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MGM102H5 (178)
Chapter 3

Textbook Notes Chapter 3- Managing Innovation and Change.docx

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University of Toronto Mississauga
Dave Swanston

Chapter 3- Managing Innovation and Change- Textbook Notes Paradigm Shifts • Paradigm Shift- Occurs when a new technology or business model comes along that dramatically alters the nature of demand and competition • Most likely in industry when one or more of following conditions are in place: 1.Natural Limits to Technology • The established technology in the industry is mature and approaching or at its natural limit • Technology S curve shows the relationship over time between cumulative investments in R&D and the performance (or functionality) of a given technology • When a technology approaches its natural limit, research attention turns to possible alternative technologies and one of those alternatives might be commercialized and replace the established technology (the probability that a paradigm shift will occur increases) • Because successor technology is initially less efficient than the established technology, established companies and their customers often make the mistake of dismissing it, only to be caught off guard by its rapid performance improvement 2.Disruptive Technology  • New disruptive technology has entered the marketplace and is taking root in market niches that are poorly served by established companies that use the established technology • Disruptive Technology- A new technology that gets its start away from the mainstream of a market and then, as its functionality improves, invades the main market • They are disruptive because they revolutionize industry structure and competition, often causing decline of established organizations, thus causing a technological paradigm shift • Factors that make it difficult for established companies to adopt a new disruptive technology:  Listening too closely to their customers  Initially these technologies served such small market niches that they seemed unlikely to affect company revenues and profits  New business model was required to exploit the new technology • Companies’ supplies and distributors also ignore disruptive technologies, thus new entrants will seek new suppliers which will replace the existing ones (Disruptive technologies may kill entire networks of enterprises 3.New Business Model • Company develops a new business model that is radically different from that used by competitors, enabling it to capture more demand and put its rivals on the defensive • Business Model- The way in which an enterprise intends to make money • Razor and razorblades business model is a model that sells product at average cost and then sell replacement products for a premium • Development of business model can alter competitive playing field, disrupting competition by capturing demand from established enterprises (cause paradigm shift)  Example: Google’s search based advertising model is creating problems for traditional media as they see advertising dollars diverted toward Google and its competitors • Technological innovation offers fertile ground for development of new business models but new business models can sometimes emerge in the absence of new technology Punctuated Equilibrium  • Punctuated Equilibrium- A view of industry evolution asserting that long periods of equilibrium are punctuated by periods of rapid change when industry structure is revolutionized by innovation • What punctuated equilibrium might look like for competitive structure: • Value migrates to business models championed by new entrants and based on new strategies Organizational Inertia • Organizational Inertia- Internal and external forces that make it difficult to change the strategy or organization architecture of an enterprise and these forces include: Cognitive Schemata • Cognitive Schemata- A manager’s mental model of the world his/her enterprise inhabits (what works/what doesn’t, what is important/unimportant, etc) based on experience • Management teams lead to quick decisions but tend to ignore events, data, and suggestions that fall outside their schema (cognitive blind spots) and thus, may not understand the threat posed by new technologies and new enterprises • Adopted because they have worked in the past Internal Political Constraints  • Power and influence includes position, control, and perceived expertise • Any change tends to alter the established distribution of power and influence within an organization thus, those whose power is threatened y change will naturally tend to oppose it and this opposition may be considerable and becomes source of organizational inertia that might slow or stop change Organizational Culture • If the formal and informal socialization mechanisms within an organization have emphasized a consistent set of values for a prolonged period, and if hiring, promotion, and incentive systems have all reinforced these values, suddenly announcing that those values are no longer appropriate and need to be changed can produce resistance and dissonance among employees Commitments and Capabilities • Strategic Commitments- A firm’s investments in tangible and intangible assets to support a particular way of doing business ( a particular business model) • Once a firm has made a strategic commitment, it will have difficult responding to new competition if doing so requires a break with this commitment • Sometimes prior commitments built the wrong assets and capabilities for new environment External Institutional Constraints  • Labour unions might resist job cuts or attempts to introduce flexible work rules, thus slowing firm’s ability to meet new competition • Government regulations can limit the ability of organization to change its strategy and organization to meet new competition  For example: Local rules say that certain percentage of product sold in country must be produced there which makes it difficult for business to counter low cost competition by moving parts of its production system to countries where costs are lower Organizational Change • Four steps in successful organizational change process: Leadership Committed to Change • Organizations cannot change unless their leaders recognize need for change and are committed to pushing it through however, change is reactive instead of proactive because leaders are unable to recognize quickly enough that change is necessary and are pushed to accept reality by declining financial performance • Appointing an outsider (someone who does not share their ideas and cultural values) or inside outsider (someone who is manager in the firm but does not share the dominant cognitive schema and cultural values) can work • A leader who is committed to organizational change recognizes the need for change, communicates it to employees, motivates them to support the change, and implements it Unfreezing the Organization • Involves confronting employees with the need for change and getting them to believe that change is necessary • Recommend bold, dramatic action to signal to employees that change is coming (shock therapy) • Also need to use communication abilities + credible strategic vision Moving the Organization • Entails changing:  Management- Building a top management team that is committed to change effort helps consolidate power and authority in key change agent, the leader  Strategy-Asset disposals  Organization Architecture- Clarify who is responsible for what within organization and push down responsibility and accountability, stripping away unnecessary layers of management  Employee Behaviour- Rewarding people who manage according to new values
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