Creating the Innovative Organization

Week 5(INN001, 5 p.)

Lecture onSeptember 29th and 30th 2008

Emelie Stenborg

Figure 2.1 Simple representation of the innovation process

©2005 Joe Tidd, John Bessant and Keith Pavitt

Repetition chapter 9 The innovation process model in detail

Figure 9.8 The development funnel

©2005 Joe Tidd, John Bessant and Keith Pavitt

Search

– Search space– As a result of change – technical, cultural,

trends– Communication – customers, suppliers,

universities, government, internal, competitors– Monitor technological change – tipping trends– Forecasting – market, technological

Select

• Strategiy analysis, choice and monitoring

• Fit between innovation strategy and the business strategy

• Estimate the actual capabilities of the firm

• Involve different people – across functional boundaries, suppliers of components and sub-systems, regulatory frameworks

Implementation

• Generation of knowledge and technology transfer internally and externally

• Absorptive capacity

• Increasing commitment of resources makes it difficult to change direction

• Test the market, have a market strategy, supportive organisations

Repetition Chapter 10What is a corporate venture?

• Different objectives and organization

• Learn new competencies

• Radical innovation

Why corporate ventures?

• To manage innovation is not the same thing as to manage everyday business

• Corporate strategic planning and financial control – budgeting, production, sales and marketing

• To exploit the resources of the large corporation, but provide a safe environment for radical innovation

• Key distinguishing factors of new venture – risk, uncertainty, newness and significance

• To meet the needs of new, high-risk, but potentially high-growth business

• ”intrapreneurship”

The form of a corporate venture

Usually depends on two dimensions:1. The strategic importance of the new venture

for corporate development

2. Its proximity to the firm’s core technologies and markets

Figure 10.1Role of corporate venturing

©2005 Joe Tidd, John Bessant and Keith Pavitt

©2005 Joe Tidd, John Bessant and Keith Pavitt

Definition stages

1) Create an environment that make possible entrepreneurial activity

2) Select and evaluate opportunities and managers

3) Develop a business plan

Development stages

1) Make it develop

2) Promote the new venture

3) Learn from experience

Structures for corporate ventures

• Direct integration• Integrated business teams• New ventures department• New venture division• Special business unit• Independent business unit• Nurtured divestment• Complete spin-off

Learning

• Take note on bad decisions• Measure progress against agreed milestones• Terminate when necessary• View venturing as a learning process• Long-term benefits of venture operations• Specify functions, procedures, boundaries and

rewards• Limited number of ventures with independent

budgets• Multiple sources of sponsorship

Chapter 11

Building the innovative organization

SCAN

FOCUS

RESOURCE

IMPLEMENT

LEARN

People as a resource

• ”People are our greatest asset”

• People innovate – not organizations

• But organizations can develop routines to make use of the potential within the firm

• Certain factors are important but the focus is on learning– Encourage and implement intrapreneurship– Promote cross functional team-working

The learning organization

• Creating, acquiring and transferring knowledge and modifying the behaviour to new knowledge– Systematic problem solving– Experimentation with new approaches– Learning from own experience and past history– Learning from the experiences and best practices of

others– Transferring knowledge quickly and efficiently

throughout the organization• But...how to organize learning?

– Create conditions conducive to learning > intangibles

Components of innovation

• The virtuous checklist... (see table 11.1– Shared vision, leadership – Appropriate structure– Key individuals– Effective team work– Development of the human capital– Extensive communication– High involvement in innovation– External focus– Creative climate

Shared vision, leadership

• Leadership and change agents do not always overlap • Top management commitment: easier said than done

– Involvement– Commitment– Enthusiasm– Support

• Challenge to secure long-term commitment in balance with short-term returns and acceptance of risk

• Examples: – Bill Gates / Microsoft– Siemens: Edward Krubasik (outside) transformed the

company from an electrical engineering firm to a major IT and software firm

Appropriate structure• No best practice / perfect model• Minzberg structural archetypes

– Simple structure: centralized organic type (e.g. Small start-ups in high tech)

– Machine bureaucracy: centralized mechanistic organization, controlled centrally by systems (e.g. McDonalds)

– Divisionalized form: decentralized form designed to adapt to local environmental challenges / core and periphery (e.g. HSBC)

• Professional Bureaucracy: Decentralized mechanistic form with power located with individuals but coordinated via standards (e.g. Ericsson)

• Ahocracy: Project type of organization designed to deal with instability and complexity (e.g. Man on the Moon project by NASA)

• Emergent model: Associated with shared common values (e.g. Academia, NPO’s)

Key individuals

• Entrepreneur : change agent important at start of the innovation journey

• Champion: important when transforming ideas into practice and keeping heads in the same direction

