lewin’s unfreeze-change-refreeze framework to take account of cognition and learning as part of the renewal process. Bogenrieder (2002) also working from a learning and cognition perspective, developed the notion of a social practices as a ‘.. a managerial instrument to foster adequate relationships for learning’. Writing from a social-cognitive theory of learning perspective, she emphasises the importance of cognitive diversity for learning if the context is high levels of technical and goal uncertainty – as is the case in innovation-renewal situations. In terms of learning theory, strategic renewal has parallels with double-loop learning where a change in the game itself takes place (Argyris and Schon, 1978). Changing the game to obtain strategic renewal requires bringing together different epistemic communities (Holzner and Marx, 1979) to explore future strategic and organisational possibilities. One implication, in terms of strategic renewal, is that communities where business knowledge is central (business development, strategy, finance etc) should interact with communities with different epistemologies and identities (such as R&D, science, patenting, or engineering).
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The importance of social practice in shaping organisational learning and renewal was identified by March (1991). His examination of how the goals of exploitation or exploration result in different organisational learning strategies, suggested that social practices could play an important role. In particular, he proposed that different modes of socialisation and employee turnover could be important practices shaping organisations exploratory or exploitative learning strategies but did not base this suggestion on empirical evidence. He argued that fast rates of socialisation (i.e. in strong culture organisations) minimise the learning that organisations can have from new recruits, undermining exploration strategies. On the other hand fast socialisation, by applying recruits skills and aptitudes in proven ways can address current organisational challenges and therefore help with exploitation strategies. Similarly, high rates of personnel turnover can work against the exploitation of existing knowledge but may paradoxically assist exploration strategies if firms are able to absorb quickly the knowledge of new recruits. Burgelman and Sayles (1986), in a longitudinal study of Intel, argued that recruitment and selection policies and practices in business development functions, the design of job roles, and aligned incentive systems can play critical roles in enabling strategic renewal. This brief review of the literature on strategic renewal illustrates that both the macro and micro level literatures have by and large overlooked the critical strategic space connecting innovation and renewal. However, the micro-level literature has begun to address some of the practices and processes (mainly from a learning organisation or dynamic capabilities conceptual framework) that may be important in mediating the strategic renewal process. The most comprehensive and yet parsimonious definition of strategic renewal – and one which best informs our research activity- is ‘a process associated with promoting, accommodating, and utilising new knowledge and innovative behaviour in order to bring about change in an organisations core competencies and/or change in its product market domain’ (Floyd and Lane, 2000:155). This definition is helpful as it emphasises not only the dynamic role of processes but also the critical role of innovation and learning which we believe are important in understanding the links between innovation and renewal. The definition connects with a social practice perspective on strategy which is the primary conceptual frame used in this paper. A social practice perspective stresses the importance of gerunds over nouns, placing the emphasis on both strategising (Whittington, 2004) and organising (Weick, 1995). Strategising is a dynamic process that involves multiple actors who interact in a social context, using practices, processes, tools and techniques to make strategy. Because strategising involves such practices it is intimately bound up with organising. In other words, the act of making strategy is about the act of organising the process that enables strategy development. Recently, the ‘practice turn’ in strategy (Orlikowski, 1992, 2000, Orr, 1996, Whittington, 1996, 2004, Jarzabowski, 2005) has encouraged researchers to pay more attention to strategy as an emergent phenomenon, one shaped and mediated by social practice. This perspective privileges the role of cognition, identity, group dynamics, social networks and personality, among other factors, in the strategising process. It foregrounds the role of micro-practices and processes and their part in enabling strategic actors to interact and thereby create the space for a ‘strategic conversation’ to emerge (Van der Heijden, 2005).
