Managing the Innovation Process: Module summary Managing in Information-Intensive Companies Prof. Morten Hansen Feb. 2013

The problem: Established companies often do not innovate well Mechanistic, exploitative: set up to execute on existing operations Short run, unit-focused, execution-oriented New businesses are different Exploratory, organic Different markets, business models/economics E.g., digital printing at RR Donnelley Different people and skills required Different metrics needed Solutions need to balance exploration and exploitation

Solution 1: Take an Innovation Value Chain View View innovation process as one whole process Idea generation => conversion => diffusion Need to be good in all links Need to have a process for each phase Therefore, diagnose the weakest link Concentrate on improving the weakest link Understand that skills and tasks differ as move along the chain Idea generation: creativity, dreaming, seeing opportunities Conversion: project management, manage organization Diffusion: “Show me the money!” E.g., RR Donnelley case exemplifies this

Solution 2: Create hybrid structure that separates and integrates Fully integrated (in units) Hybrid (linked to units +separate operations) Stand-alone Linked to units (integrates) Access to resources (money, people, expertise, customers, distribution), commitment from line, eventual transfer to line Separate operations (separates) Venture unit/corporate incubator (e.g., IBM) or separate division (RR Donnelley) Entrepreneurial freedom, entrepreneurial people, higher risk-reward incentives, different metrics.

Solution 3: Develop an innovation culture Research shows four behaviors related to an innovation culture Creativity 1) Support for risk taking Rewards for innovation Management role models Challenge the status quo 2) Tolerance of mistakes Mistakes are normal Being “safe” isn’t OK Implementation 3) Teamwork Share common goals Open information 4) Sense of Urgency Fast decision making No red tape Once decided, full commitment Source: “The determinants of team-based innovation in organizations.” Small group Research, vol. 34, 2003

Solution 4: Develop ambidextrous skill sets Develop people to be good at both exploitation (running the existing business) and exploration (new business development) Especially in sr. management teams Hire, promote and job-rotate to create as many people with ambidextrous skills as possible + Hire and develop people with either skill set Not all can have ambidextrous skills Thus need to have it at the aggregate organizational level => Ambidextrous in top management + some specializaton below

Solution 5: Change metrics for new business creations Metrics used for existing businesses risk killing new businesses Short-term (e.g., profit within a year at RR Donnelley) Financials, when they are not meaningful Market share, when markets don’t even exist But metrics needed to measure progress Milestones (e.g., IBM) Depends on stage in process Early development: technology progress, design wins Later: sales, customer targets etc.

Solution 6: new business champions need to develop political skills Innovation is a messy process, requiring project champions to navigate the social and political landscape in a company (e.g., Dow Chemical case) Manage higher-ups Manage larger organization Do not only use rational arguments i.e., do not only argue that “it’s a good project”, but understand the motives of other people and units Use influence tactics: Build internal coalitions, build momentum, “sell” to others in the organization, enlist supporters, trade favors with others (norms of reciprocity), ingratiate, etc.

Solutions encompass several “levers”: they need to be aligned “Hard” “Soft” Culture: Risk/Failure + Implementation Structure: Separate + Integrated Aligned Skills: Ambidextrous Process: Innovation Value Chain Politics/Social: Use influence tactics Metrics: Hitting milestones, Not strict financials