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Ch11 Innovation and Change.doc

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Joel Marcus

Chapter 11: Innovation and Change Innovate or Perish: The Strategic Role of Change • Organizations must run fast to keep up with changes taking place all around them • Many organizations are responding to global forces by adopting self-directed teams and horizontal structures that enhance communication and collaboration, streamlining supply and distribution channels, and overcoming barriers of time and place through IT and e-business • Change is the norm today and it is dramatic and constant • Forces driving the need for major organizational change are demonstrated below: Incremental versus Radical Change • Incremental change is a series of continual progressions that maintain an organization’s general equilibrium and often affect only one organizational part o For example, implementing a sales team in the marketing department • Radical change breaks the frame of reference for the organization, often transforming the entire organization o For example, shifting the entire organization from a vertical to a horizontal structure 4 Strategic Types of Change • Technology changes o Changes in an organization’s production process, including its knowledge and skills base, that enable distinctive competence o They are designed to make production more efficient or to produce greater volume o Involves the techniques for making products or services, like methods, equipment, and workflow • Product and service changes o Changes in an organization’s product or service outputs o Normally designed to increase market share or to develop new markets, customers, or clients o For example, Toyota’s Hilux truck was designed to increase market share, whereas Apple’s iPod was developed to create a new market for the company • Strategy and structure changes o Changes in the administrative domain of an organization, including structure, policies, reward systems, labour relations, coordination devices, management info control systems, and accounting and budgeting o Usually top-down changes o For example, a system change by university management could be a new merit pay plan • Culture changes o Changes in the values, attributes, expectations, believes, abilities, and behaviour of employees o These changes pertain to how employees think, and are the hardest things to change Elements for Successful Change Organizational Change: the adoption of a new idea or behaviour by an organization Organizational Innovation: the adoption of an idea or behaviour that is new to an organization’s industry, market, or general environment Change Process: the way in which changes occur in an organization For a change to be successful, each of the following elements must occur: • Ideas o An idea is a new way of doing things and they come from inside or outside o Creativity is the generation of novel ideas that may meet perceived needs or respond to opportunities o Some techniques for spurring internal creativity are to increase the diversity within the organization, make sure employees have plenty of opportunities to interact with people, given employees time and freedom for experimentation, and support risk taking and making mistakes • Need o Ideas are generally not seriously considered unless there is a perceived need for change o This occurs when managers see a gap between actual performance and desired performance o A crisis can help communicate the need, but when there is no crisis, managers have to communicate the nee to others • Adoption o Occurs when decision makers choose to go ahead with a proposed idea o Key managers and employees must be in agreement to support change, and the decision may require the signing of a legal document by the BOD if the change is large enough o For a small change, adoption could occur with informal approval by a middle manager • Implementation o Occurs when organization members actually use a new idea, technique, or behaviour o Materials and equipment may have to be acquired, and workers may have to be trained to use the new idea • Resources o Human energy and activity are required to bring about change o 3M, for example, has a rule that 8300 researchers can spend up to 15% of their time working on any idea of their choosing, without management approval • The following is a diagram representing the sequence of events: Note: ideas or needs can come first. Technology Change The Ambidextrous Approach • A characteristic of an organization that can behave in both an organic and mechanistic way • The initiation and the utilization of change are 2 distinct processes, and organic characteristics like decentralization are excellent for initiating ideas, but these same conditions can make it hard to implement change • It helps to look at the organization design elements that are important for exploring new ideas verses design elements most suitable for exploiting current capabilities • For example, Honda has used this approach • Innovation creation vs. Innovation utilization o Generating and implementing ideas are two distinct processes o Decentralization and employee autonomy is critical for creation but can impede utilization because employees are less likely to comply • This approach allows organizations to incorporate structures and processes that are appropriate to both • Division of labour in the ambidextrous organization: Techniques for Encouraging Technology Change • Switching structures o An organization creates an organic structure when a structure is needed for the initiation of new ideas o For example, each year, Philips Corp makes 150 teams to develop ideas for