IOE 421 Work Organizations Session 25 Innovation in Organizations December 09, 2008.

IOE 421 Work Organizations


Session 25 Innovation in Organizations

December 09, 2008


Turn in Team Paper 02 and Peer Evaluations

Debrief of Guest Lecture

Lecture - Innovation in Organizations

Setting the Context

The Structure of Innovation

How is Innovation Done?

How Innovation Drives Organizational Change

Factors Impacting Successful Innovation

“So What?” - Some Concluding Thoughts

Next Class Assignments and Final Examination Groundrules

Our Content Today


Debrief of Ed Krause Ethics Presentation

Note: New Required Reading on CTools:

Session 24 – Thoughts on Krause Talk


A Discussion Regarding:

• The structure of innovation• How innovation drives organizational change• Factors impacting innovation and the resulting change

in large organizations

Innovation in Organizations


From Daft, Chapter 11, Innovation and Change

• Four types of strategic change

• Core Products and Services (“Product Development”)

• Strategy and Organizational Structure

• Infrastructure

• Corporate Culture

• Most change is incremental, some radical• Implementation of change is very difficult

Today’s Focus

Setting the Context


So Why Would We Care About Innovation? • Operational excellence is no longer enough: every good business

has it• An increased rate of change has made the ability to change more

valuable• Methods and tools are emerging that vastly improve innovation

success rates• Design—used effectively—is now an imperative for

competitiveness• Companies need new insights to achieve growth• Expect innovation will take 2 - 4 more years to become a robust,

mainstream practice, codified in business schools

Innovation is important as a Strategic Change Agent (Daft)

Setting the Context


• Language of Innovation

• The “Duality” of innovation:

• Revolutionary vs. Evolutionary Innovation

• Large vs. Small Organization Innovation

• Process vs. Product Innovation

• Real vs. Perceived Innovation

• Intended vs. Unintended Innovation

• Yours vs. My Innovation

• What the Experts Say

• Reconciliation



Language of Innovation:

• What do these terms mean in the context of Product Development?

Innovation

Creativity

Invention

Design

Styling

BrandFad

Fashion

Trend

Novelty

Icon

Product Development

Technology



Language of InnovationInnovation The commercial application or adoption of an invention. Innovation

combines (existing) components in a new way, it consists in carrying out “new combinations” (Schumpeter)

The ability to use experience, creativity, and inspiration to design alternative methods that will increase productivity, improve processes and people .... to name a few. (Dell)

Innovation occurs at the intersection of invention and insight. It’s about the application of invention – the fusion of new developments and new approaches to solve problems. (IBM)

The successful exploitation of new ideas. (UK Dept of Trade) Innovation transforms insight and technology into novel products,

processes and services that create new value for stakeholders, drive economic growth and improve standards of living. (USNII)

In the end, what does this mean?



Generalized Product Innovation Cycle

Unintended Outcome

Trend

Failure

Invention DesignInnovation

Fad

Creativity Creativity

CreativitySuccess

Brand



The “Duality” of Innovation

Duality simply means single innovation components

can be modeled along an axis: Can be placed along

an axis dependent on

innovation type or

emphasisInnovation can be located here or here

or anywhere in between




Revolutionary vs. Evolutionary Innovation

Evolutionary Creates new products and services in incremental

stages. Future state after the incremental innovation essentially unchanged

Revolutionary Creates new products and services in large, radical

leaps. Future state after the revolutionary innovation substantially different than prior condition.

“Tipping Point” achieved (Gladwell)




Large vs. Small Organization Innovation

Both large and small organizations can innovate. The primary difference derives from the rate of adoption of the innovation within the organization.

Overall, the rate of innovation adoption for small companies is constricted by external capital and other resource availability, based on risk

Large organizations can mitigate risk by self-funding, therefore increasing innovation adoption rate




Process vs. Product Innovation

Process Creates and improves processes within and across

organizations AKA “Enabling” innovations, provides ability to create goods

and services in more efficient, timely manner

Product Creates and improves end-customer products for sale Focuses primarily on cost, quality, function and appearance Provides a more desirable purchase opportunity




Real vs. Perceived Innovation

Real Innovation that can demonstrate a concrete improvement in

either product function, cost, quality, profitability or purchase / owner satisfaction

Perceived Creates the illusion or perception of innovation Normally accomplished under guise of styling or other

misdirection




Intended vs. Unintended Innovation

Innovations developed and brought to market to fulfill a

specific need, only to be used for an entirely different purpose

by the end-user customer




Yours vs. My Innovation

Product innovation has an ownership aspect. Not everyonesees the presence of an innovation in the same way,dependent on their viewpoint and the “social contract”perceived to be in place.

