What are the different types of organizations?

Managing Innovation, Design and Creativity, Second edition

Chapter 6: Strategy – emergent or planned, and other issues

ISBN: 9780470510667 Author: Bettina von Stamm  copyright © 2008 John Wiley & Sons Inc.

Strategy – emergent or planned, and other issues

In the ihavemoved.com case study the attitude of the four founders towards the development of their company’s strategy, and the flexibility they showed in responding to emerging opportunities were quite important to the success of the company. The decision to allow other companies to brand the website, acknowledging ihavemoved.com only through a reference to ‘powered by’ was not an easy one but essential for the company’s financial well-being and growth. Flexibility and open-mindedness were required though and, in fact, the new offering did not distract from the founders’ vision but rounded it.

In the first chapter of his book Contemporary Strategy Analysis Robert M. Grant introduces three stories of outstanding corporate success proposing that in each case success was due neither to access to superior resources nor accounted for by sheer luck. Though he continues, “In all three stories lucky breaks provided opportunities at critical junctures. But none of the three organisations was subject to a consistent run of good fortune. More important was the ability of all three [organisations] to recognise the opportunities when they presented themselves and to have the clarity of direction and the flexibility necessary to exploit these opportunities.” (1991, p. 3) It is the openness towards opportunities, the mental and organisational flexibility that allows taking advantage of them, that are part of what differentiates innovative organisations from their less innovative counterparts.

In this chapter we first expand on the differences between emergent and planned approaches to strategy and what this means for innovation. We then take a closer look at what an innovation strategy is, what innovation best practice in the context of strategy looks like and follow up by discussing a few strategy frameworks that:

1. help companies to define their starting point and context (Porter’s five forces)

2. provide insights for how companies can align their organisation to an innovation ambition (Higgins’ application of Peters and Waterman’s 7S framework to innovation)

3. suggest an approach that helps strategy implementation

The chapter concludes with taking a closer look at design from a strategic perspective.

Strategy – Emergent or Planned?

The strategic aim of a business is to earn a return on capital, and if in any particular case the return in the long run is not satisfactory, then the deficiency should be corrected or the activity abandoned for a more favourable one.

Alfred P. Sloan Jr (1963)

There are probably two distinctive approaches to strategy development, the first is planned – top management devises the strategy, middle management translates it, and supervisors and employees implement it. This approach is also referred to as the rational model of the strategy process. The problem with this approach is that it represents a linear process, not allowing for feedback to be integrated in a flexible and timely fashion. 1  The second approach on the other hand combines top-down planning with structures that allow for reactions to insights and activities from all levels of the organisation. This approach is also referred to as an emergent strategy.  Table 6.1 summarises the description of the sections on ‘strategy as rational decision making’ (planned strategy) and ‘emergent strategy’.

1An approach to strategy development that addresses issues of nonlinearity, taking a more holistic and dynamic approach is called ‘strategy dynamics’.

Table 6.1 Planned versus emergent strategy

	Planned strategy	Emergent strategy
Starting point	External and internal context of the organisation (traditional SWOT analysis)	Action within the organisation, trial and error learning though still aimed at implementing an overriding strategy
Leading to	Identification of key success factors (external) and distinctive competencies (internal)	Insights from experiments that in turn influence future action
Resulting in	The creation, evaluation and implementation of a strategy	Review and revision of the overriding strategy
Flow	Top down	Bottom up as well as top down
Level of uncertainty (driven by complexity and rate of change)	Low	High

Source: Based on Hatch, M.J. ( 1993 ). The dynamics of organizational culture. Academy of Management Review, 18, 657 and Mintzberg, H. ( 1990 ). The design school: reconsidering the basic premises of strategic management. Strategic Management Journal, 11, 171–95.

One could argue that in today’s fast-moving environment there is little choice but to follow an emergent strategy development process. It is important to point out that emergent strategy should not be confused with not having a direction or strategy at all. When embracing the white-label strategy ihavemoved.com did not change what their company was all about. They knew what they wanted to provide: a web-based offering that would provide a one-stop-shop address changing service to home movers. Had they insisted on providing the website itself that was offering the services they would not have entered into collaborative agreements with other companies. In a way, what they have changed is the way they deliver their service, not what the company stands for. So it is not only the ability and willingness to respond to unforeseen opportunities that lie at the core of innovative organisations but also a strategy that is formulated broadly enough to allow flexibility when necessary. It is probably the lack of a broad enough vision that prevented Xerox from exploiting the inventions coming out of its research lab in Palo Alto (see Chapter 1 ).

By the way, it is often the shift from a product to a service based strategy that can make the difference and create a competitive advantage. Think about train operators in the US. Had they thought of themselves as being in the business of transporting people from one place to another rather than being in the train business their chances for survival would have been much higher. Another example is Castle Cement, a UK-based provider of cement. In the past customers had called Castle Cement if and when their silos were empty or nearly empty. This required an immediate response and delivery from Castle Cement, often leading to half empty trucks racing around the countryside to ensure fast delivery. Rethinking the way it sold its product Castle Cement turned the process on its head: instead of delivering on demand they started to offer a guarantee that ‘your silo will always be full’. This meant that they were monitoring their customers’ silos, planning deliveries well ahead which meant that load rates of their delivery vehicles went up, and routes could be planned to maximise efficiencies.

