Organizational Learning and Distributed Innovation Planning Edward Anderson University of Texas...
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Transcript of Organizational Learning and Distributed Innovation Planning Edward Anderson University of Texas...
Organizational Learning and
Distributed Innovation Planning
Edward AndersonUniversity of Texas McCombs Schoolwww.EdAnderson.org
Nitin JoglekarBoston University School of Managementhttp://people.bu.edu/joglekar/
INFORMS 2006
© Anderson & Joglekar 2006 2
Motivation Distributed Innovation Planning
P Portfolio Elements
L Locations, M Skills
Q Projects
S 1 S 2 S p
L1 J 1 L1 J 2 L2 J 1Ln J m
I1 T 1 I1 T 2 I2 T 1 I2 T 3 I2 T 3 IQ T 1
• Multiple linkages and uncertainties • Network analysis (NP Hard Problem): Must use heuristics, business rules/IS
Modular Choices
Modular learning lies is at the heart this planning problem!
© Anderson & Joglekar 2006 3
Distributed Innovation Literature Sourcing Decisions
Socio-political issues Hidden costs of coordination/vertical integration
Chaos & Emergence Risks Adaptive behaviors (Brown & Eisenhardt) Modularity is touted as a solution (Baldwin & Clark, Sosa et al, Ethiraj & Levinthal)
Organizational Learning Explore or Exploit (March, Katila & Ahuja) Integration (Anderson & Parker) Ex-post selections (Sommer & Loch)
© Anderson & Joglekar 2006 4
Research Questions What implications does distributed
product development have for organizational learning and vice-versa?
How can the risk inherent in distributed product development be managed through modularization of capabilities?
What risks does modularizing capabilities pose for organizational learning and distributed innovation?
© Anderson & Joglekar 2006 5
Capability DynamicsEvolution of Benefits & Risks
Product Development is a Complex System, Literally.
PerformanceGap
Desired ProductPerformance
ProductPerformance
Capabilities
Investment
O
LegislativeShocks
O
Market Wants
R
DELAY
DELAY
DELAY
Market Shocks
TechnologyShocks
Project ExecutionShocks &
Uncertainties
Target SettingUncertainties &
Biases
MARKETCO-EVOLUTION
R
CAPABILITYDEVELOPMENT
B
PRODUCTPORTFOLIO
IMPROVEMENT
© Anderson & Joglekar 2006 6
Capability DynamicsThree Modes of Learning to Create & manage Complexity
1. Market develops its preferences through experience with the product, sometimes in unpredictable ways (Market Co-Evolution).
2. Firm improves its product portfolio by learning about the market.3. Firm improves its capability portfolio by developing products.
PerformanceGap
Desired ProductPerformance
ProductPerformance
Capabilities
Investment
O
Market Wants
R
DELAY
DELAY
DELAY
MARKETCO-EVOLUTION
R
CAPABILITYDEVELOPMENT
B
PRODUCTPORTFOLIO
IMPROVEMENT
Effects of random shocks suppressed for clarity
© Anderson & Joglekar 2006 7
Evolution of R&D Capability*
* Source: Miranda 2003
© Anderson & Joglekar 2006 8
Market … WantsMarket 3 Wants
Market 2 Wants
Performance ofProduct …
Performance ofProduct 3
Performance ofProduct 2
Capability…Capability 3
Capability 2
Multi Dimensional DynamicsWith multiple capabilities,many products, and detached markets
Capabilities, Products and Markets are multi-dimensional and have many-to-many interconnections, with goal setting processes and delays!
PerformanceGap
Desired ProductPerformance
Performance ofProduct 1
Capability 1
Investment
O
Market 1 Wants
R
DELAY
DELAY
DELAY
MARKETCO-EVOLUTION
R
CAPABILITYDEVELOPMENT
B
PRODUCTPORTFOLIO
IMPROVEMENT
© Anderson & Joglekar 2006 9
Consequences of ComplexityTwo Metaphors for Product Development
1. All pool players act indirectly upon their playing environment2. Good pool players plan ahead for contingencies while modularizing risk
or
CAPABILITIES
POTENTIAL PRODUCTS
MARKETSPACE
© Anderson & Joglekar 2006 10
Playing Pool within the Distributed Innovation Space?