Example: The Camera Phone



Large number of academics, business writers and consultantsworking in innovation. Major voices and methods include:

• C.K. Pralahad / Gary Hamel (Competing for the Future / Fortune at Bottom of Pyramid)

• Larry Keeley (Doblin Group)• W. Chan Kim / Renée Mauborgne

(Blue Ocean Strategy )• Eric von Hippel (Lead User Method) • Clayton Christenson (Innovator’s Dilemma,

Innovators’ Solution, Seeing What’s Next) • Tom Kelly (IDEO, The 10 Faces of Innovation)• Geoffrey Moore (Dealing with Darwin)• Theory of Inventive Problem Solving (TRIZ)• Structured Innovative Thinking (SIT)


What do the experts say?




Moore Model –

Sawhney Model –

Doblin Model –

Disruptive Product Application PlatformLine

ExtensionValue

EngineeringIntegration Enhanced Marketing Experience Process

Value Migration

Organic Structual Harvest

Offerings Platforms SolutionsCustomer

NeedsCustomer

ExperienceValue Capture Processes Organization

Supply Chain

Presence - Channel

Network Brand

Business Model

Networks & Alliances

Enabling Processes

Core Processes

Product Design &

Performance

Product System & Platform

Service Channels BrandCustomer

Experience

15 Innovation Types

12 Innovation Types

10 Innovation Types




Disruptive Product Application PlatformLine

ExtensionValue

EngineeringIntegration Enhanced Marketing Experience Process

Value Migration

Organic Structual Harvest

Offerings Platforms SolutionsCustomer

NeedsCustomer

ExperienceValue Capture Processes Organization

Supply Chain

Presence - Channel

Network Brand

Business Model

Networks & Alliances

Enabling Processes

Core Processes

Product Design &

Performance

Product System & Platform

Service Channels BrandCustomer

Experience

Product ProcessCustomerExperience

Only 3 Common

Innovation Types


Reconciliation

Innovation can be seen as having only 3 main elements:

• The type of innovation desired:• Product• Process• Customer Experience

• The timeframe for the innovation introduction

• The size of the innovation being developed



Product

Customer Experience

Process

Product – Cell phones, PDAs, Appliances, iPod only

Process – Containerized Shipping, Bar Code Package Tracking

Customer Experience – Playmakers, REI Outfitters, Harley Davidson Stores,iPod + iTunes

Innovation “Type” Examples



Process ProductBusiness Model /

Customer Experience

3M 3 X

GE 6 X X

P&G 7 X X X

Nokia 8 X X X

IBM 10 X X X

Samsung 12 X X

Whirlpool 98 X

Process ProductBusiness Model /

Customer Experience

Toyota 4 X X

BMW 16 X X

Honda 23 X

Automotive Companies Only

Company BCG RankType of Innovation

Company BCG / BW Rank

Type of Innovation

Innovator Comparison Matrix

Sample Global Companies


Innovative companies choose the type of innovation and space they wish to innovate in…….


Innovation “Timeframe” refers to the point in time the innovation is introduced into the marketplace and begins to produce revenue. That is, when the innovation is completed and implemented:

• Short Term (Next 3 Years)

• Middle Term (From 3 to 7 years)

• Long Term (From 7 to 15 years)


Innovation Timeframe


Innovation Size

Innovation “Size” refers to relative magnitude of the innovation effort. Micro Creates new products, services and processes in continuous,

incremental stages. Future state after micro innovation introduced essentially unchanged. Operational / tactical in scope.

Macro Creates new product lines, services and businesses in large, discreet

radical leaps. Future state after the macro innovation substantially different than prior condition. Strategic in scope.

Micro Innovation(Thousands of examples)

Macro Innovation(Dozens of examples)

Continuum




An Important Point……

Each of these innovation types, timeframes and sizes requires its own distinct innovation approach, groundrules and methodology

Once again, Contingency Theory is required to understand and analyze innovation


Micro Innovation Macro Innovation

Who Organization Employees Outside Individuals

WhatProduct & Process

InnovationsProduct, Process and Business

Model Innovations

When Continuous Discrete

WhereNormally Accomplished Within

OrganizationNormally Accomplished Outside

Organization

HowDraw Heavily Upon Experience

of EmployeesDraw Heavily Upon Non-

Company Experience

WhyCost Reductions, Quality Improvements, Speed & Maintenance of Market

New Whitespace Product Development, Grow New Markets

Scale 98% 2%

Typical Characteristics - Micro vs. Macro Innovation 1/

1/ Ulrich and Eppinger; Product Design and Development, McGraw Hill, N.Y., 1995 Chapter 5 (Concept Generation)



Unintended Outcome

Trend

Failure


Fad


CreativitySuccess

Brand


One Final Point…….