However, being flexible and responsive can also be quite threatening. What if the new opportunity threatens the core of the existing business? In an interview by the magazine QuisicPeter Skarzynski, co-founder and CEO of the strategic consultancy Strategos, was asked, “You’ve been quoted as saying that for companies to innovate, they may have to stop doing some things that made them successful in the first place.” His response was, “They have to critically look at the things that have made them successful and understand which of those keep them from radical growth, keep them from transforming the industry. So yes, sometimes it means stopping or changing the very thing that drove the success.” 2  The larger the organisation, the larger the part of the organisation that is under threat, the less likely it is that the opportunity will be taken up.

2For full interview see  http://www.quisic.com/cgi-bin/ic/ic_article_display.pl?nav=2&channel_id=1&content_id=104 .

It seems to me that the description of characteristics of a success generating a new product development process given by Robert G. Cooper ( 1994 ) is equally appropriate for a company’s strategy. The four characteristics identified by Cooper are:

· Fluid: it is fluid and adaptable, constantly reviewing the company’s environment to enable early identification and fast response to changes or opportunities.

· Fuzzy gates: it features conditional Go decisions (rather than absolute ones) which are dependent on the situation.

· Focused: it builds on the company’s skills and capabilities (rather than on existing products and markets) and focuses resources on the ‘best bets’.

· Flexible: it does not stick religiously to its formulated strategy if changes in the wider environment render it obsolete.

I would also like to emphasise that one approach does not exclude the other and argue that both are needed. A company needs to have its overriding goal or ambition, but needs to be flexible in how it achieves it. No good in insisting in the production of typewriters when the world has moved on to personal computers – unless one wants to become a specialist and niche player. As has been pointed out, sometimes organisations need to give up what has made them successful in the past to be able to succeed into the future.

Companies aiming to become more innovative have to embrace the thought of allowing their strategy to emerge. To be innovative is to pursue opportunities that were neither known nor available before, and which cannot possibly be planned or scheduled. As research by Slevin and Covin ( 1997 ) found, “Planned strategies are positively related to sales growth among firms with mechanistic structures and operating in hostile environments. Emergent strategies, on the other hand, are more positively related to sales growth among firms with organic structure and operating in benign environments.” 3

3See also  Table 3.2  in  Chapter 3  for a comparison between different types of organisational structure whereby ‘mechanistic structure’ corresponds with ‘functional structure’ and ‘organic structure’ with ‘matrix structure’.

These are fundamentally issues of whether or not companies are ready to embrace discontinuous or disruptive change and we will take a closer look at this topic in  Chapter 31 .

Strategy and Innovation

Before looking at strategy best practice in the context of innovation in particular, some more general insights into strategy best practice in general. In his aforementioned book on strategy analysis Grant ( 1991 ) identifies the following four characteristics of successful strategies:

· They are directed towards unambiguous long-term goals.

· They are based on insightful understanding of the external environment.

· They are based on intimate self-knowledge of the organisation’s capabilities.

· They are implemented with resolution, coordination and effective harnessing of the capabilities and commitment of all members of the organisation.

To become a successful innovator the first and last points are the most important. We have just discussed the importance of flexibility while maintaining an overall strategic direction. The first point also implies clarity and sharedness, and we will come back to that in a moment. The last requires determination and commitment – something that research by Repenning ( 2002 ) has found to be fundamental to innovation success. His research into understanding the dynamics of innovation implementation led him to the following conclusion, “Managers should not adopt an innovation unless they are prepared to be both fully committed to the effort and patient in the month between adopting the innovation and crossing the motivation threshold. A half-hearted approach or early termination can severely limit the value of an otherwise useful innovation” (See  Box 6.1 ). What is true at the project level is equally true for the company level. Managers should not embark on the journey of creating a more innovative organisation unless they understand the implications, and are prepared to continue on the path and commit the necessary resources.

Box 6.1. Repenning’s experiment

Repenning conducted two experiments concerning the implementation of an innovation that were identical up to a certain point in time, and the only aspect varying after that was the level of senior management commitment. In one scenario visible senior management commitment was discontinued after 24 months, under the other scenario it was continued. Perhaps not surprisingly, in the first scenario the commitment among employees dropped to zero in a short period of time, leading to a failure, whereas in the second scenario employees remained committed, leading to a successful implementation of the innovation.

To clarify, in a vision a company states its goal. Its strategy is, as defined by James Brian Quinn in Strategies for Change: Logical Incrementalism ( 1980 ), “The pattern that integrates an organisation’s major goals, policies, and action sequences into a cohesive whole. A well-formulated strategy helps to marshal and allocate an organisation’s resources into a unique and viable posture based upon its relative internal competences and shortcomings, anticipated changes in the environment, and constant moves by intelligent opponents.” Or in much simpler terms, a strategy is a plan for action. So if to become more innovative is part of an organisation’s goal, managers will have to develop a plan of action to achieve this. Putting it into the annual report and adding it to the company’s values is not sufficient. Most importantly, it ignores that becoming (more) innovative is about changing behaviour, and an innovation strategy provides ‘a plan for action’ on how to achieve this. Such a plan for translation of innovation intent into action is often made explicit in an organisation’s innovation strategy.