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Our primary research focus in this paper (and the wider research programme with practitioners) is on how strategic renewal ‘work’ gets done in organisations. From a conceptual perspective, the Resource Based View (RBV) and the closely related Knowledge Based View (KBV) of the firm open up a series of questions about how firms create the internal capabilities to create new value. A central question is what are the processes and practices that firms use to enable them to create new value propositions or value constellations (Ramirez and Wallin, 1999). A social practice perspective can complement the RBV and the Value Constellation approaches and enrich our understanding of the processes and practices firms design to enable renewal through innovation. Strategic renewal, at its core, is about how new knowledge is created and leads to new markets and industries. From a social practice or micro-institutional perspective this means bringing together actors with different knowledge bases and epistemological traditions to participate is a strategic dialogue about the future(s) of the organisation. Brown and Duguid (2001) recognise that a knowledge based view of the firm (e.g. Kogut and Zander, 1992, Grant 1996) becomes more powerful when it is sensitive to socio-cultural perspectives on how knowledge creation, innovation and renewal take place. They argue that organisations should be seen as the context in which the heterogeneity of knowledge claims, embedded in different units and divisions are integrated or managed. Ultimately, an organisations competitive edge depends on its unique ability to coordinate knowledge across these divisions and boundaries (Brown and Duguid, 2001). For example, Rosenberg (1994) and Teece et al (1994) argue that innovation often involves building coherent systems of complementary knowledges. However, these studies have been primarily theoretical with little empirical support or examples. The emphasis on social context for the links between innovation and renewal underlines the importance of interaction, co-production, and relational exchanges. This finds support from Floyd and Lane, who contend that ‘ given the importance of social interactions to knowledge development and organisational learning…renewal can be understood best as a system of relational or social exchanges’ (2000). Consequently, it follows that the links between innovation and renewal can be measured by the range and quality of the social interactions in this space. These links can be interpreted as managerial design decisions on the social practices and processes that are most appropriate for connecting both spheres (Boland and Collopy, 2003) Together these different perspectives on strategic renewal underline the important role played by social practice. This is all the more interesting since research evidence suggests that many firms have a low success rate in transforming exploratory innovation into large-scale and sustainable businesses that can renew the organisation (Chakravathy and Lorange, 2005). One explanation is that firms social practices may be a differentiator. Our research programme seeks to plug this gap by understanding the processes and practices that organisations are using to integrate innovation and renewal. The specific contribution of this paper is to ground the problem of the link between innovation and strategic renewal in a practice perspective drawing on empirical evidence from a cross-section of large, established, non-competing, mainly European multi-national science and technology firms. These have been selected because they are currently grappling with the managerial challenge of strategic renewal.
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Methodology The ideas explored in this paper are part of a larger research programme on the management of innovation and strategic renewal which, as already mentioned, is being co-conducted with researchers at Oxford University by executives in two large European organizations: Shell and the European Patent Office (EPO). In the first year, a team of five academic researchers engaged with four senior executives from the sponsoring organisations on a joint process to explore and co-produce knowledge on innovation and strategic renewal. After an initial extensive literature review, the joint team developed a set of research questions that were explored in the 8 case study organisations. The research findings from these cases were analysed and the main themes and issues presented and discussed at a practitioner conference in February 2005 which gathered 50 senior executives from 15 organisations (including the case study organisations). The core methodological approach used is a combination of case-study research (Yin,1994; Eisenhardt 1990) and grounded research (Glaser & Strauss, 1967). However, the process of conducting the research with practitioners is relatively rare and deserves some comment. Pettigrew et al (2001) explained that opening the boundaries of research to integrate practitioners is a way to increase the relevance, diversity and applicability of the research: ‘There is also a clearer recognition in recent work in the natural and social sciences that knowledge derives not just from individual thought but from collective processes of networking, negotiation, interpersonal communication and influence’ (2001, p 705). Citing Gibbons et al (1994) they describe knowledge co-production as