This is an academic essay written for my Msc in Management at Birkbeck University, London.
Today’s organisations have to take into account a number of different aspects when attempting to deepen their capacity for, and evolve capabilities facilitating, innovation. Distilling the most relevant academic literature results in several organisational capabilities that must underpin several distinct phases of innovation if the firm is to achieve sustainable economic rents and ongoing growth from it’s efforts in this direction. These capabilities are separated broadly into those supporting the identification of potentially lucrative innovations and those that support the exploitation of those innovations along lines that maximize their opportunity for profit. This essay will attempt to enumerate the most important of these capabilities together with said phases and summarise the operational details of each giving examples where possible.
Mastering innovation requires mature capabilities in several phases identified by Professor Joe Tidd (2005). The first of these are concerned with searching or scanning the environment for “signals” (Tidd 2005) that indicate an opportunity for innovation. These could form new technological advances in the market place; for example, the success of the iPhone presents many brands with a more compelling opportunity than ever before to represent themselves on a mobile platform. Signals could also be changes in legislation or changing behaviour in a competitor (who perhaps themselves are reacting to signals). Signals can also appear simply “in the wild”, an example being on the Facebook page of Contiki Holidays (http://www.facebook.com/contiki), where users are indicating a strong desire to make contact with other travellers sharing their specific tour departure. Successfully innovating organisations have developed sophisticated methods for continuously capturing signals from a broad range of sources.
While signals might originate from outside the firm, the opportunities for innovation that they represent might not be immediately obvious. The right information in the right place at the right time can spark a profitable innovation that would otherwise delay coming to market if at all. Organisations naturally amplify knowledge through the efforts of their workers collaborating on projects (Nonaka & Takeuchi 1995), and firms should put resources and practices in place that support capturing and codifying what would otherwise remain less accessible but valuable tacit knowledge (Polanyi 1966). Referencing Knowledge Management best practices, creating a knowledge repository with an emphasis on collaboration, such as an enterprise wiki solution or groupware, broadens the reach of the sum of organisational knowledge and can quickly become a breeding ground of innovative ideas, evolving from signals captured from outside the firm. The paper and packaging group Mondi have a web-based system named the “Innovation Zone” through which employees can share and improve ideas (Koudal 2005). A dedicated team evaluates especially innovative ideas and creates plans to develop them further. In this way Mondi managers can enable the entire company to contribute to it’s innovation efforts, with a team possessing the required authority and resources to facilitate the commercialization of ideas into new products or processes.
If an organisation is successful in it’s search for and processing of innovation signals, it may well identify more opportunities than it can realistically afford to commit to. Thus, selection of the correct opportunities is critical to maximising return on investment in innovation efforts. It quickly becomes apparent that successful innovation is an interactive process between what the organisation can supply as per it’s technological competences (technology push) and the demand it may identify from signals in the market (customer pull) (Tidd et al 2001). The organisation should select opportunities that are likely good answers to one or more marketplace questions, achievable in terms of it’s current capabilities (though a little stretching of current capabilities is desirable, as this presents the opportunity for learning), and finally, well aligned with the broader strategy of the business. A mark of a successfully innovating firm is a mature mechanism for the “coupling and matching process” (Tidd 2005) of innovation supply and demand. A secondary point here is the implication that an organisation should be constantly deepening it’s technological capabilities as this will result in the potential for diversification and thus more opportunities to map supply to demand regarding innovation efforts.
Following from actually preparing the market (this could be advertising for a new product or evangelising for a new process), successfully launching an innovation should be accompanied by mechanisms by which feedback can be both gained and acted upon rapidly. Customer feedback on products and services, especially those characterised by higher novelty and frequent change such as fashion and high technology, has become an especially valuable source of ‘sustaining’ innovation (ie. incremental improvements) (Christensen 1997). Efforts in this area range from the more loosely connected, such as the ever popular anonymous feedback forms, to a much more tightly integrated collaboration with “lead users” (Von Hippel 1986) that steer ongoing incremental improvements to existing products or services as they typically experience needs before more mainstream users. To pick an example from midway along this continuum, Zara store staff are equipped with PDA’s and are able to gather information from browsing customers about what more they would like to see in store, like existing designs in different formats or colours. Once the store doors close, information is also gathered from the shelves that are more depleted than others and the stock of clothes that customers tried on but didn’t buy. All this data is linked up to the point of sale system which allows branches to issue re-buy orders based on hard data instead of hunches and guesswork. The qualitative data gained by the PDA users makes its way back to Inditex (Zara’s parent company) headquarters in La Coruña, Spain, where the hundreds of designers employed there are tasked to respond to the data in designing their future products. Innovations like these have spurred Inditex to grow from $2.43 billion in 2001 to $13.6 billion in 2007 (Gallaugher 2010) and fueled massive global expansion, opening hundreds of new stores around the world. Inditex’s ability to continuously launch new products and then refine them rapidly using customer feedback has paid dividends.
Finally, it is recommended that after an innovation is successfully brought to it’s target, the firm retrospects on the entire development process and draws lessons that may be used in future innovation efforts (Tidd 2005). Furthermore, management is compelled to create new processes and routines around lessons learnt such that the organisation can form new behaviours that eventually make innovation-inducing practices the new norm. But what gives firms the ability to carry out the Tidd’s phases of innovation successfully?