• Mentor: powerful outside promotor needed to find support and resources for the innovation outside its immediate group

• Critic: ’necessary evil’ needed to identify problems and bottlenecks at an early stage

• Gatekeeper: mediator of information to relevant people

Effective team work

• Combining different perspectives• Crucial to put together the right team, four stages

–Forming–Storming–Norming–Performing

• Key elements– Clear tasks– Effective leadership– Balance of team roles– Conflict resolutiom– Links to organization

Development of the human capital

• Strong correlation between human capital and innovation capabilities on all levels (firms, regions and nations)

• Training works as a double-sided sword: it increases capabilities and takes away resistance to change

• Learning-by-doing: learning how to do things better

• Learning-by-learning: learning how to do better things

Extensive communication

• Communication is key to combine the different knowledge sets needed for innovation

– Multidirectional (up, down and laterally)

– Makes use of multiple channels

• Job rotation

• Cross-functional teams

• Review sessions

• Team briefings

• Multiple media

High involvement in innovation

• High level of participation improves competitiveness substantially

• Associated with total quality management and lean production

• The appeal to create a ’culture of innovation’

– If succesfull it creates a sustained basis for organizational learning

– Easier destroyed than constructed

Box 11.7

• A survey involving more than 1000 organisations in seven countries in Europe and Australia

• 80 % knew of the concept – half of them used it• 43 innovations per year• Around 4 years of systematic work• Quality, productivity (15 % improvement each)

and cost (8 % improvement)• Diffused high involvment innovative activities led

to more innovation

Figure 11.1The five-stage high-involvement innovation model

©2005 Joe Tidd, John Bessant and Keith Pavitt

©2005 Joe Tidd, John Bessant and Keith Pavitt

External focus

• Navel gazing is the end-all of innovation – even in technology based industries

• The challenge of understanding (often latent) user needs

• Also other players: suppliers, competitors, regulators, univerisities.... Both threat and opportunity!

• Aspects of quality management and of coumunication

Creative climate

• It is contradictory to plan innovation yet ’chance favours the prepared mind’ (Louis Pasteur)

• The realization of an idea takes one person – but the implementation of it requires many more

• Takes its expression as the organizational structure

The learning organization again…

• Think of innovation as a iceberg...new products and processes are only the tip

• Also as learning cycle – experiment, experience, reflection, consolidation

• Unlearning – learn from but not to repeat the past• Two types of learning

– Technological learning: developing tech knowledge to launch new products

– Organisational learning: Developing routines to manage change: reflect on experience, build conceptual models, test their validity...

Learning across boundaries

• Networks – clusters– Effective knowledge sharing and distribution– One or more main businesses with local suppliers –

but more generally a regionally defined mass of related business

– Political initiatives – uni´s, firms, semi-public, networks

– High-tech or low-tech?– Synergy gains – but often sub-optimal behaviour– Difficult to plan this!

Vinnova/Vinnväxt• VINNOVA (Swedish Governmental Agency for Innovation Systems) is a

State authority that aims to promote growth and prosperity throughout Sweden.

• The concepts of clusters and regional innovation systems has proven to be forceful and hence often are used by politicians and regional and national promoters of the economy

• “VINNVÄXT – Regional Growth through Dynamic Innovation Systems”– VINNVÄXT is a competition in which the best submissions win.– A limited number of growth initiatives receive up to 1.1 million euro per

year.– The focus is on a field in which a region is particularly strong. – Active participation of companies, researchers and political/public

sector (Triple Helix).– Funding will be provided for 10 years.– A number of support activities (seminars, coaching, networking, the

exchange of experience etc.). • Vinnväxt takes on a leading role as an agency of change

J Laage-Hellman, A Rickne (2007), www.vinnova.se

Biomedical development in the West of Sweden

• There are many examples where the modern biotechnology has been used as a starting-point for regional political measures

• Firms that deal with pharmaceuticals, medical devises and other bio-related products are part of global lines of business

• In Gothenburg it was seen as there was a basis for this within biomedicine– Substantial research base – Close collaboration between firms, universities and health care units are

common – Somewhat 300 firms and 2 500 university researchers

• The ten winning regions were to be awarded 6 MSEK annually during a 10 year period, and it was expected that the same amount was co-financed by regional actors

• Regional preparations were made in terms of actor participation, interaction and alignment as well as formulation of strategies

• Process of negotiations we can distinguish three dimensions: the role of national policy, the negotiation between different types of actors in Triple Helix (industry, academia, public sector) and the negotiation on focus and activities

J Laage-Hellman, A Rickne (2007), www.vinnova.se

Biomedical Development in Western Sweden

The aim of this project is to create a good basis for long-term growth in the biomedical field in the Gothenburg region by converting academic, cutting-edge research into innovations and practical applications in the private and healthcare sectors. The project strengthens the commercial exchange of R&D in fields such as biomaterials, cellular therapy and cardiovascular and metabolic diseases; trains future leaders for advanced business development; reinforces and develops the commercialisation infrastructure and attracts expertise and capital to the region.