In order to be effective an innovation strategy should provide the following:

· An explanation of how it fits in and feeds into the overall business strategy.

· A definition of what is meant by innovation in general and further definitions and information on different types and levels of innovation (see  Box 1.2  in  Chapter 1 ); it should further provide information in which of these different types and levels of innovation the organisation wants to engage in.

· A company-wide portfolio that outlines what types and levels of innovation the organisation wants to pursue, and what kind of resources, time frames, responsibilities, success criteria etc. are associated with each of the different portfolio segments.

· A structure through which innovation is managed and executed.

In order to develop such a strategy and reap its benefits it is essential that it is well communicated, and that buy-in is ensured early on in the process. Once such a strategy has been developed it will serve as a decision framework for the selection of project and the allocation of resources (people, time, money etc.).  Box 6.2  outlines the three stages of innovation strategy development.

Box 6.2. Innovation strategy development

Definitions and framing (why and what)

· Situational analysis – to understand the context for innovation within the organisation as well as the external environment.

· A clear link to company vision and strategy – how does innovation help us to achieve our ambition? Innovation is ultimately a means to help an organisation achieve its goals and ambitions.

· Goals and objectives – what we want to achieve through innovation.

· Definition of innovation (with types and levels); definitions are often organisation specific, they also help to create a shared language.

· Define ‘focus areas for innovation’ (or platforms/themes) around which innovation should be focused (often tie in with trends or insights/deductions from trends).

Portfolio and structures (how)

· Approaches to idea management – where do we get our ideas from (internal/external), how do we collect, assess and manage them, who is reviewing and responding to them?

· Different dimensions and clusters of the portfolio, outlining in which innovation types/levels (innovation fields) the organisation plans to engage; how much of overall resources will be allocated to each innovation field; the result is highly organisation specific.

· What kind of people and capabilities do we need for each of the different innovation fields and how do we build this up over time? How do we recruit (for diversity), assess (for creativity, different team roles and skills, e.g. Belbin, MBTI, KAI, IDEO 10 faces of innovation etc. – see appendices), train, reward, remunerate, incentivise people (careful with financial rewards).

· Metrics and measures of success, varying and specific to the different innovation fields (see appendices for more).

· The processes through which innovation is managed, e.g. idea management, stage gate, prototyping, capturing and sharing learnings from success and failure.

· The structures through which innovation will be managed, e.g. innovation roles, reporting relationships and responsibilities, where and how decision making takes place.

· Information on how innovations (of different kinds) are transferred into mainstream business.

Creating a receptive and fertile ground

· A strategy for how buy-in and involvement will be assured, particularly among middle and senior managers

· Identifying aspects of corporate culture that help or hinder innovation, and how they might be migrated/changed over time.

· How the physical work environment be used to encourage and foster innovation.

Such a strategy can also be used to develop a time-bound plan for culture change (with the aim of creating an innovative organisation), defining steps towards the ultimate goal.

While this book focuses on innovation, I do not want to ignore the fact that there are other positioning strategies companies can pursue. Jones ( 1997 ) identifies four different types of new product strategies (see  Table 6.2 ), each of which will require a different approach, structures and strategies to realise its respective ambition.

Table 6.2 Product strategies

Type	Characteristic	Examples
Offensive	Innovators	Pilkington – float glass
	Research intensive	Du Pont – Teflon
	High risk/uncertainty	Polaroid – instant film
	Current information	Hoover – vacuum cleaner
Defensive	Followers	Matsushita – VHS video
	Incremental innovation	IBM – personal computers
	Production quality	WordPerfect – computer software
	Market focus	Nissan – cars
Imitative	Low-cost manufacture	Compaq – computers
	Licensed technology	Molson – dry beer
	No R&D	Daewoo – cars
	Localised markets	Samsung – microwave ovens
Traditional	Established markets	Barbor – clothing
	Constant demand	Aga – cookers
	Niche market	Zippo – cigarette lighters
	Low technology	Mont Blanc – pens

Source: Jones, T. ( 1997 ). New Product Development, an Introduction to a Multifunctional Process. Oxford: Butterworth Heinemann. Reproduced by permission of Butterworth Heinemann; T. Jones.

Looking back at the characteristics of planned and emergent strategy ( Table 6.1 ) and comparing them to the characteristics of the four different new product strategies shown in  Table 6.2  we find that an emergent strategy is much better suited for achieving innovation.

However, somethings even the most innovative organisations need to balance are the diverging need of innovation on the one hand and operations on the other. It is the conflict between creativity and implementation introduced in the first chapter.  Table 6.3  compares aspects of an operating organisation with those of an innovating organisation. However, how many organisations that claim to be innovative truly have all characteristics of the innovating organisation? And another question is, is there an innovative organisation that could survive long term without also providing the conditions of an operating organisation?