typical mode 2 research: ‘In mode 2, research problems are framed in the context of application. Here research is trans-disciplinary, allows diffusion during knowledge production, involves teams heterogeneous in terms of skills and experience, and is more socially and politically accountable that the discipline-driven control process of mode 1’ (Pettigrew et al., 2001, p 705). We believe that managerial relevance is correlated with good research. This process of co-production with executives who are not employed as researchers (although 3 out 4 hold PhD’s) does not compromise rigour if their involvement is structured as part of the inquiry, using their contextual knowledge and skills to explore the links between innovation and strategic renewal in semi-structured dialogue with other practitioners. Such involvement radically increases the power of reflective discussions and induction in the research process, decreases defensiveness of the other case study organizations, and increases the quality of the strategic conversation (van der Heijden, 2005). We chose a multiple-case study methodology for several reasons. First, there is limited research on the innovation-strategic renewal link. Thus, following Glaser & Strauss (1967)’s principles of grounded theory, we engaged in a continuous feedback between the existing literature and the data to create thick descriptions of the phenomenon. Second, as Yin (1994) argues, case study research is much better at answering questions of the type “how are innovation and strategic renewal related?”. Third, we
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needed to study the co-evolution of the innovation and renewal processes within their own organisational context by interacting with people intimately involved in both areas. Case company selection Our sampling criteria were not statistical but theoretical (Eisenhardt, 1989). First, we looked for large European firms or firms with a significant European presence. Second, firms had to operate in non-competing industries so that they would be willing to be researched by the academic/practitioner team. Third, firms had to agree to deploy senior managers to prepare day-long visits (sometimes framed by non-disclosure agreements) where their practices could be explored in detail. Fourth, we had to ascertain, as pointed by Volberda & Lewin (2003), that these managers were managing for renewal and long-term survival. Fifth, and finally, since we were interested in finding whether identified practices and processes would hold across industries, we needed to maximize the likelihood of industry variance. This sampling process creates two limitations. First, it prevents intra-industry analysis since we only have one firm per industry. However, the benefit of multi-industry examples is that it can capture a broader range of environmental conditions across industry boundaries (Bettis & Hitt, 1995; Eisenhardt et al., 2000; Miller & Drouin, 2004). Second, our organisations are large, international, mostly global firms and consequently we cannot comment on what takes place within smaller firms. Case fieldwork and data gathering We used a multi-method data-gathering process. First, we prepared strategic profiles on each sampled company with both public domain data (annual reports, press analysis, industry reports, case studies) and company documents provided in a preliminary visit. Then we organised day-long visits which involved face-to-face interviews (both individual and collective) of up to eight senior managers in innovation, R&D, new business development, strategy, and IP management in each of the eight companies in year one and an additional 6 companies in year two. In total we met with and interviewed 68 managers. The interviews were semi-structured and enabled time for exchanges of views and practices between host managers and research team practitioners and academics. Host executives were as interested in asking questions to visiting executives. However, as researchers, we always made sure that all the themes included in the protocol were covered so that we had sufficient data to analyze our main research questions (Eisenhardt, 1989). Our pre-visit strategic profiles helped us to triangulate interview data not only to control for the bias introduced by the interviewer-interviewee relationship (Webb, Campbell, Schwartz, & Sechrest, 1966) but also to embed ourselves in the deep context of each case. The case study reports were discussed with companies after the research visit to check for any inaccuracies or misinterpretations. Analysis and practitioner reflection
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Each company visit or each interview was fully transcribed. We first worked on a within-case approach (Miles & Huberman, 1994) and then broke up the collected data into single case analytical memos according to the protocol to create smaller components and enrich the case description. The team of researchers then met after each visit to discuss and validate the interpretation of the case. The next stage was to undertake a cross-case analysis looking for similarities, differences and emerging patterns (Coffey et al., 1996). A practitioner conference was held some months after the case visits which allowed us to present and discuss our findings for validity and further refinement with both participants and non-participants in the case study research. Details of the case study organisations are given in Table 1 (below).
