Reference no: EM13822660

Competing through Innovation, Knowledge Management, and Strategy de Facto

Introduction

This lecture will continue the discussion of innovation and the management of innovation as a strategic imperative. Firms such as 3M, Apple, Google, and BMW will be discussed as examples of companies who have successfully wired or rewired their operations in order to cultivate a spirit and culture of innovation. This will naturally lead to a discussion of knowledge management and the concept of emergent or de facto strategy.

The Ocean of Innovation

Innovation is more than the development of raw ideas. To be sure, ideas are important, but the ability to implement them is equally important. For example, Xerox developed the computer mouse, the Ethernet, and the graphic interface. While it generated these concepts, these inventions are generally associated not with Xerox but with companies like Apple or Microsoft. The question is, then, how could Xerox have come up with so many revolutionary ideas and failed to turn them into blockbuster success stories that generated prestige for the company and return for their shareholders?

One thing is known for sure: innovation does not necessarily come from huge research and development (R&D) spending. Getz and Robinson (2003) make the point that many companies like Alcatel or EADS (Airbus) have spent several billion € (euro) in R&D. Yet their huge R&D budgets have not resulted in these companies being considered particularly innovative. In fact, they do not even appear in the top 100 most innovative companies, as ranked by Business Week magazine ("The Top 100," 2006).

So, how is it that massive R&D spending does not result in innovation? Finding the next big idea is only half the battle. Developing and implementing an effective marketing and sales strategy, in short creating value for an organization's stakeholders, is the other half. Getz and Robinson (2003) argue that companies like Microsoft or Cisco do not have a corporate culture that fosters innovation, but they compensate for their lack of in-house innovation by buying smaller, innovative firms that have the ability to develop and bring new products to market.

The question remains: Apart from a huge R&D budget and acquisitions, what is the recipe for earning a reputation as an innovative organization? The following section will summarize some principles used by companies such as Apple, 3M, and Google−companies which are widely recognized for their ability to innovate.

Innovation: A Matter of Principles

Principle 1−Instill the Right Climate and Corporate Culture Within the Organization.

Steve Jobs' advice to the 2005 graduating class of Stanford University, "Stay hungry. Stay foolish." (2005, 26), goes a long way toward establishing a culture of innovation. His spirit and charisma inspire his entire company to push the limit and constantly innovate.

Unlike firms such as Yahoo or GM (not highly ranked by Business Week as being especially innovative) which have been said to be stuck in too much red tape, hierarchy, and inertia, organizations like Apple, BMW, 3M, and Google nurture a corporate culture and an internal environment where risk taking is praised and mistakes are essentially encouraged. At BMW, for example, "Risk-taking is part of the job" (Edmonson, 2006, p. 72).

Principle 2 −Structure the Company for Innovation.

According to Hamel (1996), "The capacity for strategic innovation increases proportionally with every mile you move away from headquarters" (pp. 76-77). It is intuitive that the more flat the organizational chart, the more likely a company will be able to innovate. According to Schermerhorn (2006), "In highly innovative organizations, organization structures support innovation. More and more companies are . . . striving for more organic operations that emphasize lateral communications and extensively use cross-functional teams and task forces" (p. 468). Such network-like structures break silos within an organization and enhance communication between departments, which increases the opportunity to create new ideas.

Principle 3−Align the Reward System.

Important goals (e.g., the creation of new and successful ideas) should be measured, because what is measured usually gets done. With a properly designed incentive system, employees are more likely to take ownership and defend their ideas. Google fosters an entrepreneurial culture by encouraging employees to spend up to 20 percent of their time working on their own pet projects.

Collaboration and team spirit, and any initiatives that will reduce or cut red tape within an organization should be rewarded. BMW likes to "throw together designers, engineers, and marketing experts on a single project" (Edmonson, 2006, p. 80). Rewarding team effort as well as individual contributions, helps to develop an open-door policy and foster communication between employees.

Principle 4 −Recruit the Right People.

According to Jim Collins, recruiting the right people means that a firm must "get the right people in the bus" (n.d., p. 2). Collins argues that the people who are hired determine the corporate culture. For example, strong egos do not foster collaboration, and companies like BMW spend considerable time and effort screening potential employees to weed them out (Edmonson, 2006).

For companies where old thinking is engrained in the firm, recruiting the right people sometimes means also recruiting outsiders and change agents who will shake up the company and change the status quo. Hamel (2006) proposed that innovation sometimes requires a firm to "deconstruct its management orthodoxies" (p. 8).