Table 6.3 Comparing operating and innovation organisations

	Operating organisation	Innovating organisation
Structure	Bureaucratic, specialisation and division of labour; hierarchical control	Flat organisation without hierarchical control; task oriented project teams
Processes	Operating units controlled and coordinated by top management which undertakes strategic planning, capital allocation and operational planning	Processes directed towards generation, selection, funding and development of ideas; strategic planning flexible, financial and operating controls loose
Reward systems	Financial compensation, promotion up the hierarchy, power and status symbols	Autonomy, recognition, equity participation in new ventures
People	Recruitment and selection based upon the needs of the organisation structure for specific skills, functional and staff specialists, general managers, and operators	Key need is for idea generators who combine required technical knowledge with creative personality traits; managers must act as sponsors and orchestrators

Source: Based on Jay R. Galbraith and Robert K. Kazanjian (1986) as adapted by Grant, R.M. ( 1991 ). Contemporary Strategy Analysis: Concepts, Techniques, Applications. Cambridge, MA: Basil Blackwell, p 240. Reproduced by permission of Professor R. Grant.

What does this mean for managers? For one it means that large, operating-orientated organisations that also want to be innovative have to find a way to balance the demands of both the operation and the innovating company which I have emphasised before. It might also mean that large operating organisations are just incapable of dealing with radical innovation – in the existing structures – and that in order to allow truly radical innovation to flourish they have to create alternative structures that meet the requirements of an innovating organisation. Again this is an issue we will return to in  Chapter 31 .

Finally, some insights into strategy best practice for innovation. Research into innovative organisation tends to highlight three aspects about strategy and vision that differentiate the innovative from the less innovative organisation:

· clarity

· sharedness

· attainability

If having a clear and shared vision and strategy is important for any organisation that wants to achieve an ambition, it is essential for an organisation aspiring to change – and what does the ambition to become more innovative imply but the need for change. While the implications of ‘clarity’ and ‘sharedness’ are quite straightforward – everyone in the organisation needs to know and understand, and share the same interpretation of the strategy – attainability is a bit more ambivalent and without explanation might be interpreted wrongly.

One could understand this third aspect either to read: it has to be easily achievable or, it has to be just about achievable. Theresa Amabile, whose framework was introduced in  Chapter 1  refers to this with ‘pressure’ (represented by workload pressure and challenging work). The goal set needs to be attainable, but at the same time it needs to provide a stretch, a challenge. Something too easily attained does often not seem worth pursuing, whereas something too unrealistic puts people off. Having said this, if the external pressure is sufficient it is surprising what people can achieve. Think about the public pressure to perform created by Kennedy’s public announcement that he wanted to put men on the moon, or the challenge to engineers at NASA during the Apollo 13 flight, when the lives of their colleagues and the entire mission depended on their ability to create a pump that could convert carbon dioxide into oxygen out of the most bizarre array of objects imaginable. It is often that need, the urge, the crisis, however you would like to call it, that is missing in organisations wanting to become more innovative, companies where people tend to think, ‘everything is going just fine, thank you, why change?’

People need a reason to change – and not just one that appeals to their minds. Kotter and Cohen ( 2002 ) emphasise, “People change what they do less because they are given analysis that shifts their thinking than because they are shown a truth that influences their feelings.” It is ‘getting people’s hearts as well as their minds’ that matters and management writer Charles Prather has translated this into a formula for change: 4

4‘Leading Innovation: enabling your organisation’, presentation given at the 2002 Innovation Network conference in Minneapolis, 22–25 September 2002.

Change = Vision × X × Felt need to change

Change only happens when there is a vision of where to go, when there is a felt need for change, and when there are some specific steps to be taken (‘X’). If any part of the equation is zero, there is no change. This also enforces the point made earlier, that a clear strategy and vision is so important in realising an innovative organisation.

By the way, Rosabeth Moss Kanter’s book The Change Masters ( 1985 ) explores the dilemma of change, and provides a host of useful insights as to why change may not be happening, and how to overcome the hurdles. Though the list of ‘rules for stifling innovation’ she provides in her book (see  Box 6.3 ) might make you smile, I am sure there are some – if not many – that are true for organisations that you know.

Box 6.3. Rosabeth Moss Kanter’s ‘Rules for Stifling Innovation’

1. Regard any new idea from below with suspicion because it’s new, and because it’s come from below.

2. Insist that people who need your approval to act first go through several other levels of management to get their signatures.

3. Ask departments or individuals to challenge and criticise each other’s proposals (that saves you the job of deciding; you just pick the survivor).

4. Express your criticism freely, and withhold your praise (that keeps people on their toes). Let them know they can be fired at any time.

5. Treat identification of problems as signs of failure, to discourage people from letting you know when something in their area isn’t working.

6. Control everything carefully, make sure people count anything that can be counted, frequently.

7. Make decisions to reorganise or change policies in secret, and spring them on people unexpectedly (that also keeps people on their toes).

8. Make sure that requests for information are fully justified and make sure that it is not given out to managers freely (you don’t want data to fall into the wrong hands).

9. Assign to lower level managers, in the name of delegation and participation, responsibility for figuring out how to cut back, lay off, move people around, or otherwise implement threatening decisions you have made. And get them to do it quickly.

10. And above all, never forget that you, the higher-ups, already know everything important about this business.

So attainability means finding a balance between realistic but boring and unrealistic but exciting, and providing people with a motivation and ambition to achieve it.