-- Insert Table 1 about here --
Empirical Evidence on Social Practices linking Innovation and Strategic Renewal This study is exploratory in nature, seeking to understand the landscape of social practices that organisations are using to articulate the link between innovation and the strategic renewal of their businesses. Our case study analysis revealed a range of social practices that we have classified into 4 broad themes (see Figure 1):
1. location of the social practice linking innovation and strategic renewal 2. social practices that engage actors in the innovation-strategic renewal process 3. social practices that enact the innovation-strategic renewal process 4. systemic social practices that develop long-term capabilities to integrate
innovation and strategic renewal These social practices are no mutually exclusive. Organisations may use one or all of these practices. 1. Location of the social practice linking innovation and strategic renewal: specialised units or teams In order to break out of incremental innovation in core businesses and an exploitation mindset which reinforces productive over dynamic capabilities (Teece et al 1994) a number of our case studies established separate units tasked with new business development. These units sat above the divisions and their role was to build on existing or new competences from across the operating units to explore new markets and new product opportunities. The aim of these units was to break out of the competence traps that an overemphasis on exploitation reinforces. One example of this is WL Gore’s ‘Genesis Team’. This was initially established in one of the companies divisions (Fabrics) and thereafter expanded to other Divisions across the company. In establishing Genesis, the initial emphasis was on selecting a diverse and broadly experienced group of individuals who could combine deep knowledge of specific industries and technologies across Gore as well as diverse functional expertise such as marketing, strategy and finance. The original team consisted of nine people and it has a significant venture capital budget for investment in revenue generating new business development initiatives. Genesis oversees generation, screening and start-up
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processes. It meets on a bi-monthly basis to evaluate ideas and review the development of existing ideas. After 13 months it had identified or generated over 500 new business ideas, of which 5 led to full-blown business cases. All these ideas built upon the core technology of the company and involved extending this to new market and product areas. The social practices of the Genesis team enabled the company to learn more about its pipeline of ideas and the extent to which it was building a platform for future new business opportunities. For example, the team was prompted to start looking outside the organisation for new ideas when the internal stream of ideas fell from over 500 a year to less than 100. This resulted in relationships being formed with universities and idea generation workshops being held with customers such as Nokia and BMW. Furthermore, it instituted a process for exploring new markets – ‘arena studies’. These studies looked outside the business and typically involved two Genesis team members full time for 3 months with additional external consultancy support. In just over a year this process generated 1 preview business case, 3 business concepts and 8 business concept ideas. The Gore example illustrates how specialised units organisations to learn about how innovation (both internal and external) can support new business development. Without the social practices of the Genesis team (built on cognitive and competence diversity) the company would have found it difficult to learn about its ability to grow new businesses. The team has the responsibility, on behalf of the company’s management, to address how the paradox of exploitation and exploration is played out, and in Gore’s case this includes designing and husbanding external alliances and networks. More recently, challenges from within the Fabrics division led to Genesis focusing more on exploiting existing knowledge around the legacy core technology, which risks diverting the team from its strategy renewal-innovation link role back into exploitation mode. However, one of the team has now been moved to head up a corporate wide ‘Venture Fund’ with people and resources to develop a strategic renewal capacity. Nokia is another organisation that has developed a special corporate-wide functional unit to link innovation and renewal that is located as a matrix axis across the four main business divisions. The ‘Strategic Renewal and Operational Excellence’ unit’s mission is to ‘combine business, technology and user perspectives with validation from external sources to bring unique insight and foresight on topics that drive the renewal of Nokia’ (internal document). Within this function there is a 20-people ‘Insight and Foresight’ sub-unit which deals more specifically with the innovation/renewal relations and has the following brief:
• Stimulating and managing innovation capability in core businesses • Absorbing externally generated ideas and diffusing them to the core business
units • Building a portfolio of significant new business options • Embracing networked open innovation through partnerships and M&A • Expanding business models to new channels beyond mobile operators
The unit relates rationality (i.e. ensuring the core businesses are operationally efficient and exploit existing capabilities) with indeterminateness (i.e. exploring new knowledge and capabilities). Nokia believes that renewal springs from the tension between research and venturing (i.e. innovation and renewal) and with its new product launch cycles of 2-3 months, this tension is important for speed and focus.
