Paper 1 Innovation in Organization
HUGYVH 
Lessons3and4Readings2.docxLessons 3 and 4 Readings
The following is a list of your required readings for Lessons 3 and 4. I have written notes on most of these for your information and edification. The ones marked with two asterisks are essential. You are expected to read all of them. Those with one asterisk are important, and you should try to read/view all of them. Those without asterisks are optional, but interesting if you can find the time.
**Drucker, Innovation and Entrepreneurship, Chapters 11 and 17
LIRN Article (read this in connection with Paper 1):
** An Examination of the Effect of Organizational Norms , Organizational Structure , and Environmental Uncertainty on Entrepreneurial Strategy (Russell & Russell, Journal of Management, vol.18, no.4, 1992)
http://www.ou.edu/russell/pdf/JOM92.pdf
Corporate entrepreneurship efforts tend to focus on process, since innovation often (usually) requires a lot of trial and error and serendipity. On the outside, it often looks chaotic. Innovation is positively correlated with environmental uncertainty (surprise, surprise). Organizational structure plays a key role: When ideas are generated in a centralized, autocratic system of control, they are more likely to be screened out. An informal, decentralized structure is more likely to generate innovations. The presence of norms which encourage or impede innovation rounds out the set of possible causes. On page 646, if you read that far without falling asleep (as I did), is a listing of the comparatively modest hypotheses of the authors. After analyzing their data, using regression and factor analysis, they concluded that corporate environments with innovation-supporting norms, operating in uncertain environments were the most likely sites for the generation of successful innovations. If you can understand this, you can skip the ponderous “academic-speak” of the authors and the factor analysis.
**Video: Innovation at Proctor and Gamble
http://www.youtube.com/watch?v=xvIUSxXrffc&feature=fvwrel
This video consists of an interview with P&G CEO, A.G. Lafley, who just wrote a book on innovation. The fundamental premise is that innovation can be an everyday practice inside a company. P&G should know: They are one of the most innovative and adaptive consumer products companies that have ever existed. For them, innovation isn’t just about new technology. Rather, they see it from the customer’s point of view, which includes the usage experience, the shopping experience, and the “brand,” in addition to the functional benefits (to the customer) of their products. Their thinking is comprehensive, and includes all elements of the product’s production and distribution, in the interests of giving the customer the best value for the lowest feasible price. “The customer is the boss” is a slogan there. If you really think about it, this is what happens “above” the top management role. in the MBO model. The objectives of a company are determined by the customers’ needs and preferences. The job of top management is to know what these are and to build the company’s products, processes, and strategies around them. Anything else is either a direct support for these products, processes and strategies, or else it is waste and shouldn’t be done. They always engage the customer at the “front end.” As soon as they have a prototype, they find consumers to assist in the final configuration of the product. This is the theme of Lafley’s book and this video, in which a number of good ideas are presented.
What is the “innovation review process”? All the key players are always present for this. The heads of R&D, Marketing, the business unit leaders, and the CEO are all there. They identify the two or three issues which, if they can’t get them right, will result in the decision to shut the project down. This is different from the more common approach: Most people do the easy stuff first, saving the hard questions for later. He prefers to tackle the “killer” issues first, for efficiency reasons.
The moderator asked, “Can I make innovation a daily practice in my corner of the organization even if top management isn’t involved?” At P&G you can, as long as you are customer focused. Then you have to have a strategy: A few key decisions such as where you will “play,” where you won’t play. Then you need to show that you are really in touch with the customer. If the CEO isn’t engaged, and taking ultimate responsibility for the innovation, innovation will either not occur or else it will be hindered. The organization needs to be “open.”
What keeps the people involved motivated for the (sometimes) several years it takes to launch a new product is the ongoing dialogue with the customers. Lafley used the phrase “create a new customer” in his closing remarks. A customer is a “creation” of a business—as Drucker has argued.
*Video: Think like an innovator
http://www.youtube.com/watch?v=FSxSinVVRLw&feature=plcp
Interview with Jeff Dyer, of BYU, author of The Innovator’s DNA, co-authored with Hal Ferguson and Clay Christensen (who wrote The Innovator’s Dilemma [1997]). He identified five skills of disruptive innovators. These skills are:
(1) Questioning: They asked questions like “How can we ‘catch’ money?” (resulted in PayPal)
(2) Observing: (Founder of Starbuck’s was in Italy and asked, “How can we create this European style of coffee shop in the States?”)
(3) Networking: (Founder asked question, “How could a coke machine communicate with a wireless distribution center and say, ‘I’m out of coke’ and get replenished?” He asked, “What if everyone had a wireless interactive device and could send messages to whomever they wanted to?” Somehow this turned into Blackberry)
(4) Experimenting: (Dell computers founder tinkered with computers all his life. He found that he could build a computer for 30% less than an off-the-shelf computer made by IBM.)
(5) These four sources lead to “associational thinking.” So Steve Jobs once took a course in calligraphy and got an inspiration that wound up on the screens of MacIntosh and the toolkits of Desktop Publisher.