One final point on innovation and strategy; there is often a debate as to whether it is better to be a first mover or fast follower – and the verdict is still out. In order for it to make sense to be first mover the reward needs to justify the risk. In some industries being a first mover has distinct advantages, for example, if this helps to set an industry standard or creates other significant barriers to entry. Exclusive access to a key resource can be such a barrier. In other situations, where the first mover can be easily and quickly copied, it might pay to be a fast follower and let the first mover establish and educate the market. We talk of a fast follower advantage when an organisation entering a market as second or third develops a leading position despite a later entry.

Hence there are advantages and disadvantages associated with each strategy and which are summarised below.

First mover advantages

· Technological leadership; e.g. through patent registration; this can be observed in the pharmaceutical industry.

· Pre-emption of scarce assets; e.g. geographical or shelf space; an example of the former might be if there is only room for a few competitors as for example for particular ferry routes.

· Scale effects; e.g. reducing unit cost through large production runs.

· Network externalities; e.g. the product is part of a wider offering, e.g. phones for free as part of buying network services.

· Buyer switching cost, e.g. the learning is specific to the first mover’s product/the user has to make an up-front investment that would have to be repeated when switching, e.g. switching from one software to another.

· Brand loyalty; e.g. the first mover shapes and influences tastes and expectations of the users.

· Experience effects; e.g. the first mover moves up the learning curve and followers have difficulties catching up.

Two obvious disadvantages to being the first mover are cost, e.g. investment in R&D and market education, and risk, e.g. there are no knowledge and mistakes of others to learn from.

Fast follower advantage 5

5The advantage of the fast follower is explored in detail in the book Fast Second by Constantinos Markides and Paul Geroski – see book recommendations at the end of this chapter.

· Free-rider effect; taking advantage of the learning and education of the market that has already taken place; the fast follower can focus on improving the product.

· Technological or market uncertainty have been resolved; it is often the fast follower who takes a product from niche to mass market.

· Government interference; e.g. change in subsidies to avoid monopoloes or introduction of deregulation.

· Resource homogeneity; if resources are the homogeneous and available to all then a first mover cannot establish a resource-based advantage

Table 6.4  gives examples of successful first movers as well as successful fast followers.

Table 6.4 To follow or to lead?

Product	Innovator	Follower	Winner
Jet airliner	De Haviland (Comet)	Boeing (707)	Follow
Plate glass	Pilkington	Corning	Lead
VCRs	AMpex/Sony	Matsushita/Panasonic	Follow
Diet cola	R.C. Cola	Coca-Cola	Follow
Instant camera	Polaroid	Kodak	Lead
Disposable nappy	Procter & Gamble	Kimberley-Clark	Lead
Paper copier	Xerox	Canon	?
Web browser	Netscape	Microsoft	Follow

Useful Concepts and Frameworks for Strategy Development

With all the above, managers are still facing three important questions:

1.	Outward looking – no organisation operates in a vacuum. How do we understand our context and define our starting point?

2.	Inward looking – what are the aspects that our innovation strategy should address?

3.	Once we have established our innovation strategy, how do we ensure implementation?

The three frameworks I am suggesting are:

1.	Porter’s five forces to help companies to define their starting point and understand their industry context.

2.	Higgins’ application of Peters and Waterman’s 7S framework to innovation to provide some insights for how companies can align their organisation to an innovation ambition.

3.	Hay and Williamson’s strategic staircase to provide valuable insights into strategy development and implementation.

Before developing an innovation strategy for their organisation managers should make sure that they understand the context in which they operate and what their position in the playing field is relative to other players. Porter’s ( 1980 ) five forces framework allows organisations to do just that by requiring managers to take a closer look at customers, suppliers, possible new entrants, possible substitutes for existing products and its industry’s overall competitive position.  Figure 6.1 summarises the aspects to be considered for each of the five forces. The insights gained from the analysis can inform both the company’s overall as well as its specific innovation strategy.

Figure 6.1 Porter’s five forces.

Source: Porter, M.E. ( 1980 ). Competitive Strategy: Techniques for Analyzing Industries and Competitors. New York: Free Press. Reproduced by permission of The Free Press.

Once context and positioning have been established the company’s overall strategy can be developed. Closely linked to the overall strategy should be the company’s innovation strategy. The 7S framework developed by McKinsey consultants Peters and Waterman in 1982 provides a useful reference point to make sure that all aspects of the organisation are aligned to the innovation ambition.

Higgins ( 1996 ) used the 7S framework to suggest how to implement an innovation strategy. He states that “Everything in business must start with strategy. Your organisation’s innovation strategy reflects the demands of its future environment, and how the organisation plans on reacting to or changing that environment to meet its needs. Strategy leads to everything else. The other S’s must be pointed in the same direction as strategy.” He too suggests that the strategy determines and must be supported by values, which need to be set by top management and shared throughout the organisation. Based on the strategy and values, managers then need to set to work to develop and select the right structure, the right systems, the right style, and the right staff with the right skills.  Table 6.5  lists what managers need to consider for each of the seven ‘S’.