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These 20 individuals work together in ‘Tripod’ teams which bring together the three core areas of users, business and technology experts. This social practices links innovation and renewal through integrated cognitive diversity: the Insight and Foresight unit deliberately chooses people with diverse backgrounds and different networks to stimulate creative thinking and challenge Nokia orthodoxies. The unit believes that the quality and diversity of the networks its individuals marshal that sustains its success. It refreshes these by rotating people through the unit – they stay for an average of 2-3 years before going on to another part of the business. It measures the range and diversity of networks at a number of levels – within Nokia, with partner companies, start-ups, VCs, universities, consultancies and blogger communities. The innovation-strategy renewal linking social practices at Nokia emphasises the cognitive diversity which Bogenrieder (2002) identified as critical for learning. It ensures that this diversity is renewed through job rotation into and out of the Insight and Foresight unit. The practices recognise the importance of relational ties for linking innovation and renewal through securing the wide network of internal and external relationships secured by the 20 people in the unit. The ability to grow and sustain networks is an important qualifying criterion for selection into the unit. In Shell, the social practices that links innovation and renewal are located in units called ‘Gamechanger’. There are two levels of Gamechanger – one located in each of the five divisions focusing on developing intra-divisional capabilities, and the second at corporate level which integrates ideas from across the divisions. Contrary to the ‘Genesis’ and ‘Insight and Foresight’ units described above, GameChanger has social practices that are self-consciously and by design different from, and to some extent opposed to, the social practices of the Shell companies. These companies are oriented towards operational excellence (you do not want a lot of ‘inventiveness’ thrown into your next flight’s Jet A-1 fuel). In Game-changer, people are asked to exit the constraints of quality control, cost containment, safety and efficiency which operations require, and to instead invite disbelief, question assumptions, widen horizons, read unconventional books, and meet interesting people. Gamechanger has 10% of the corporate R&D budget to support ideas volunteered by employees that the Gamechanger community –as peers and not as bosses- considers worth pursuing. After several gates in the funnel (which seek to kill ideas which will not make it when bigger chunks of investment are requires) an initiative is then passed on for husbanding to one of the 50-odd businesses within the 5 existing Divisions, exceptionally creating an entirely new business. 2. Social practices to engage actors in the innovation-renewal process: workshops, forums and meetings Our case study work reveals another widely used practice to integrate innovation and renewal – workshops and meetings. For example, in Shell, the corporate level Gamechanger Coalition holds an organisation-wide workshop every 6 months. As part of our research to understand how workshops can link innovation and renewal, we attended one of these 3-day meetings. Held on-site at the Cheshire Innovation Park, the meeting brought together around 50 people from across the 5 divisions to discuss 3 potential new sources of revenue organised as “domains” (‘bio-energy’, ‘clean coal and ‘how the base of the pyramid will switch into consuming energy’. Over half of the participants at the meeting had never before attended a GameChanger event and did
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not have a direct connection to technology/R&D, coming from areas such as business development, strategy, communications, branding and finance. Part of the objective of the meeting (which was clearly spelt out in a document handed out to participants) was to have a broader set of perspectives challenge the 3 domains beyond their technology roots. The workshop process provided the context in which cognitive challenge could be stimulated and the assumptions underlying the domains by professionals representing lenses such as risk, sustainability, corporate reputation, or economic viability. The ideas and assumptions underlying these domains are also explored at a range of other Shell workshops outside the Gamechanger Coalition such as the ‘Future Energy Forum’ and the ‘Energy Ladder Workshops’. This suggests that multiple designed and managed dialogue formats link innovation and renewal through constructive disagreement (van der Heijden, 1996). Workshops are a core linking mechanism between innovation and renewal and consequently considerable time and planning go into their design. At the Coalition meeting complex data was reduced to large, detailed but clear visuals enabling possible stories and metaphors to emerge, so as to enrich and encourage dialogue between the participants who came from a range of different epistemic communities. In addition to presentations and question and answer sessions and wider debates, participants spent time together over lunch and dinner discussing these issues. The scope of this paper does not allow us to go into as much detail on other examples of such meetings. Lafarge, explained how they design and run ‘sensing’ workshops; in Sharp they told us how they attend to the