Business Models & Management Models Julian Birkinshaw London Business School

Types of Innovation Management model innovation Business model innovation Imagine a hierarchy of innovation . . . Most companies have a process for managing every kind of innovation except the kind that matters most. It’s a rare company that lacks a formal methodology for product innovation. Hundreds of companies have R&D groups that explore the frontiers of science. And in recent years, virtually every organization on the planet has been obsessed with operational innovation—reinventing core business processes for the sake of speed and efficiency. How odd, then, that so few companies apply a similar degree of diligence and creativity to the kind of innovation that matters most—management innovation. Sure, senior staffers busy themselves rejigging performance measures, reworking training programs and redrawing organizational charts, but most of this innovation is incremental and ad hoc. If you doubt this, try to find a management process or practice in your company that differs substantially from that of your competitors and is widely seen as a source of competitive advantage. Product or Service innovation Technological innovation Operational innovation

Some companies with innovative business models

Some companies with innovative management models

Some definitions Business Model: “the content, structure, and governance of transactions designed so as to create value through the exploitation of business opportunities” (Amit and Zott, 2001) Management Model: “The choices made about how work gets done inside the organisation” (Birkinshaw, 2008)

Management as a set of conscious choices Business Model Choices firms make about: Sources of revenue Cost structure What to make / buy How to make a profit Management Model Choices firms make about: Coordinating activities Making decisions Motivating employees Defining objectives

Management Model: Related bodies of literature Contingency / Configuration theory Structures and systems fit with environment Different archetypes can be identified (e.g. Burns & Stalker, Greenwood & Hinings) Organization Culture Beliefs, norms, practices shape behaviour Different cultural models can be identified (e.g. Denison, Goffee &Jones)

A management model framework Coordinating Activities Bureaucracy Emergence Making Decisions Hierarchy Collective Wisdom Defining Objectives Linear Alignment Obliquity Motivating Employees Extrinsic Intrinsic Traditional Principles Alternative Principles

Shared Space: An intriguing analogy Emergence Shared Space: An intriguing analogy

A management model framework Coordinating Activities Bureaucracy Emergence Making Decisions Hierarchy Collective Wisdom

Collective Wisdom 65% 91%

A management model framework Coordinating Activities Bureaucracy Emergence Making Decisions Hierarchy Collective Wisdom Defining Objectives Linear Alignment Obliquity

Obliquity Goals are best achieved indirectly If you want to get to point A, aim at point B

Two perspectives on goal setting “We must continuously achieve superior financial and operating results while simultaneously adhering to high ethical standards.” “To improve the quality of life for the communities we serve.”

A management model framework Coordinating Activities Bureaucracy Emergence Making Decisions Hierarchy Collective Wisdom Defining Objectives Linear Alignment Obliquity Motivating Employees Extrinsic Intrinsic Traditional Principles Alternative Principles

Extrinsic and Intrinsic Motivation Theory X We work to live Effort is driven by material rewards Theory Y We live to work Effort comes from intrinsic need to achieve

Management model = explicit choices on these four dimensions Bureaucracy Emergence Means Hierarchy Collective Wisdom Linear alignment Obliquity Ends Extrinsic Intrinsic Loose Means, Tight Ends Loose Ends, Tight Means

Four models “Quest” Model “Discovery” Model Loose MEANS “Planning” Model “Scientific” Model Tight Tight Loose ENDS

Planning Model Clear objectives, clear incentives for achieving those objectives Tight control from the top, carefully-designed structures and processes

Quest Model Clear objectives, clear incentives for achieving those objectives Enormous degrees of freedom in how objectives will be achieved William dyce’s painting; lancelot kisses guinevere’s hand

Scientific Model Broad purpose, not clear objectives; emphasis on intrinsic motivation Well-understood methods for making progress

The Scientific model in action: Arup “There are two ways of looking at how you earn a living: One is to view work is a necessary evil; the other is to make your work interesting and rewarding. We opt uncompromisingly for the second way.” 1970 Key Speech by Ove Arup

Serendipity (n): “The art of making happy discoveries” Discovery Model Broad and often vague goals; emphasis on intrinsic motivation Many pathways to success, all equally valid Often seen in entrepreneurial settings Serendipity (n): “The art of making happy discoveries”

A common trajectory “Quest” Model “Discovery” Model Loose MEANS “Planning” Model “Scientific” Model Tight Tight Loose ENDS

A research agenda Which management model(s) are most effective under which conditions? How do management models and business models relate to one another? How do companies change their management models? What other management model dimensions might we identify?