Containerized Shipping

Product

Process

Los Alamos

Product Placement Within Innovation Cycle

3M

OXO

Bang & Olufsen

W.L. Gore

Apple

Scaled Composites

IDEO

Nokia

Dell

IKEA

USS Benfold

Samsung


Unintended Outcome

Trend

Failure


Fad

Success



Innovation method varies substantially, based upon:

• What is being innovated • The environment in which the innovation is taking place• Examples to consider:

• IDEO• Dell • USS Bedfold

How is Product Innovation Done?


Example: Innovation at IDEO

IDEO uses “Technology Brokering” Model: 2/

Blends network and organizational memorywith brokering techniques to create innovativetechnology products

2/ Hargadon, A. and R. Sutton, “Technology Brokering and Innovation in a Product Development Firm”, Administrative Science Quarterly 42, 197, pg. 716-749.



Innovation at IDEO


Technology Brokering Model has 3 main elements:• Use networks to acquire knowledge of existing

technology solutions in large number of disparate fields

• Use organizational memory to store, retrieve and apply prior technology solutions to new problem.

• Transform retrieved technologies to innovate a solution to problem under examination

IDEO method has 2 competitive advantages:• Unique position as “knowledge hub” through extensive

access to dissimilar industries• Adds value through transformation of existing products

(unknown to customer) into new innovations


"There are some organizations where people think they're a hero if they invent a new thing. Being a hero at Dell means saving money."

Kevin B. Rollins Dell President / COO

Example: Innovation at Dell circa 2004

Uses an intensely internal focus to innovate the process, not the product.

"They're inventing business processes. It's an asset that Dell has that its competitors don't,"

Erik Brynjolfsson MIT Sloan School of Management



Innovation at Dell circa 2004

“Dell also faces an innovation dilemma. Its penny-pinching ways leave little room for investments in product development and future technologies, especially compared with rivals.”

Business Week, November 3, 2003


“For Mike Dell, inventing the Next Big Thing is not the goal. His mission is to build the Current Big Thing better than anyone else. He doesn't plan on becoming IBM or HP. Rather, he wants to focus on his strength as a superefficient manufacturer and distributor.”


Business WeekNovember 14, 2005

Dell's Edge Is Getting Duller

The company's recent news is prompting some to ask a question that once seemed unthinkable: Is the much-feared Dell Way running out of gas?

It could well be.

Dell traditionally has led with the lowest price, now it's not unusual to see even lower price

points than Dell's.

Churning out hits for today's tech-savvy consumers also requires design savvy and the

ability to gamble on creating and marketing new features -- both expensive propositions.

….. Dell seems to have run out of cost-cutting efficiencies to enable it to underprice its rivals

enough to gain share and maintain earnings….



"I'm lucky. All I ever wanted to do in the navy was to command a ship. I don't care if I ever get promoted again. And that attitude has enabled me to do the right things for my people, instead of doing the right things for my career. In the process, I ended up with the best ship in the navy -- and I got the best evaluation of my career.”

Capt. Michael Abrashoff

USS Benfold

Example: Innovation on the USS Benfold



“When purchasing food for the ship, Abrashoff switched from high-cost naval provisions to cheaper, better-quality name-brand food. With the money he saved, Abrashoff sent the Benfold's 13 cooks to culinary school -- and as a result made the ship a favorite lunchtime destination for crews across the San Diego waterfront.”

Innovation on the USS Benfold



“Every couple of months, my youngest sailors …..were spending entire days sanding down rust and repainting the ship, a huge waste of physical effort. A quick investigation revealed that everything topside was made of ferrous material, which rusts. I had every nut and bolt replaced with stainless steel hardware. Then I found a commercial firm that uses a new process that…. [inhibits rust]. The entire process cost just $25,000, and that paint job is good for 30 years. The kids haven't picked up a paintbrush since. And they've had a lot more time to learn their jobs. As a result, we've seen a huge increase in every readiness indicator I can think of.”




