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Hochschule für Angewandte Wissenschaften Hamburg

Hamburg University of Applied Sciences
Department of Business

Innovation Management
Setting up an Innovation Process
and Implementing an
Innovative Company Culture

- TERM PAPER -
AIM-Seminar
Summer Term 2008

Author
Markus Massar
Address line 1
Address line 2

Matriculation Number xxx xx xx

Lecturer
Prof. Dr. A. Schikarski

Submitted April, 29th 2008
Table of Contents
1 Introduction..............................................................................................................................3
2 Innovation fundamentals..........................................................................................................3
2.1 Modes of innovation.............................................................................................4
2.2 Types of innovation..............................................................................................6
2.3 Elements of innovation........................................................................................8
3 Implementing innovation.........................................................................................................9
3.1 Kick-off by leadership........................................................................................10
3.2 Importance of strategy.......................................................................................11
3.3 Processes to put in place..................................................................................13
3.4 Assessing innovation culture.............................................................................16
4 Critical review........................................................................................................................19
5 Conclusion.............................................................................................................................21
Literature..................................................................................................................................23
Internet Sources.......................................................................................................................23

List of Tables

Table 1 – Explanation of the Levels in the Reference Model (Bessant 2003: 68-69)..............18

List of Diagrams

Diagram 1 – Options for Involvement in the Innovation Process (Bessant 2003: 49)...............6
Diagram 2 – Categories of Innovation (Wheelen and Hunger 2008: 303).................................7
Diagram 3 – The Enterprise Model – Internal Variables (Brache 2001: 5)................................8
Diagram 4 – Linked Business Elements (Own Illustration 2008)..............................................9
Diagram 5 – Basic Problem Finding / Solving Cycle (Bessant 2003: 107)..............................15
Diagram 6 – The Five-Stage Model of High-Involvement Innovation (Bessant 2003: 57).....17

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1 Introduction
Businesses exist in dynamic and competitive environments nowaways. Thus, the number one
strategic goal of businesses is to gain and maintain competitive advantage. By programs of
continuous improvements companies try to reduce costs, to enhance quality, and to increase
speed of responsiveness to customer needs. Additionally, most businesses have some sort of
innovation program on their agenda to stay ahead of (or at least keep in pace with) their
competitors.

Still, finding a common ground on what innovation is and what business elements to consider
when implementing innovation seems intricate. The research on the topic of this term paper
reveals a wide range of terms associated with innovation. Some examples are 'research and
development (R&D)', 'product innovation', 'corporate entrepreneurship', 'intrapreneur',
'inventorpreneur', 'think tanks', 'continuous improvement', 'change program', 'market research',
'systems engineering' and 'optimization process'.

This term paper lays the fundamentals to understand innovation and its implementation in
businesses independent from the type of business on a strategic level.

2 Innovation fundamentals
A gateway to innovation is the success story of the manufacturing company 3M. One of the
award-winning products of the last century is the Post-it® note developed by two employees
of 3M. In 1968 the researcher Spencer Silver developed an adhesive that was 'not working
properly' as a glue. So he tried marketing his product within 3M to discover a use for his non-
adhesive glue. Unfortunately his mission was without immediate success. Years later, the
product developer Arthur Fry found a meaningful purpose for the 'non-working' thing.
Subsequently 3M worked out a product to be marketed. Since then 3M's notes have been sold
worldwide in 400 different variations of the original product (3M 2002: 38-40).

Innovation can be a function of an area or areas within a corporation whereas functions are
performed by a diverse range of employees. Although the original product itself was
developed in a research department, the latter idea for use of the product was the result of a
need that arose by one person. Needless to say that the consequential implementation was a

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team-effort again. These functional areas are circumscribed in this term paper as the modes of
innovation.

The term 'innovation' is defined by 3M (Gundling 2000: 23) as follows:

"New ideas + action or implementation which results in an improvement,
gain, or profit."

At first glance, some business areas seem to be hidden in 3M's definition where innovation
can take place. Sloane (2003: 8) describes these types of innovation within business strategy
and business processes in a more elaborate way:

"Innovation is not just releasing new products. It also encompasses
implementing new business processes, fresh ways of doing things, radical
alliances, brilliant new routes to markets and business strategies."