But what does this lead to? Does it work?

J Laage-Hellman, A Rickne (2007), www.vinnova.se

So it won...

Radical innovation

Requires somewhat different organizations– Threat of new entrants

• Fast learning – but little resources• Often have one technological option

– Ambidextrous management– Aspects of innovation management

• Organizational culture• Strategic decision making• Operations

Components of radical innovation• Same but with a focus on managing

uncertainty– Shared vision, leadership – Appropriate structure– Key individuals– Effective team work– Development of the human capital– Extensive communication– High involvement in innovation– External focus– Creative climate

Summary

• Aspects of how to build an innovative organization– Create a corporate culture that allow (and

like) change– Human resources– Radical innovation– Across firms

RepetitionChapter 11

Building the innovative organization

SCAN

FOCUS

RESOURCE

IMPLEMENT

LEARN

The learning organization

• Creating, acquiring and transferring knowledge and modifying the behaviour to new knowledge– Systematic problem solving– Experimentation with new approaches– Learning from own experience and past history– Learning from the experiences and best practices of

others– Transferring knowledge quickly and efficiently

throughout the organization• But...how to organize learning?

– Create conditions conducive to learning > intangibles

The learning organization again…

• Think of innovation as a iceberg...new products and processes are only the tip

• Also as learning cycle – experiment, experience, reflection, consolidation

• Unlearning – learn from but not to repeat the past• Two types of learning

– Technological learning: developing tech knowledge to launch new products

– Organisational learning: Developing routines to manage change: reflect on experience, build conceptual models, test their validity...

Components of innovation

• The virtuous checklist...– Shared vision, leadership – Appropriate structure– Key individuals– Effective team work– Development of the human capital– Extensive communication– High involvement in innovation– External focus– Creative climate

High involvement in innovation

• High level of participation improves competitiveness substantially

• Associated with total quality management and lean production

• The appeal to create a ’culture of innovation’

– If succesfull it creates a sustained basis for organizational learning

– Easier destroyed than constructed

©2005 Joe Tidd, John Bessant and Keith Pavitt

Chapter 12

Creating innovative firms

New Technology-based Firms (NTBFs)

• Special type pf SME (1980s) • Biotechnology, semiconductor, software

(nanotechnolgy, materials)• Incubator origin

– Regional networks– Parent reliance

• Three carachteristics– Highly qualified personnel– Capital intensive– Greater technical and market risk

• → High barriers of entry

University Incubators

• Commercial gain from research– Licensing– Independant firm (3-12 % but more profitable)

• Technology transfer offices• Supportive environment – policy, IPR, successful past • How:

– Guidelines – resources, IPR– Dual employment– Issues of ownership

• When:– No existing company– An enabling technology– Strong individual reasons

Who is an entrepreneur?

• Controversial!

• Shaped by (maybe) for academic entrepreneurs– Antecedent influences– Individual incubator experiences– Environmental factors

Figure 12.1 Factors affecting the decision to establish an NTBF

©2005 Joe Tidd, John Bessant and Keith Pavitt

Funding

• Often nothing to sell immediatly after starting a NBTF

• Initial funding depends on potential!

• Cash flow depends on developement time and cost

• And on technologies!

Figure 12.2(a) Cash flow profile of research-based venture, e.g. biotechnology

©2005 Joe Tidd, John Bessant and Keith Pavitt

Figure 12.2(b) Cash flow profile of development-based venture, e.g. electronics

©2005 Joe Tidd, John Bessant and Keith Pavitt

Figure 12.2(c) Cash flow profile of production-based venture, e.g. software

©2005 Joe Tidd, John Bessant and Keith Pavitt

Funding

• Initially for launch– Personally funded– Governementally funded

• Second for development and growth– Largest obstacle

• Third for consolidation and growth– Venture capital

• Maturity or exit– Some sort of termination of funding

Funding

• Externally– Investment– Demands control – equity or management– Business plan

• Attract funding, keep business on track

– Great national variety – and local

Figure 12.3Venture capital as a percentage of GDP, 1997

©2005 Joe Tidd, John Bessant and Keith Pavitt

Corporate venture funding

• High-tech investment• 15 % of large UK firms• Return in 5-7 years• Return 20-30 %• Strategical aspect• Direct or indirect through funds• Investment in independent seed capital

funds

Venture capital

• Focussed on – 1-3 % of external funding in UK• Increasingly high-tech – perceived as risky, but based on

competence• Accept 3-5 % of offerings – picking the winners• Depends on personal, market and financial factors• Actively involved