Table 6.5 The 7S framework

7S	To consider
Strategy	Should reflect the demands of future environment, and how the organisation plans to react to or change that environment to meet its needs; everything else must follow
Structure	Teams, innovation centres, lines for communication, alliances, idea evaluation
Systems	Align rewards and remuneration, management information systems, celebration of innovation and creativity, idea assessment beyond – financial evaluation, systems for implementing process, marketing, and management innovations
Style	Accepting of failure, suspending judgement, transformational leaders
Staff	Recruit creative people, develop innovation champions, train people, provide time for reflection, provide physical facilities
Shared values	Strategy determines the shared values; changing existing values will take time
Skills	Create opportunities, improve and innovate continuously, start knowledge management and organisational learning initiatives, invest in R&D

Source: Based on Higgins, J.M. ( 1996 ). A plan for innovation. R&D Innovator, 5. Reproduced by permission of Innovative Leader.

Once the context is understood, and plans have been made for how to change the organisation’s 7S to reflect the innovation ambition, there is still the most difficult step – there are still two problems. First, how to develop the strategy from which the other six ‘S’ follow, and second, how to implement it and fill the strategy with life.

I would like to refer to two articles written by Michael Hay and Peter Williamson in 1991 and 1997, respectively. Both articles investigate why strategy often fails at the implementation stage, and suggest an approach that might help to overcome the problems.

In their first article the authors identified lack of clarity, a preference to continue in accustomed ways and the fact that most organisations seem to use the past as predictor for the future as the main reasons underlying implementation failure. They found that many organisations describe a large number of priorities, each with several key performance measures, which means that it is difficult for managers to prioritise their efforts. If everything is first priority, where to focus resources? If innovation is not top priority innovative projects tend to get axed at the first signs of difficulties, partly because they are seen to be high risk, partly because benefits cannot be reaped in the short term.

In addition Hay and Williamson found that the different priorities can stay in direct conflict with each other, which they felt made implementation efforts even more difficult. In her book When Giants Learn to Dance Rosabeth Moss Kanter ( 1989 ) picks up on some of the contradictions managers face:

· Think strategically and invest in the future – but keep the numbers up today.

· Be entrepreneurial and take risks – but do not cost the business anything by failing.

· Know every detail of your business – but delegate more responsibility to others.

· Speak up, be a leader, set the direction – but be participative, listen well, cooperate.

· Continue to do everything you are currently doing even better – and spend more time communicating with employees, serving on teams, and launching new products.

While I agree that the contradictions are difficult to manage, I also believe that increasingly innovative companies and individuals have learned to do just that. Innovative organisations manage their existing business through structured and efficient processes while at the same time providing some flexibility and slack for creativity and innovation to flourish.

But back to strategy development. In their second article Hay and Williamson probe deeper into possible causes of implementation failure. Interviewing managers about strategy and delving into statements made about strategy they found that managers’ perception of what strategy means and involves is the true show-stopper to implementation (see  Table 6.6 ).

Table 6.6 A deep-seated scepticism characterises the view from below

On the surface	Revealed below
Strategy is about the long term	Far enough in the future so that you don’t need to do anything about it now
Strategy depends on forecasts	Strategy is about crystal ball gazing
Strategy influences profitability	Budgets are about profitability, strategy is about mountains of paper and thick folders
Strategy is about a common mission, pulling together	Everyone agrees we should have a strategy as long as it doesn’t constrain any of our individual departments
Strategy needs periodic review	Strategic planning is a comfortable part of the corporate ritual; a once-a-year ‘binge’ and it’s back to the in-tray

Realising that what seems to get distilled from the strategy are targets and forecasts they comment, “but what often gets lost in this distillation process is the broader strategic perspective”. And it is just this broader perspective that is essential to innovation. From the above they distil three reasons for implementation failure:

1. Confusion about what exactly a ‘strategy’ is and, specifically, the difference between the various levels at which it operates. How, for example, should a mission, individual objectives and the budget be linked?

2. An abiding sense that episodic bouts of strategy and the reality of managerial life rarely connect. How therefore is one to link strategy to action?

3. Frustration that the constituent parts of the organisation more often pull apart than together with department X thwarting the best efforts of department Y and vice versa. In other words, can strategy be coordinated and made consistent across the organisation?

The approach they suggest involves the following sequential approach:

· Step 1: Provide clear definition of goals, explain what they actually mean for day-to-day management, be specific about actions and targets.

· Step 2: Establish what the specific goals mean in terms of requirements on the firm’s resources.

· Step 3: Think about what your company would look like when the strategy has been achieved. Then identify what specific actions you need to take to achieve your goal, working back from the future and considering all resources, skills, capacity, structure etc. required (now also known as ‘backcasting’).

With that process in mind they then suggest that companies develop the following in a strictly ordered fashion:

· A vision – that has two dimensions: external and internal; defining a vision provides the firm with an essential set of bearings: a map of the changing terrain on which it is competing; underpinning the vision there has to be a set of guiding beliefs and values.

· A mission – that should encapsulate an organisation’s raison d’être or guiding purpose; the destination to which that purpose leads; and the rationale behind the purpose.

· A plan – that focuses on how it is to be done, identifying specific steps.

· Key initiatives – each step of the plan needs to be broken down into specific initiatives.

· Individual objectives – employees’ objectives need to be derived from the set of initiatives being pursued; where individual objectives and strategic requirements are at odds with each other, then strategy will surely fail.