Innovation needs time and is based on trial and error. The development of a breakthrough
product isn't something you can do on the fly. It is the result of individual and corporate
features coming together at a certain point of time. These are the elements of innovation, this
term paper will look at.

Thus, innovation can be summarized as the business process of inventing, developing, putting
new concepts into practice and gaining benefit of new products, new services, new processes,
or further revolutionary business elements.

The following sub-chapters explain the modes of programs, highlight innovation types and
select key elements to consider for successful implementation of innovation management.

2.1 Modes of innovation
The historic development of scientific management and the industrial revolution led to
specialization of workers. Specialization increased output but also raised the need for
coordination because single parts in the production process had to be put together to a final
product. The idea of specialization led to the 'innovation monopole' of research and
development (R&D) departments. R&D was the birth-place of the whole product or service.

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Meanwhile, due to the increasing number of diverse customer demands and competitive
pressure the question has been raised why a company should limit its creative capability to a
couple of employees within R&D. Especially, when the whole workforce could be involved in
innovation and open the throttle for the full-blown potential of a new idea or new concept.
Still, the argument for the specialist group inventing new ideas is the possible innovative lever
this can create for the rest of the organization (Bessant 2003: 7-10).

Nevertheless, there seems to be a paradox when it comes to the modes of innovation. Bessant
(2003: 44) refers to the model of organizational design researches by Burns and Stalker which
describe two opposing "organizational 'archetypes'": mechanistic versus organic. The
mechanistic part is about reproduction of products and services which enable a company to
produce large quantities and satisfy customer demands. The organic part is about anticipation
of customer demands, its implementations and refinements. None of the two can exist without
the other. Most companies apply both elements in a unique share and by different modes of
innovation such as R&D or innovation projects. Thus, there is a reproduction part about
innovation and a creative part about innovation to be study (Bessant 2003: 43-46).

According to Bessant (2003: 47-49), there are three things that relate to organizing
innovation:

1. Exploitable results of innovation are rather achieved through a long-term
evolutionary process by a diverse group of people rather than one-time 'big
hits' involving specialists only.
2. Involving a larger part of employees fosters the understanding for the constant
need of corporate change. Change itself produces outputs that reinforce the
cultural values of innovation.
3. The more diverse the input of variations to a new concept or new idea, the
bigger is its possible innovative power of the output.

Depending on the level of involvement into innovation and impact of innovation, Bessant
(2003: 49) draws the following diagram on the modes of innovation:

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Options for Involvement in the Innovation Process
with minor modifications to source: Bessant 2003, Page 49

High

High impact, High-Involvement
low involvement Innovation

i.e. innovation by i.e. major innovation

Impact
specialists (R&D) projects with high impact

Low innovative Low impact,
activity high involvement

i.e. few people involved i.e. lots of small
and low-impact projects innovations have impact
Low
Low Extent High

Diagram 1 – Options for Involvement in the Innovation Process (Bessant 2003: 49)

Bessant (2003: 49) demands to found or develop "a real learning organization": One in which
all employees should be involved to a large extent into the creation of a large number of
break-through innovations. This is what Bessant (2003) labels as "High-Involvement
Innovation".

These findings suggest that a brilliant kick-off to innovation could be achieved by setting up a
smaller innovation project in order to gather experience in creative change. Rolling out the
innovation to the larger working community is a subsequent step.

This term paper still needs to envision in what respect innovation can take place and what
elements need to be considered in leading a corporation to managing innovation.

2.2 Types of innovation
Linking back to the example of 3M and the R&D model, the first and most popular type of
innovation becomes visible: Product innovation. One way to take a closer look at product
innovation is displayed by the four categories of (product) innovation by Wheelen and Hunger
(2008: 303-305).