“Another critical performance measure is a ship's retention rate. On average, only 54% of sailors remain in the navy after their second tour of duty. Under

Abrashoff, 100% of the Benfold's career sailors signed on for an additional tour. Given that recruiting and training costs

come to a minimum of $100,000 per sailor, the Benfold's retention rate

saved the Navy $1.6 million in annual costs.“




Defining the Innovation Space:

External End Customer Focused

External End Customer Focused

Internal Customer Focused

Internal Customer Focused

Process

RevolutionaryEvolutionary

Product

Example: Revolutionary

vs. Evolutionary Innovation



The organizational model must be congruent with the type of innovation desired. This includes the:

• Who• What • When • Where• How• Why

elements of the innovation initiative.

Integrating Innovation into the Organization

How Innovation Drives Change


Ambidextrous Approach

• Balances organic vs. mechanistic structures• Incorporates structures and management processes that are appropriate to both the creation and application of innovation (Daft)

Implication • Most traditional (mechanistic) organizations offload major innovation initiatives to outside consultancies

Organic Mechanistic






Horizontal Linkage Model

• Balances customer desires / wants and technical capabilities with 4 major internal players:

• R&D• Marketing• Production• Business Office

Implication • All 4 internal functions must be “on-board”• Excellent communication and trust required


Dual Core Approach

• Two cores: Technical and Administrative• Administrative core higher in hierarchy• Innovation can originate in either core

Implication• Success extremely dependent on corporate culture in place at time• Very difficult to successfully apply innovation except in “top-down” manner




Not all large organizations can be innovators, nor do all largeorganizations wish to be….

Innovation in large organizations can be:• Difficult• Risky• Inappropriate• Extremely situational




Ford ‘s Innovation Initiative - 2005




Analyzer(Stable with Peripheral

Innovation)

Need to Innovate

Risk Tolerance

Reactor(Respond only

to Immediate Threats)

Defender(Stability)

Prospector(True Innovator)

Low

Low

High

High




External Constraints on Innovation

• Direct marketplace competition• Governmental regulation (emissions, safety, et al)• International physical boundaries • Macro / micro economics (global, national, local )• Global societal impacts, positioning & trending

(environmentalism, security, religion, war, etc)• Technology positioning & trending• End consumer wants & needs• Evolutionary / revolutionary scientific breakthroughs• Customer perceptions – real and imaginary



Internal Constraints on Innovation

• Brand family imaging• Desired corporate leadership position • Existing technologies in portfolio• Budget available• Skillsets available within organization• Location of development work• Organization’s approach to risk• Strategic capabilities of the organization • Quality of the innovative ideas• Process timing• Organizational behaviors / expectations



Innovation is many things to many people Innovation is a key factor in creating distinguishing products,

services or experiences in a very crowed marketplace Innovation must fulfill the implied social contract between the

end-purchaser and the innovation developer – i.e., “Be Real”

“So What?” – Some Concluding Thoughts

In General…….


• There are 3 main elements of innovation: • Type (Product, Process, Customer Experience)• Timeframe• Size

• Successful innovation companies /organizations have a common thread - alignment across all levels of the organization to support their own unique type of innovation

• The organization must be encouraged to pursue risk, exploration, courage and forward thinking, with accountability for results

• Biggest hurdle to innovation is not creation of ideas, but their implementation. Alignment of priorities between all portions of the organization supporting innovation implementation is crucial.


Specifically…….


Managers charged with innovation have 3 major responsibilities:• Know precisely the type of innovation you are charged with

doing• Know that the organization must change in a manner consistent

with the type of innovation desired• Take all actions possible to ensure that the appropriate change

occurs within the organization, and speak your truth always


Overall…….


1. Required Reading:• CTools:

• “Mission: Impossible?” (Brazil) • “New Economics of Outsourcing” (King)• “Next Frontier of Operational Efficiemcy" (Ukelson)

2. Reminders:• Final Examination Review Friday, December 11, 2009:

• In Class• Study guide posted in C-Tools

• IOE 421 Final Examination:• Date: Friday, December 18, 2009• Time: 2:10 pm to 3:30 pm • Location: Room TBA

Next Class Assignments


Final Examination Groundrules

Same groundrules as for the Midterm Examination:

• 80 minute duration, inclusive• You are allowed to bring a single (one) 8.5” x 11” piece of

paper with notes on one (1) side• You are welcome to fill the allotted space on the note sheet

anyway you like. • All course material, delivered either by readings, lecture

slides, video or verbally during class sessions may be covered on the Examination

• Primary emphasis will be on material from the 2nd half of the semester. However, the Final will cover all course material

• If you have any questions regarding the note sheet for the Final, please ask one of the instructors.

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IOE 421 Work Organizations Session 25 Innovation in Organizations December 09, 2008.

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