pace, rhythm, and other temporal aspects of different levels of meeting across R&D labs and how they link these to new product development teams. Certainly, these face-to-face encounters seem to attract considerable design attention, resources, and skill – and were in all cases we studied critical to relate innovation to strategy renewal 3. Social practices to enact the innovation-strategic renewal link: projects and teams Projects are an important social practice that the organisations we’ve studied deploy to link innovation and renewal. BT uses projects to link innovation and renewal across its business units. One example is the ‘hot house’ cross-functional team forum linking epistemic communities such as those of product managers, technical and senior technologists with each other. Hot houses are pulled together to work full-time for up to 6 weeks, often in ‘War Rooms’ located away from day to day activities . Their primary focus is to develop business opportunities within a scoped field which may be based around a market, technology or other aspect of BT's business. These hot houses seek to identify, systematise, and diffuse internal organisational knowledge to produce a series of business cases. Competition is fierce to get onto these projects and managers putting them together are besieged by people offering their services. BT also has a ‘2010 project’ which enables the company to look into the future and seek opportunities that could change the rules of the game in telecoms (ie for a technology to get critical mass). This project gives them a context within which they explore new domains. Another interesting social practice used to link innovation and renewal is their ‘speed dating’ team-formation design. These are ideas fairs where engineers come up with an outline idea on a page – a bit like an elevator pitch at a film industry event. Each person pitches ideas (in 3 minutes) five or six times in succession to other members of
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the research community. The best ideas (selected by the participants) became what Donald Schön called ‘ideas in good currency’. Ideas are further developed, and can become new domains which have the potential to renew the business in the future emerge, get sanctioned, and win critical mass of opinion to become viable experiments. 4. Systemic social practices that develop long-term capabilities to link innovation and strategic renewal: HR practices The final theme and one that cuts across the other practices and processes identified above is HR practices. We found both systemic level and component level practices that supported the link between innovation and renewal. By systemic level, we mean the integrated set of HR practices that comprise the organisations employment system and typically focus on long-term capability development. By component level practices, we are referring to specific practices that firms deploy, often with short-term timeframes to achieve certain behaviours and outputs amongst employees. Taking the first level, we identified quite different employment models across the case study firms and these supported innovation and renewal in different ways. For example, Sharp Labs Europe (SLE) operates a lifetime employment system. This organisation operates a strong internal labour market with few ports of entry and progression through the system is only possible through acquiring deep knowledge of the organisations routines, processes and knowledge. Sharp manages for the long-term and sees its technology knowledge base as growing incrementally and highly dependent on retaining and developing its staff. For example, a number of its core technologies have been developed over a 30-40 year period - LCD’s go back over 30 years and photo valtic cells originated nearly 40 years ago. This emphasis on the long-term is a strong value within the organisation and their current President, Machida, expresses this as a ‘secret sauce for broiled eels inherited in a reputed and long-established eel restaurant’. At a practical level, the lifetime employment system provides the firm not only with the ability to retain knowledge but also considerable flexibility which supports the link between innovation and renewal. On the former aspect, Sharp prefers to use black box methods to protect its intellectual property. It develops sophisticated internal routines and processes to develop and manufacture new products which it does not patent but protects through ensuring that only Sharp employees have access to this knowledge and practice. For example, it recently moved a factory operation back from China to Japan to manufacture a new generation of LCD screen in order to minimise the possibility of this knowledge leaking to competitors. A key understanding of the employment relationship (i.e. the psychological contract) at SLE is that in return for employment stability, employees will be both mobile and flexible. This allows SLE to move people around the organisation when knowledge and skills need to be applied in the development of new products, processes and business ideas. SLE believes that the employment system provides it with infinite renewal capabilities. While the employment system develops, retains and enables the acquisition, development and recombination of knowledge, the firm uses various technology and competence mapping processes to identify white space areas or new business lines. These processes provide a framework for allocating people and shaping longer term career management activities.