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Categories of Innovation
taken from source: Wheelen and Hunger 2008, Page 303

New

3 4
Create

Organizational
Develop New Revolutionary

Capabilities
Capabilities Change

1 2

Improve Core Exploit Strategic
Business Advantages
Existing
Limited Strategic Scope Unlimited

Diagram 2 – Categories of Innovation (Wheelen and Hunger 2008: 303)

The diagram shows the connection of strategic scope with organizational capabilities of a
business in relation to its products. The lowest and easiest category of innovation lies in
quadrant 1 with simple product modifications. Quadrant 2 is about taking a glance with
existing offerings at new groups of clients. Existing product groups are renewed and refined
in quadrant 3. Of particular interest to this term paper is quadrant 4 because it is a reference to
the management innovation model of Hamel (2006). Although still related to customer
demand in products, it is termed "Create Revolutionary Change" and entails development of
"a new business model" (Wheelen and Hunger: 2008: 303-304).

The second type of innovation has already been highlighted shortly in chapter 2. Sloane's
definition (2003) refers to innovation of business strategies and businesses processes. When it
comes to process innovation, Wheelen und Hunger (2008: 299) see this as a subsequent part
of product development. Process optimization mostly aims at quality improvement and cost
reduction.

Nevertheless, the concept of management innovation by Hamel (2006: 4) is even more radical
and represents the third and last type of innovation discussed within this term paper.
Management innovation is

"[…] a marked departure from traditional management principles, processes,
and practices or a departure from customary organizational forms that
significantly alters the way the work of management is performed."

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This definition seems compatible to the definitions of innovation mentioned earlier in this
term paper. The key difference is that it is no longer related to products or processes only. It
incorporates management practices. The model itself is made up of the following four key
imperatives (Hamel 2006: 5-11):

1. Aim for the big challenge will produce radical results.
2. Get to the bottom of old practices and invent novelties.
3. Critically question the structures, systems, processes and policies in place.
4. Find, assess and employ examples of novel management principles.

This suggests that innovation management itself should be seen as an element for innovation.
Of course, this is one possible approach which is imaginable as this term paper will show in
chapter 3. Whether the organization is focusing on product, service, process or management
innovation or allows mixtures of any of these, largely depends on strategic decision. Since
strategy is one of the key business elements, it will be discussed in the following chapters.

2.3 Elements of innovation
A business is composed of so-called "performance variables" (Brache 2001: 5-11). Due to the
reason that the other referenced internal variables have been analyzed to be duplicates of the
remaining four, the diagram has been simplified for the purpose of this term paper. The
following diagram shows the modified enterprise model with major internal elements to
consider when implementing innovation:

The Enterprise Model – Internal Variables
modified from source: Brache 2001, Page 5

Leadership

Strategy

Business Processes

Culture

Diagram 3 – The Enterprise Model – Internal Variables (Brache 2001: 5)

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One of the key performance drivers is leadership. Leadership sets goals and provides role
models. Normally, the founder or founders of a company play an important role as leaders.
Their intention for setting up the business as well as their understanding of the benefit that a
company can potentially add to the life of its customers, its employees, its founders, and its
social, ecological and economical environment are key in getting a framework to achieving
goals and the results produced by the business. Thus, leadership is also about transporting
values and creating corporate culture by formulating a business strategy and setting up
business processes (Brache 2001: 32-35).

Although this term paper's topic is about innovation processes and innovative company
culture only, the strategic selection of elements to consider had to be done in the first place.

Consequentially, this term paper will highlight these four elements of leadership, corporate
strategy and corporate culture in conjunction with business processes in the following
chapters, and present key elements to consider when implementing innovation.

3 Implementing innovation
As previously discussed in this term paper, innovative culture is created and influenced by
leaders. Corporate culture in return influences leadership. Furthermore, company strategy is
developed by leaders based on cultural norms and values of the leaders, thus by corporate
culture. Business processes are derived from business strategy. Business processes reinforce
company culture.

Linked Business Elements
source: Own Illustration 2008

develops

Leadership Strategy
generates

innovate
creates

generates

Business
Culture
Processes
reinforce

Diagram 4 – Linked Business Elements (Own Illustration 2008)

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The just presented diagram sums up the business elements and the links between the same. As
previously mentioned, the link back from business processes concerned with innovation to
strategy, thus management innovation, is possible. This is marked with a dotted line from the
box 'Business Processes' to the box 'Strategy' in the diagram.

The following chapter will highlight the sensible starting point of innovation implementation.

3.1 Kick-off by leadership
Companies operate between the poles of two extreme organizational types as highlighted in
chapter 2.1: The 'mechanistic' operation mode and the 'organic' innovation mode.