· Budgets – the revenues and costs identified in a budget have to be linked to individual initiatives.

In order to qualify what Hay and Williamson call a ‘first-class strategy’ it should provide the following:

· Inspiration in the form of a worthwhile, relevant goal.

· A linkage that helps individuals to connect their own task with the initiatives being undertaken elsewhere in the company.

· Guidance to individuals about the trade-offs and prioritisation decisions they have to make on a daily basis.

· Discretion for the individual to manoeuvre by loosening some existing constraints and generating some new options.

· The facilitation of communication by establishing a common language which everyone in the company can use.

If a strategy fulfils the criteria above it should provide a sound foundation from which managers can build an innovative organisation.

Design and Strategy

A design strategy is the effective allocation and coordination of design resources and activities to accomplish a firm’s objectives of creating its appropriate public and internal identities, its product offerings, and its environments.

Olson et al. ( 1998 )

In the final section of this chapter I would like to talk about design’s role in and connection with business strategy. For the last 20 years management gurus have promoted the strategic value of design, starting with Kotler and Rath declaring in 1984 that design is “a powerful but neglected tool” quoting companies such as IBM or furniture maker Herman Miller as examples for companies that have used design to achieve a superior market position. Tom Peters ( 1995 ) soon joined the ranks of the illustrious promoters of design – and slowly it seems that their arguments are being taken on board.

Sony – one of the first companies to put design at the core of its strategy

For years Sony has been able to charge a premium of around 25% over competitors’ products with similar technology. Design is widely acknowledged to have been the enabler of this. Norio Ohga, successor of Sony’s legendary co-founder Akio Morita, had set up a centre as early as 1964 to bring together the product planning group and the design centre, the first Japanese company to do so.

There still remains some confusion about what design actually means, what its use involves, and how it can actually contribute to a company’s competitiveness. However, as examples of Sony for some time and Procter & Gamble more recently show, more and more companies are starting to understand its potential and contribution in the context of innovation. Fewer organisations confuse design with styling – the latter being something that is applied to an existing product towards the end of its development process whereas the former is an integral part of a product’s development process right from the outset.

Having said that, differences in education, resulting in different mindsets and different approaches to problem solving, are still to blame for a slow take-up of design’s offerings. Managers are taught to think rationally, to analyse and measure. They are taught to avoid risk and focus on answering questions. Designers on the other hand are taught to express themselves (be emotional), to explore and experiment. They have a great tolerance for ambiguity and focus on understanding the question. Managers are concerned with facts and figures whereas designers are driven by intuition and inspiration. The lack of acknowledgement and understanding of the differences leads many managers to view design and creativity as something close to a black art, something that cannot be managed and is therefore better left alone. Creating an awareness for the differences and bringing designers on board as early as possible can help to maximise the benefits that can be gained by harnessing the differences. 6

6For a comparison of designers’ and managers’ preference please refer to  Table 1.3 ,  Chapter 1 .

It also helps to communicate clearly the benefits that design and designers can bring to a business. Kotler and Rath explain that design and the conscious management of design can add value by:

· Creating corporate distinctiveness in an otherwise product and image surfeited marketplace.

· Creating a personality for a newly launched product so that it stands out from its more prosaic competitors.

· Reinvigorating product interest for products in the mature stage of its life cycle.

· Communicating value to the consumer.

· Making selection easier (standing out) and increasing consumer satisfaction.

· Helping to inform consumers in a more efficient way.

Kotler and Rath continue to identify what constitutes effective design, namely performance, quality, durability, appearance, cost benefits but state that to achieve this it is necessary that senior management recognises and understands the contribution design can make, and that designers are an integral part of the new product development team, right from the outset.

Considering the above and referring back to the Porter framework design can hence help:

· To create barriers to entry by providing product differentiation and creating emotional switching costs.

· To reduce suppliers’ bargaining power by high levels of differentiation, enhancing product quality, increasing hurdles for possible substitutes.

· To reduce buyers’ bargaining power by higher levels of differentiation, increased desirability and product quality, and decreasing price sensitivity by preventing direct comparability (due to differentiation and quality).

· To reduce customers’ receptivity to substitutes and decrease price sensitivity.

· To reduce the impact of the number of players and excess capacity, e.g. Apple computers are less likely to be affected by excess capacity than bog standard computers.

But even if management realises the value of design, the next questions then are, how can it be harnessed, where does it apply and what part can design play in realising a company’s strategy? Cooper and Press ( 1995 ) have identified three distinctive areas of design activity in an organisation and associate specific design strategy issues with each:

Corporate identity is the reality of what the company says and does, be this visual, verbal, environmental or behavioural.

Corporate image is how the organisation is perceived. These perceptions may not necessarily reflect the reality.

Corporate identity is translated into corporate image via direct (advertising, corporate literature, etc.) and indirect (employee behaviour, service quality, etc.) corporate communications.

Tangible elements of corporate identity are the physical manifestations of visual identity and communications, e.g. corporate logo/name, publications, web site, exhibitions, buildings. Intangible elements are management style, procedures, general attitude and service quality. Intangible and tangible messages have to be consistent whereby the intangible ones are the most important as people will trust their experience more than what they are told.