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BT on the other hand has moved from a strong internal labour market model supporting a lifetime employment mindset to a much more transactional model. In BT (unlike Sharp and Gore), it is possible to be recruited into quite senior management positions directly from the external labour market. BT sees this as providing the firm not only with access to leading-edge skills and competences but also the ability to create cognitive diversity that can enable innovation, learning and renewal. In addition to the direct recruitment of external expertise, the firm is focusing on how it can internally develop what it terms ‘T’-shaped people. These are people who have a deep technical knowledge in a specific domain but also have a wide understanding of how the business operates. It is this combination of depth and breadth that can provide the bedrock for innovation and renewal to develop. These people bridge different epistemic communities and can enable focus and bonding to a strategic goal within their own technical areas. However, such people are few in number and the organisation is currently developing internal processes and practices to increase their supply. Typically this means much greater attention to individual career planning and development. In other firms we visited, a broad range of specific HR practices were deployed to facilitate the link between innovation and renewal. In Lafarge, they use internal job mobility and structured rotations to transfer exchange and recombine knowledge. It manages a large expatriate community of some 500 technical and managerial staff who spend around 2-3 years in different global locations. The purpose of this international career development has shifted in the last few years from a process, knowledge exploitation focus to a product, knowledge exploration focus as the firm seeks to build new lines of business through innovation. In Nokia, where the HR function was described as ‘very thin’, management in the venture and insight and foresight units have developed processes to ensure that the appropriate knowledge and skills are allocated to innovation and renewal projects at the right time. For example, the firm maps key people’s knowledge and competencies against different stages of project development over a 3-4 year period, so that it can plan the allocation of skills, attitudes and behaviours most appropriate. These examples illustrate that organisations are using both system level (ie overarching employment model and philosophy) and component level (ie job rotation, career development processes) approaches to develop their innovation-renewal capability. At the system level there are likely to be a number of different models that are shaped by path dependence, technology development cycles and cultural values, amongst other factors. For Sharp an internal labour market employment system which reinforces loyalty and long-term employment provides the firm with the flexibility to recombine the knowledge embodied in people by redeployment across the enterprise. In BT an open labour market model enables it to access knowledge and competence externally which its internal processes can harness to focus on specific innovation and renewal activities. Discussion and Conclusion In this paper we set out to understand the social practices organisations are deploying to link innovation and strategic renewal. This focus grew out of the first year of joint research with practitioners in the Strategic Renewal Research Programme and was informed by two key realisations. Firstly, the emerging evidence that investment in innovation (such as in formal R&D but also in a broad range of other innovation
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activities) is failing to renew organisations. Secondly, that the literatures in the two fields of strategic renewal and innovation rarely consider their linkages and if so, only in a very cursory way. Thirdly, the existing paradigms in strategy research tend to be under-socialised with little attention given to the micro-institutional practices and processes involved in ‘strategising’. Fourthly, that the RBV (and its derivatives, KBV and dynamic capabilities) may be enriched by a practice perspective. Our exploratory case study research identified four potential linking mechanisms between innovation and renewal. These processes and practices ranged from the more formal and institutionalised such as the establishment of special units or locations to the more ad hoc and transient such as meetings and workshops. In some organisations, all four mechanisms were deployed to forge a stronger link between these two areas, in other firms a much reduced set of practices were deployed. Our analysis suggests that organisations social practices are shaped by three main concerns: where and how to locate this activity, how to engage the relevant actors and lastly how to enact the innovation-strategic renewal process. These three core practices are in themselves shaped and moulded by the wider systemic practices in the organisation such as the employment system and its values and philosophy. These wider systemic practices may play a role in selection and retention decisions on what practices will be legitimate and effective. These sets of relationships are shown in Figure 2. We now discuss each of these elements in turn and raise questions for further research. - insert Figure 2 about here - The establishment of special units, loosely connected to the formal organisation but often with strong ties to the executive management structure (as in Shell’s Gamechanger) suggests that one way firms are managing the link between exploration and renewal is structural and positional. The development of groups such as Gore’s Genesis team and Nokia’s Insight and Foresight unit, can confer them with more control and access to power, resources and information (Burt, 1992; Brass and Buckhardt, 1992). Such groups have higher levels of autonomy which enables them to integrate diverse ideas and perspectives that can enrich the renewal process by developing more sophisticated proposals. Marx and Lechner (2005) argue that both position and autonomy can have potential negative effects. Where such groups become too embedded and tightly linked with central power more peripheral groups may withhold valuable information and weaken the diversity and range of ideas being brought to the group. Furthermore, if the central group becomes too reliant on existing networks it may overlook other sources of ideas and information across the organisation. To counter these potential problems, we saw how Nokia limited the time people are involved with Insight and Foresight to 2-3 years and Shell’s Gamechanger uses workshops to engage with much wider constituencies across the company. The case studies raise questions about the role of formal organisational systems and how they interact with the social practices supporting the link between innovation and renewal. This raises important issues concerning the level at which any focus on social practice begins and ends, and how different levels of social practice (macro and micro?) interact to generate internal firm-level renewal capabilities.