Sloane's model of the two opposing leadership styles (2003: 11-14) perfectly fits into this area
of tension. The "conventional leader" is someone who is excellent in managing an already
existing organization with defined structures and processes to fulfill its standard tasks. On the
opposite side, there is the "lateral leader" which shows outstanding performance in
motivating teams and driving them to their best. The balance game continues as competitive
advantage challenges management: Standard performance isn't just enough to outfight
competition. Thus, the demand is high for hybrid leaders; those that can equally manage
people in standard mode for production and in creative mode making innovation reproducible.

This idea is based on the belief that every employee is willing to follow a leader or leaders
and is capable of innovation regardless of personal motivation, skills, education or
specialization. Still, innovation processes can support leaders and staff, and provide skill sets
for innovation, experience in implementing changes, and developing potentially beneficial
concepts.

The leadership ethos is reflected in the term "inventorpreneur" by 3M (Gundling 2000: 39):

"An inventorpreneur is one who invents or creates a new product that fulfills a
defined need; promotes the new opportunity or product; manages, organizes,
and assumes many risks in establishing a new business based on that
product."

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The person inventing a new product has to deal with deployed innovation processes and the
uncertainties that come along with the novelty.

Leaders' task is to lay the foundations for innovation by identifying the challenge for
continuous improvement, imagining a possibly bright future, and discussing the vision and
related prospective goals along with the rest of the company. Three results of leadership
communication are essential: First, corporate strategy should enable employees'
acknowledgement to an environment of constant change and their willingness to challenge
their default way of working. Second, employees should be empowered to innovation, and
should feel responsible for successful innovation by corporate strategy. Third, employees
should be ready to put their best ideas and most striving concepts in the balance. (Sloane
2003: 19-27).

Again, 3M provides an excellent example by its human resource principles as documented by
Gundling (2000: 59). The following headings are taken from the book:

"[…]
1. Respect the dignity and worth of inviduals […]
2. Encourage the initiative of each employee […]
3. Challenge individual capabilities […]
4. Provide equal opportunity […]"

Values and norms regarding the co-operation of people within the businesses as well as
between staff and the environment are fundamental. This is done by formulating a strategy.
This set of values needs to be formulated incorporating radical innovation in one or more
innovation types (see chapter 2.2) as the must-do for economic survival.

3.2 Importance of strategy
Strategy should aim at formulating key elements that drive innovative culture and the setup of
innovation processes. Strategy is defined by Brache (2001: 51) as

"[…] the framework of choices that determine the nature and direction of an
organization."

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The framework to consider when implementing an innovate corporate culture should consist
of the following points:

1. Decision and commitment to innovative culture
2. Direction to innovative culture at the different organizational levels
3. Organizational setup supporting innovative culture and processes
4. Measurement of innovative results

First and foremost, leaders should emphasize the need and the commitment to a corporate
culture of innovation. Corporate innovation is not a choice; it is an imperative for viability.
Hence, this message has to be widespread within the company and deeply embedded into
corporate culture by leaders. (Sloane 2003: 21-22).

But management should keep in mind that there is a relationship between the message and the
way its value is perceived by employees through behavior of management. This is one the
findings of the research project in manufacturing measuring "the impact of organizational
values on process innovation" by Khazanchi et al (2007: 880).

Second, corporate culture is a set of shared values, beliefs and norms. These cultural elements
are learned. Thus, culture is quite stable and does not change over night. Therefore, a change
of culture needs repetition over time until the members of the cultural group accept the new
values, beliefs and norms (Bessant 2003: 37).

As culture is something that can be acquired, Bessant (2003: 38-39) suggests to employ so-
called "behavioral routines" and have the members of the organization learn to innovate. Just
like exploring any new capability, innovation can be excelled. The learning process consists
of studying new elements of the novel culture, putting the elements together, providing
feedback to the 'students of creativity'. After a while, future innovators are to mix, re-develop,
and critically assess the elements from a master's point of view until innovation becomes
self-controlled.

This is supported by Khazanchi et al (2007: 881). One of the results of their study stresses that
employees working in production 'confronted' with an empowering innovation culture really

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can make a difference when it comes to optimizations due to their vast experience in
operations.