DoCoMo, the wireless division of NTT, Japan's telephone monopoly, faced the challenge of creating a modern wireless business from a rusty landline telephone company. To transform the company, DoCoMo hired Internet employees and outsiders who were willing to take risks and challenge the harmony and the traditional way of doing things (very uncommon in Japan). The resulting change in culture enabled DoCoMo to grow from 1 million to 10 million subscribers in the first 6 months of 1999 (Bradley & Sandoval, 2000).

Principle 5 −Develop a Knowledge Management System, or a System for Management Ideas (SMI).

It is critical to adopt and disseminate the ideas from people who are the closest to the action. They are the ones who see the value to the organization (Christensen & Voorheis, 1995). First-line managers and staff often hold the best ideas. An effective knowledge management system or "system for management ideas" (SMI) (Getz & Robinson, 2003) screens the best ideas and identifies those with the greatest potential effect on performance. Managers must deploy ideas across departments and countries; in other words, throughout the entire organization.

Principle 6 −Develop a de Facto Strategy.

As suggested by Christensen and Voorheis (1995), there are two ways to develop strategy in an organization. The top-down strategy is deliberately planned through the strategic planning process described in the Module 2 Lecture. The bottom-up strategy is a strategy that is built by recognizing what has happened in the company and the patterns that have developed over time as the organization responds to various situations. Mintzberg (1987) calls this emergent strategy, and it is also known as de facto strategy. Innovative ideas with the potential to develop into de facto or emergent strategies are everywhere in an organization. Hamel (1996) states it well, describing strategy as "a democratic process" (p. 77).

Conclusion

Innovation is a critical factor in creating sustainable competitive advantage, and so the act of innovation should become a decisive, deliberate strategy in most companies. Successful companies realize that they must innovate, or at least learn constantly, and understand the need to improve and reinvent continuously. This can be accomplished either by nurturing an innovative, entrepreneurial spirit and culture, or through the acquisition of new ideas and technology. Companies can also create an atmosphere that fosters innovation by using the six principles of innovation described in this lecture.

Innovative companies realize that strategy formulation is not always accomplished by a deliberate, top-down approach. Strategy and innovative ideas often emerge from the front-line teams solving concrete customer and business problems. It is a critical management skill for a company to realize the value of emergent or de facto strategies, and to capture this expertise and know-how, and these novel approaches, in order to disseminate them across the rest of its organizations. Nypro, Apple, BMW, and Google are vivid examples.

Innovation and perpetual renewal are a state of mind and are engrained in the DNA of the most successful companies. This innovative mindset is a critical factor that distinguishes successful companies.

References

Bradley, S. P., & Sandoval, M. (2000, October). NTT DoCoMo (A): The future of the wireless Internet? (Case No. 9-701-013). Boston: Harvard Business School Press.

Christensen, C. M., & Voorheis, R. (1995). Managing innovation at Nypro, Inc. (A) (Case No. 9-696-061). Boston: Harvard Business School Press.

Edmonson, G. (2006, October 16). BMW's dream factory. Business Week, 4005, 70-80.

Getz, I., & Robinson, A. C. (2003, September). Innovate or die: Is that a fact? Creativity and Innovation Management, 12(3), 130-136.

Hamel, G. (1996, July/August). Strategy as revolution. Harvard Business Review 74(4), 69-82.

Hamel, G. (2006, February). The why, what, and how of management innovation. Harvard Business Review, 84(2), 72-84.

Collins, J. (n.d.). First who, then what. JimCollins.com. Retrieved July 23, 2008 from https://www.jimcollins.com/lab/firstWho/p2.html

Mintzberg, H. (1987, Fall). The strategy concept I: The five Ps for strategy. Harvard Business Review, 30(1), 11-24.

Jobs, S. (2005, June 14). "You've got to find what you love," Jobs says. Stanford News Service. Retrieved April 30, 2008, from https://news-service.stanford.edu/news/2005/june15/jobs-061505

Schermerhorn, J. (2006). Management (9th ed.). Hoboken, NJ: Wiley Publishing.

The top 100 most innovative companies ranking. (2006, April 24). Special report−Innovation/online extra [Special section]. BusinessWeek, 3981. Retrieved July 23, 2008 from https://www.businessweek.com/magazine/content/06_17/b3981413.htm?chan=search

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