Successfully innovating companies put full time resources behind innovation endeavors (Koudal 2005). Whether individual employees are tasked with a few weeks of dedicated research and experimentation, new middle management teams are created with innovation-centric remits, or perhaps entire departments spun off as new innovation-chasing entities, organisations are learning that they can no longer concern themselves with sustaining the status quo and flirting with the odd idea on the side. Following the examples of 3M and Google, more and more companies are formally dedicating a percentage of their employees time to innovation to better incentivise ideation. This practice leverages the growing agreement that “front-line staff” are in the best position to generate ideas (Poppendieck & Poppendieck 2006, Mesaglio 2010) since usually they are regularly exposed to the customer and have most of the information available with which they might think of a better or entirely novel way to satisfy customers’ needs. Van de Ven (1999) suggests that employees be given sufficient time to experiment with new ways of doing the work, while Tidd (2005) recommends that employees have the opportunity to work cross-functionally. A compelling method for gaining new organisational resources for innovation is put forward by Geoffrey Moore in his book Dealing with Darwin: that of “extracting resources from context to repurpose for core” (Moore 2006). Moore defines context as the efforts of the organisation concerned with continuing to provide existent products and services to customers, whereas core is the effort behind new products and services which seek to further differentiate the organisation. Moore investigates how the networking infrastructure products company Cisco goes about extracting resources from existing operations to apply to new ventures, enabling them to innovate on their own products but also quickly regain parity with any products from competitors who attempt to disrupt Cisco’s market. Moore suggests that firms perform a “context/core analysis” followed by a resource allocation strategy that complements this analysis with the goal of setting a path to a more innovative future. It is clear that successfully innovating companies both allocate sufficient resources to innovation and also make it easier to do so by innovatively driving down the resource cost of day-to-day overhead.
Clayton Christensen articulates another innovation management question to be answered: The Innovator’s Dilemma. In his 1997 book of the same name, Christensen discusses the question facing every innovating organisation: What is the most beneficial distribution of resources between sustaining or incremental innovation efforts and efforts behind disruptive or radical innovation? Essentially, organisations need to develop an “ambidextrous capability” (Tidd 2005) that allows them to effectively pursue both courses of innovation, with considerable allowance made for their different risk/reward profiles, the different paths they follow and the different “innovation architectures” (Tidd et al 2001) they require. While it’s likely that sustaining innovations can be facilitated by relatively established routines, disruptive innovations will require innovation management that is highly flexible, tolerant of ambiguity and uncertainty, and seeks to hedge risk by limiting commitment (Tidd 2005).
In a discussion of how enterprises become successful innovators it is also prudent to discuss how enterprises might stay successful innovators. Mastering the complexity in their value-chain and innovation capabilties has gained successfully innovating firms the ability to sustain their competitive advantage as their operations and infrastructure is characterised by several attributes evident in the resource-based view of the firm (Wernerfelt 1984, Penrose & Pitelis 2009). Firm resources can include highly-skilled personnel, valuable branding, intellectual property rights, an advanced ICT infrastructure, and even customer loyalty (Wernerfelt 1984). Possibly the most compelling attribute is that their operational configuration and infrastructure is difficult to imitate. Referring back to the example of Inditex, other fashion organisations may attempt to copy their infrastructure wholesale but this is a high risk strategy since Inditex regards people (specifically, the store managers and designers) as key resources. These employees are empowered to make decisions that drive Zara’s rapid response to customer trends in fashion. Also present in successfully innovating firms is a managerial capability required to achieve rewarding innovations in the first place, and these managers are supported by a corporate culture that allows them to do their best work. Perhaps the best example is that of Jonothan Ive, who joined Apple in 1992, became VP of Industrial Design in 1998 and Senior VP of Design in 2005, and has been the main proponent in the design (and thus success) of the PowerBook G4, the Macbook, the unibody Macbook Pro, the iPod, iPhone and now the iPad. Apple doing their best to retain Jonothan and his team is a major contributor to Apple’s ongoing successful innovation. Finally, it is worth remembering that no firm is an open book, and there are likely many more innovative processes and practices at work inside Inditex and Apple that have not found their way to the public domain but are central to sustaining each their competitive edge. This is the idea of ‘causal ambiguity’ (King 2007) and it represents a major problem for imitators in that they cannot exactly articulate how Inditex, Apple, etc remain successful innovators. Indeed, Tidd asserts (2005) that any successful “innovation management routines” are difficult to copy simply because they represent the accumulation of a long line of lessons learnt along the way. This essentially means that firms should seek to forge their own learning path to successful innovation and avoid the temptation to copy “fashions” if they are to sustain their competitive edge through successful innovation management.
There is no sure way to guarantee value-creating, growth-inducing innovation. Ultimately, to ‘manage innovation’ is to establish the resources and develop the capabilities to merely increase the chances, radically or less so according to the skill of management, that successful innovation will flow from the organisation. Organisations must evolve capabilities to scan the marketplace for signals, select high-potential ideas, resource and manage their execution effectively, quickly gain and react to customer feedback, and in the final stages, retrospect on the initiative and learn as much as possible regardless of success or failure. In parallel, firms must constantly broaden their resources for knowledge management, cross-functional communication and collaboration of employees, effective collaboration with customers, suppliers and partners, and leverage advanced ICT infrastructures to support all of the above. This represents a major challenge for organisations, but one that cannot be ignored, because to ignore the challenge of innovating successfully is to doom the organisation to disruption by another and eventual extinction.
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