improving products and work methods, and after 5 days of organic brainstorming, the company reverts to a more mechanistic basis to implement the changes • Creative departments o Organizational departments that initiate change, such as R&D, engineering, design, and systems analysis o They are organically structured to facilitate the generation of new ideas and techniques o A type of creative department is the idea incubator, which is a safe harbor where ideas from employees throughout the organization can be developed without interference from company bureaucracy or politics • Venture teams o A small team is set up as its own company to pursue innovations o Organizations use these to free creative people from the bureaucracy of a large corporation o At 3M, there is a program called “3M Acceleration” that allows an employee with a promising idea to recruit people from around the company to serve on a new venture team o One type of venture team is called skunkworks, which is separate, small, informal, highly autonomous, and often secretive group that focuses on breakthrough ideas for the business o A variation of the venture team is the new-venture fund, which provides financial resources for employees to develop new ideas, products, or businesses • Corporate entrepreneurship o Attempts to develop an internal entrepreneurial spirit, philosophy, and structure that will produce a higher-than-average number of innovations o For example, at the oil company BP, top execs establish contracts with the heads of all BP’s business units, and then the unit managers are given free rein to deliver on the contract in whatever way they see fit, within clearly identified constraints o An important outcome is idea champions, which are organizational members who provide the time and energy to make things happen; sometimes called advocates, intrapreneurs, and change agents. Idea champions come in 2 types.  Technical champion: a person who generates or adopts and develops an idea for a technological innovation, and is devoted to it, even to the extent of risking position or prestige  Management champion: a manager who acts as a supporter and sponsor of a technical champion to shield and promote an idea within the organization o Companies encourage idea champions by providing freedom and slash time to creative people o Some companies, such as 3M and GE allow employees to develop new technologies without company approval, known as bootlegging New Products and Services New Product Success Rate • It is estimated that about 80% of new products fail upon introduction and another 10% disappear within 5 years Probability of New Product Success Technical Completion (technical objectives achieved) .57 Commercialization (full-scale marketing) .31 Market Success (earns economic return) .12 Reasons for New Product Success • Successful innovating companies had a much better understanding of consumer needs and paid much more attention to marketing • Successful innovating companies made more effective use of outside technology and outside advice, even though they did more work in-house • Top management support in the successful innovating companies was from people who were more senior and had greater authority Horizontal Coordination Model • A model of 3 components of organizational design needed to achieve new product innovation o Specialization  Personnel in R&D, marketing, and production should be highly competent at their own tasks  These 3 departments should be differentiated from each other and have skills, goals, and attitudes appropriate for their specialized functions o Boundary Spanning  Each department involved with products has excellent linkage with relevant sectors in the external environment  R&D personnel, for example, are linked to professional associations and to colleagues in other R&D departmentsk ba  Marketing personnel, for example, are closely linked to customer needs o Horizontal coordination  Technical, marketing, and production people share ideas and info  Research people inform marketing of new technical developments to learn whether they are applicable to customers  Marketing people provide customer complaints and info to R&D to use in the design of new products  Horizontal coordination increases both the amount and the variety of info for new product development, enabling the design of products that meet customer needs and circumventing manufacturing and marketing problems • Horizontal coordination model for new product innovations: Achieving Competitive Advantage: The Need for Speed • To remain competitive, companies are learning to develop ideas into products and services incredibly fast by getting people working together simultaneously on a project rather than in sequence • Time-based competition means delivering products and services faster than competitors, giving companies a competitive edge o For example, Russell Stover got a line of low-carb candies, called Net Carb, on store shelves within 3 months after perfecting the recipe, rather than the industry norm of 12 months. This gave them an early lead over other national candy companies and allowed them to establish a strong foothold in the new market • Some companies use fast cycle teams, which are multi-functional, and sometimes multinational teams that work under stringent timelines and are provided with high levels of company resources and empowerment to accomplish an accelerated product development project • Another critical issue is designing products that can compete on a global scale and successfully marketing those products internationally • Many new product development teams are now globa
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