Summary of design management process

(based on  Olson et al., 2000 ):

1. Clearly articulate the firm’s competitive strategy to designers and design managers.

2. Develop a detailed understanding of the design requirements inherent in the adopted competitive strategy.

3. Ensure open lines of communication among the design group and other functional units.

4. Create, review and approve design briefs.

5. Compare performance outcomes against the objectives established in design briefs.

· The development of corporate identity – this is about communications and of course identity; it requires the understanding of the corporate values, the relationship between corporate image and corporate goals, whether the focus lies on the corporation, the division or the product line, what the necessary design competencies are, and what the intangible messages of the corporation are. To implement these strategic issues designers need to work with members of the PR, advertising, HR, finance, R&D, marketing and IS departments.

· The design of saleable products and services – this is about the relationship between the factors involved in product or service design (price, quality, standardisation) and corporate goals and requires the understanding of price point constraints and production costs and capacities, about having insights into the features that are valued by customers, about having the competencies necessary to design and deliver the planned products, and understanding the intangible messages that designed products and services carry. To implement these strategic issues, designers need to work with members of the marketing, R&D, operations, and, to a lesser extent, finance and accounting departments.

· The design of operating environments – this is about the relationship between corporate values, image, environment and goals. It requires the understanding of the competitive strategy adopted by the firm or division, knowing how work is conducted within the firm and the critical interrelationships between functions, understanding consumer shopping preferences, having the competencies necessary to design corporate environments, and understanding the intangible messages that corporate environments carry. To implement these strategic issues, designers need to work with members of the marketing, operations, and HR departments, as well as architectural firms and public zoning agents.

However, having said all that, and emphasised the contributions design can make, I would like to give voice to a designer (!) who, while many seem to suggest that design should take over the world, suggests that “In a successful relationship, you will often find a dominant partner and a quiet one – a leader and a supportive follower. In the business–design relationship, business must be the leader, and design must be the supportive follower.” For that to happen, Turner ( 2000 ) realises, design has to redefine “its relationship with business – not in terms of design strategy versus business strategy, but at a much more fundamental level”. He suggests that design takes the role of coordinator, facilitator and interpreter, rather than that of the leader it often aspires to. He also suggests that, as design touches so many parts of a business, “It can bridge the gap between a company’s ambitions and the things that go on every day in the factory, the showroom, or the office in a way a mission statement never can.” This certainly is a strong argument for design, and for the potential to become reality companies need to integrate design into their DNA – or treat design as, what Gorb and Dumas ( 1987 ) refer to as ‘design as infusion’ (see  Table 1.3 HYPERLINK "javascript:findAnchor('ch01')" Chapter 1 ), which means everyone in the organisation understands and values the contribution design can make.

I would like to conclude this section with some questions senior management might want to ask about design that I have extracted and adapted from the British Standard 7000, ‘Guide to Managing Product Design’:

· Have the corporate objectives for design and new product development been properly defined and, thereafter, periodically reviewed?

· Are these corporate objectives understood by all involved and have they inspired enthusiasm?

· Is the company’s product strategy compatible with its corporate objectives?

· Have significant resources been provided to match the product strategy?

· Are procedures in place to ensure that up-to-date information about market requirements are available to the design and development team?

· Are the collaborative, information and evaluation links between the design and development team and other parts of the organisation operating properly?

· Are the organisational policies and procedures for managing the design and development process adequate?

· Is there a sincere and visible commitment to high standards of product design?

· Are achievements and expenditure being monitored against time?

· Are results being properly evaluated and is this evaluation being communicated to all concerned?

Reading Suggestions

On strategy

	Grant, R.M. (1991). Contemporary Strategy Analysis: Concepts, Techniques, Applications. Cambridge, MA: Basil Blackwell.
Comment:	Introduction to strategy analysis and development, it makes several references to innovation and the innovating organisation. Markides, C. & Geroski, P. (2004). Fast Second: How Smart Companies Bypass Radical Innovation to Enter and Dominate New Markets. San Francisco: Jossey Bass.
Comment:	Arguing for and elaborating on the fast follower advantage. Warren, K. (2007). Strategic Management Dynamics. Chichester, UK: John Wiley & Sons, Ltd.
Comment:	A book on the theory and practice of applying system dynamics to strategy development in a business context.

On change

	Moss Kanter, R. (1985). The Change Masters. New York: Touchstone Books.
Comment:	One of the classics on change, with particular insights for and emphasis on innovation. Moss Kanter, R. (1989). When Giants Learn to Dance. New York: Simon & Schuster.
Comment:	On how large organisations manage to become innovative, and thrive on change.

Some Useful Websites

	www.strategos.com
Comment:	Strategos is the consultancy set up by management guru Gary Hamel, site provides a listing of its publications as well as insights into its research findings www.smsweb.org
Comment:	This is the website of the Strategic Management Society which provides a list of useful links ( www.smsweb.org/reference/web_sites.html ), as well as influential books on strategy ( www.smsweb.org/reference/inf_books.html ) http://www.systemdynamics.org.uk/(UK) http://www.systemdynamics.org/(US)
Comment:	Websites of the organisations promoting a dynamic approach to strategy development. As they state, “System dynamics is a methodology for studying and managing complex feedback systems, such as one finds in business and other social systems.”