Dyer and his co-authors found that these five things could be turned into an entrepreneurial discipline. The discussant asked, “So how might I improve my ability to be an ‘experimenter’?” Dyer responded, “One way is to practice taking products apart, then putting them back together to see what you learn.” This applies to processes, too. If you keep trying, you’ll find out what doesn’t work and that is valuable too. Visiting new countries or other companies—new experiences in general—can stimulate new ideas. The discussant then pointed out that people are often busy doing their “real jobs,” and asked, “So where would they find the time to do these things?” Dyer responded, “If you don’t take action now, in ten years you’ll be way behind.” So, the company has to create time and space for these kinds of activities. If you want your team to be innovative, you have to give them time for questioning, observing, networking, and experimenting.
This material confirms both the lecture materials and some of the videos on the value of “diversity of perspectives.”
*Video: Tomorrow’s Innovators
http://www.youtube.com/watch?v=ckSvOnJyxwc
This is an interview with Patrick Medley, Consumer Products Leader, IBM Global Business Services. Medley points out that Proctor and Gamble’s (an iconic leader in innovation) 60% of the work of innovation is done by external sources, e.g., the University of Cincinnati). They also reach out to people who used to work for the company. Many organizations listen to chats on social media. The sources of innovation have really exploded over the last few years. The discussant asked, “Aren’t you worried about pursuing leads from people who don’t work for the company, who don’t know its culture, and wind up running into a lot of dead ends?” Medley responds: “Only one out of ten new product introductions actually succeeds.” He goes on to say that product launches are very expensive, and that therefore, knowing what the public wants in advance can spare much unnecessary expense, which is incurred when a company just relies on internally generated ideas. Every company is looking for the next blockbuster, and it is better to use a wider array of sources than what is available internally. He mentions that there are multiple ways of getting a message across. Old Spice resuscitated itself by asking, “What approach would appeal to the consumer?”
The consumer today is very different from the consumer of ten years ago. Now consumers are looking for a fair value: Does the product give me what I want at a fair price? And there seems to be a shift going on towards the “high end.” “I may not really need this, but I want it.” (It looks like the “Next Economy,” based on commoditization [Etterberg, 2002] has been replaced by a consumer orientation more like the economy that preceded it.) The key innovations of the future are the smart phone and the cloud. In twenty years there will be so much out there on the cloud that we won’t need our own spread sheets.
*Seven Sources of Innovation
http://startupwithme.wordpress.com/2010/10/11/seven-sources-of-innovation/
Another cut on the same subject; short, readable, and useful.
*Peter Drucker and Innovation
http://www.extension.iastate.edu/agdm/wholefarm/pdf/c5-10.pdf
Another cut at the seven sources, plus a summary of the five principles of implementing innovations.
*Innovation Management (the link is embedded in the title below)
The best part of this presentation is in slides 22 forward, where the notion of “complementary assets” is introduced and then worked into Porter’s theory of competitive advantage, specifically with his concept of barriers to entry.
*How IKEA Became a Global Brand
http://www.businessweek.com/stories/2005-11-13/ikea
Ikea’s branding strategy—Newsweek article.
*Video: Creating an Innovation Mindset
http://www.youtube.com/watch?v=sNzkmZdM4A4&feature=plcp
This video consists of an HBR interview with Vijay Govinderajan (of the Amos Tuck Business School at Dartmouth) who just co-authored a book about the Ten Rules execs need to know in order to lead innovation processes. The moderator asks, “What are two things that you think every leader must do to facilitate ongoing innovation?” Govinderajan replies, “The first thing is to realize that the world is changing. Therefore, they can’t simply re-engineer their current business. So the first thing they need to do is to understand what the things are that are changing around them, in terms of customers, technologies, competition, demographic shifts, etc. The other thing is that this isn’t just a technical problem, it is an organizational mindset issue. They need to think about how they will need to change the organizational mindset in order to bring about innovative change.” The moderator then asks, “So how do you change the mindset of an organization? Is it a cultural change, do you need to put new systems in place. . .?” Govinderajan replies, “Since ‘mindset’ really involves people, you need to inject new blood into the organization.” In a big company, this can mean bringing people in from other units, which may be involved in whole other lines of business. In companies which don’t have this option, they must bring in outsiders. The moderator then asks, “What about unleashing existing voices from within the organization?” Govinderajan says, “I don’t think we should view this as ‘either/or.’” He goes on to say that if there are mavericks inside the organization, they should be treated with the same respect as outsiders. The moderator then asks, “What do you do when people within the organization resist change?” Govinderajan replies, “If you want people to perform differently, you must change the performance measurement system. . .” After defining innovation as “the commercialization of creativity,” he says that innovation, which involves groups of people, requires collaboration. The third response is to create a “tolerance-of-failure culture.”
When asked for his favorite innovations, he mentioned Google and iPod, but added the $3000 Taurus being made and sold in India. He points out that emerging markets—India and China—are huge, with 2.5 billion people. The focus will be on low cost markets. These innovations will create disruptions in the West.
In the last item, the intent is “market” leadership. There is a great summary of “do’s” and “don’ts” that is very worth reading.
*Principles of Innovation
A Power Point presentation which summarizes and to some degree explicates Drucker’s theory of innovation. This is worth reading, too.
**Five Principles of Innovation
http://www.digitaltonto.com/2011/5-principles-of-innovation/
This is another useful summary of Drucker’s 5 Principles, though with the argot of Clayton Christensen, author of The Innovator’s Dilemma, (1997).