Roadmap planning for product portfolios with contingencies (resources) with three modes of learning
Invest in capabilities to support the portfolio using a real options approach
Modularize your capabilities to support contingencies Using the six modular operators* to deal with
randomness, co-evolution, & tipping points
* Split/exclude/substitute/augment/invert/port
© Anderson & Joglekar 2006 11
Capability Interactions Resources
Separate projects require same capability; potential domino effect
One capability dependent upon another• Complementarity if dependence is mutual
Communication Interaction with other capabilities within projects (defined by
architecture) • Overall product integration
Bundled or complementary products Piggybacking: Two projects utilizes the same capability to
develop a common modular component Knowledge
Later projects require information (tacit knowledge, education, prior projects or diffusion) from capabilities developed during earlier projects
© Anderson & Joglekar 2006 12
Capability Modularization Strategems
Time and resource buffering By e.g. sacrificial functionality Isolate inter-capability risks (e.g. Intel’s operations strategy)
Modular, uniform architecture & common business processes Encapsulates capability Provides “plug and play” personnel from each capability Enables off-the-shelf components
Fungible skill-sets Substitute capabilities Fungible capabilities (perhaps through cross-training)
“A, B, C” Capability Map Insourcing, partial insourcing/in-house experts, complete
outsourcing (Linked to real options approach) Utilize in combination with a ring-of-defense personnel strategy
© Anderson & Joglekar 2006 13
Risks to Organizational Learning Capabilities are tacit knowledge
Vulnerable to turnover Requires intra and inter-capability knowledge diffusion
Common architecture and business processes promote “core rigidities” Tendency to ignore scouting except by integrative
personnel and executives, reducing absorptive capacity Excessive overhead for mature industries
Starves investment in current capabilities
© Anderson & Joglekar 2006 14
Recap Product development is a complex system amenable to
scenario planning using a real-options approach Complexity created and managed by three learning loops: capability,
product portfolio, and market Capability planning is a high leverage activity
Modular risk management Risks to organizational learning
Managerial Implications In non-mature industries, use of scenario planning, with three modes
of learning, to determine a long-term capability strategy is key Modularizing capability risk must be seen as a necessary hedge to
enable long-term viability Research Implications
Examine capability modularity in a manner analogous to study of component modularity
Formal specification and testing of three modes of learning
© Anderson & Joglekar 2006 15
Questions?
We welcome your feedback …
www.EdAnderson.org
Backup Slides
© Anderson & Joglekar 2006 17
How Do We Play Pool with Distributed Innovation Product development is not predictable, but may be amenable to scenario planning Hence, you can plan for developing capabilities using a real-options approach, but
you may need to these recombine these capabilities quickly. This is only reinforced by the need to launch multiple test product probes to promote product
learning to match market’s evolution of tastes (of course these coevolve, so you do get a Red Queen effect)
One way to do this is to modularize your capabilities (by encapsulating business units with standard business processes), then capabilities (i.e. people) can be inserted and removed as necessary from a product’s development. Of course each product’s organization will need to be modularized as well.
Also recommends test products, both to probe the shape of market demand and also to provide development of capabilities.
Suggests a decentralized, modular architecture for capabilities, whose carriers of tacit knowledge are people.
Created by splitting, inversion, and porting through encapsulation. Advantages: speed of reaction to market, allows augmentation, substitution, exclusion, Disadvantages: Opportunism and other bad behavior, overhead from encapsulation (learning
standard business processes), and threats to organizational learning. How does this modular organization of technical capabilities diminish or create risk,
and what threats do these make to organizational learning?
© Anderson & Joglekar 2006 18
Backup Graphics
Three Modes of Organization Learning
PerformanceGapDesired Product
Performance
ProductPerformance
Capabilities
Investment
O
LegislativeShocks
O
Market Wants
R
DELAY
DELAYDELAY
Market Shocks
TechologyShocks
Project ExecutionShocks &
Uncertainties
Target SettingUncertainties &
Biases
MARKETDIVERGENCE
R
CAPABILITYDEVELOPMENT
B
PRODUCTIMPROVEMENT
© Anderson & Joglekar 2006 19
Marginally shuffled Nutshell Argument (NRJ) Market, product, and capability learning create a complex system
Some researchers assume that the planning landscape is given, and call for scenario planning (with ex-post selectionism and learning) with provisions for contingencies, both foreseen and unforseen (unk-unks)
We argue that the landscape is not entirely random because there are basins of attraction. Furthermore, there is feedback between the market, your products, and your capabilities, so you may be able to shape your future (cars with safety features) in a modular manner. But tipping points all over, and even these modular actions are unpredictable.
Research Questions: How does one modularize capability risk? And, what are the downsides to modularizing capability risk for organizational learning, esp. innovation?
• Carriers of tacit knowledge (capabilities) are people• Interactions between capabilities• Potential remedies
Hypotheses: • Three modes of learning for managing this risk!• Best dealt with by roadmap to develop capabilities through product introductions (which
also improve market learning).