– Boards– Management– Connections– Resources

• High financial return– 5 years– 75 % return

Growth and performance

• Contribution to growth, employment, regional development

• Are large or small firms better?• Innovative activities

– Product innovation– Niche markets– Producers of final products– External links– Growth in output and employment – not necessarily

profit

2 Factors

• Excludability – Prevention of competition

• Complementary assets – Down-stream capabilities

Teece (1984) has a somewhat different approach

Nature of technology + IPR → appropriability regime

4 strategies1. Attackers advantage (computer components)

• Incumbents have no down-stream benefits• Cannot prevent incumbents from innovating• Disrupt the exisiting order – result is fragmented niches

2. Ideas factory (biotechnology)• Incumbents have down-stream benefits• Can stop incumbents from innovating• Ahead in technology (co-operation) – reinforced dominance of incumbents

3. Reputation-based (Cisco and Intel)• Incumbents have down-stream benefits• Cannot prevent incumbents from innovating• Technology is easily caught up with – fair partners for exploition

4. Greenfield (radical innovation)• Down-stream benefits are unimportant• Can prevent incumbents from innovating • Dominance of emerginf markets through competition or co-operation

Summary

New technology-based firms– Carachteristics– Incubators– Entrepreneurs– Funding– Peformance

Home exam

• Available the 6th of October

• Hand in 13th of October 10.00 the latest

• Individual work

• Be aware of plagiarism

Note the following about plagiarism

• Copying text from someone else without using quotation marks and citing the source is considered plagiarism.

• For the home exam, there are no requirements of listing your references (however, this may show that you have found adequate resources), but you MUST USE quotation marks and list the source if you quote (you are not allowed to just copy text)!

• If you violate this rule you may be reported! I will check for plagiarism.

• If there is anything unclear about this, don’t hesitate to contact me

1st part

• A number of short questions related to the course literature

• Tidd et al. is the reference for this

• Maximum 2 000 words

2nd part

• An open essay - select a specific firm and answer questions about its innovation activities

• 2 000 words maximum

• You can quote but then you must use references!

Questions for the third part of the home exam

• What types of innovation does the firm (not) concentrate on?• Does it seem to be successful in its innovative activities? Why (not)?• To which technological trajectory does the firm belong?• How would you characterise the firm’s innovation strategy?• What parts of the firm seem most important for innovation to be

successful in the firm?• Does the firm use external collaboration to enhance its innovations? If

so, what types of collaboration, and why exactly those forms? And what types of partners?

• What type of competition is threatening the survival of the firm on the short and the long term?

• Does the firm use corporate ventures, and if so, of what type are they? • In what stage of development is the industry in which the firm is active?• What type of market (international?, local?, mass market?, niche

market?) is at focus?• Are there any institutional regulations or other political developments

that are particularly important influencing the innovation activities of the firm? And how does the firm itself try to influence political developments?

Presentation

• Discussed in smaller groups

• Approximately 15 minutes per person

• Each student will present the second part

• Each student will be an opponent on the essay – form the basis for group discussion

• 0104 as usual

Monday Oct. 13th, 10-12

Monday Oct. 13th, 13-15

Tuesday Oct. 14th, 10-12

Tuesday Oct. 14th, 13-15

Thursday Oct. 15th, 10-12

Thursday Oct. 15th, 13-15

Grades

Your progress and learning is assessed not only at the end of the course but throughout the entire course. Different forms of examination are used to gauge students’ progress:

1. Weekly written assignments in preparation for seminars

2. Formal presentations at seminars

3. Home exam, including final discussion seminar

The home exam is the more important of the three.

About the grading

• The seminar assignments are graded but not compulsory.

• You have to have 50 % of both part 1 and part 2 to pass and also a sum of no less than 50 credits.

• In total 100 points – 25 from the seminars, 25 from the first part and 50 from the second part.

LTH-grade Percentage

5 83-100

4 67-82

3 50-66

U 0-49

If you fail

• Redo it with no possibility of higher grade than 3

• A totally new exam with the possibility of any grade

Questions?

Seminar assignment October 2nd 2008

Take a concept from the book that you like (or don’t) and apply that to your firm.

There are three parts of this task:1. Present the concept from a theoretical point of view.2. Apply it to your firm and explain how it fits (or not).3. By using examples, explain and motivate why you

think the concept is useful (or not).

Please send a page or so to emelie.stenborg@fpi.lu.se and be prepared to present your answer at the seminar.