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Here, we draw specific attention to the role of HR systems. For example, Sharp believed that its internal labour market system created a psychological contract (Rousseau, 1994) that enabled not only the long-term retention of specialised, company specific knowledge but also high levels of flexibility and mobility across the firm. This compares with the more open employment model of BT where there was an emphasis on recruiting skills and competences from the external market to enable innovation and renewal capabilities. Thus, in a stylised way we can delineate two broad employment models that provide different types of support for innovation and renewal. Future research needs to explore how different employment systems create social contexts that enable or hinder strategic renewal. Indeed, there may be a broad range of choices that firms can make in terms of structuring their employment system (Lepak and Snell, 1998, Tsui et al, 1999) which impact of firms’ innovation and renewal capabilities. Future research may need to be more sensitive to the diversity of these models and their impact. The cases raise the possibility that linking mechanisms may work at two levels – a systems level and a component level. At the system level for example, we have seen how BT and Sharp’s different employment system has a role in shaping different modes of relational and social exchange. The nature of the employment system may in turn shape the selection of component level practices such as workshops, project teams etc. As such the properties of the system may serve to shape the choice of practices and processes at component level. Further research is needed to explore the extent to which employment systems play a role in the selection of practices and processes to support the link between innovation and renewal. The case studies raise a range of other questions. Firstly, it was not always clear ‘who’ in the organisation was the architect or design lead for these processes, if at all. For example, in Nokia, it was not the HR manager that designed the social processes supporting the integration of innovation and renewal in the Insight and Foresight are but the line managers. However, there was some recognition that more formal HR processes on recruitment, career development, ‘talent’ spotting and employee mobility may have improved the effectiveness of these processes. Future research needs to be sensitive to the design authority for the social practices. It also needs to sensitive to the parameters and risks of design, as Weick (2003) pointed out: ‘A primary danger in design is over-design – designers fail when they don’t know when to stop’. Secondly, we are unclear about the performance outcomes of different types of social practices for renewal. Does a denser and richer network of practices and processes generate a greater number of potential renewal opportunities, compared to a much ‘leaner’ set of processes? Can we identify specific dimensions of the social practices that are generic – i.e. that can be applied in a wide range of contexts with a reasonable chance of success? These exploratory case studies have underlined the importance of social practices and context in shaping the link between innovation and renewal. Our focus has illustrated the mechanisms that firms are using to structure these social contexts and provide a means not only of balancing the tensions between exploitation and exploration but also creating spaces where the future can be created. However, much more detailed and longitudinal case study work is needed to fully understand the complexity of the relations that can sustain innovation and renewal and how the causal linkages between them work in practice. This paper has made some initial steps in this direction.
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Table 1 – Sampled firms’ profiles
Shell
EPO
Lafarge
W l Gore
Sharp
BT
Nokia
GE Healthcare
Key facts (year 2003)
Turnover: > € 200 bn Net income: 5% Employees: >100, 000
Turnover: > € 1 bn Net income: 20% Employees: >6,000
Turnover: > €10bn Net income: 5,3% Employees: > 70,000
Turnover: > €1bn Net income: N.A. (profitable) Employees: > 6,000
Turnover: > €10 bn Net income: 2% Employees: > 50,000
Turnover: > € 25bn Net income: 16,9% Employees: > 100,000
Turnover: > € 25 bn Net income: 6% Employees: > 50,000
Turnover: > € 10bn Net income: Estim. 15-19% Employees: > 40,000
Industry sector
Gas and petroleum exploration,refining and retailing
Intellectual property service provider
Cement & building materials
Chemical-based fibres and components, w leading edge niche products in industrial and textile industries
Consumer & business electronics + solar panels; products & components
Telecom: retail operator, whole-sale, global services.
Mobile phones, converging into terminals
Healthcare technologies & bio-sciences
Company profile
Global leader with European HQ, 4 core line business Divisions
European organisation based in 3 centres dealing with small and large clients requesting IP protection
Global leader in mature cyclical market of building material.
European regional headquarters of American multinational
European research centre of Japanese company of high tech goods
Former state-owned company gone public on increasingly de-regulated market, with high technological & market volatility.
Former super-growth company on increasingly complex market with high technological volatility and offerings with increasing software and service content.
Leading cross-European bio-science company. European regional headquarters of American multinational.
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Figure 1
Figure 2
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