Third, the company should be organized to support innovation. This is rather a question of
processes and policies than of structures; e.g. learning towards innovation, fostering cross-
functional innovation teams by reward and career systems. Again, there is a tension between
production and innovation which is especially true in small companies. Whereas larger
companies have more personnel resources to balance 'mechanistic' and 'organic' behavior,
smaller companies have to dedicate extra time and their energy for creativity parallel to
standard business (Sloane 2003: 107-116).

Organizing a company is not necessarily setting up organizational structures as Brache (2001:
166, 171-172) points out. The restructuring of reporting lines and different working groups is
not of highest priority. Adequate processes and skilled people using the same are the means of
results not organizational structure itself. Additionally, structure might play a subordinate role
when it comes to increasing efficiency and effectiveness.

Fourth, the results of innovation processes should be measured just like the results of other
processes. Sloane (2003: 143) suggests to setup or redefine objectives in relation to creativity
and innovation which support the high-level objectives.

Setting up metrics and measurement processes is essential because it supports an innovative
company culture by getting feedback on creative efforts and keeping the employees aware to
the need of innovation (Sloane 2003: 115).

Whereas the first two strategic elements, i.e. commitment and direction, need an
implementation by company policy towards an innovative culture, the latter two (i.e.
organizational setup and measurement) comprise the setup of business processes related to
innovation.

3.3 Processes to put in place
The quality of processes to be implemented largely depends on innovation strategy and the
operational needs balancing the 'mechanistic' and 'organic' functions of innovation. Brache
states (2001: 66):

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"Well-designed processes actually stimulate creativity when it is desirable,
build in flexibility where it is needed, and enable talented people to make their
optimum contribution."

Therefore, there should be business processes supporting innovation, and doing innovation.

The larger number of innovation support processes are normally already in place. These
standard business processes like payment schemes, career planning, educational offers,
training-on-the-job and job-rotation, coaching, internal communication, controlling processes
and so on should be deeply linked to innovation. To achieve this, policies need to be adapted,
or existing processes need to be re-defined. Examples of innovation support processes are
highlighted in following three paragraphs.

As mentioned in the previous chapter, measuring innovation performance is essential. The
resulting controlling system should trace targets and deadlines. These targets can consists of
ideas that have been identified, or even realized in products, services, businesses processes or
management policies as well as financial gains from an innovation. Those can be broken
down into time and furthermore into different levels like countries, markets, target groups,
business processes and so forth (Sloane 2003: 143).

Another important element to a communication process is the internal marketing of new
concepts and ideas. Just like the example of the Post-it® notes by 3M, the spreading of the
original innovation fostered the evolution and success of the later product.

Interestingly, a study by Gunn (2008) shows that rewarding successful change projects is
essential if a company wants to keep hands on their talents. There is a positive correlation
between the promotion of project leaders and their commitment to the company.

Innovation processes themselves comprise methodologies and policies of innovation. Of
course, these have to be implemented on different organizational levels. For instance, single
innovation initiatives should rather be driven by individuals or groups. But innovation needs
funding too. This is where management comes into play.

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One possible technique towards innovation is the "problem finding/solving cycle" (Bessant
2003: 107). It begins with identification of a problem. The problem gets defined. By exploring
the problem, possible solutions might pop up. The subsequent selection (of an answer to
oppose the problem) leads to implementation. The latter should be reviewed and might
identify that the original problem has not been solved, or new problems have risen during
implementation.

Basic Problem Finding / Solving Cycle
taken from source: Bessant 2003, Page 107

Identify
Define

Review
Explore

Implement
Select

Diagram 5 – Basic Problem Finding / Solving Cycle (Bessant 2003: 107)

There are two things in the methodology to highlight. The first is connected to the
"Identify"-step and subsequent phases; the second relates to the "Select"-step of the problem-
solving cycle.

Useful techniques to problem identification or development of a new idea or concept are
presented by Sloane (2003: 150-171). Some popular examples are: "Brainstorming", "Pass
the Parcel", "What if?", "Six Thinking Hats". These and many more innovation techniques
should be part of the curriculum of the corporate training programs on innovation.

The just mentioned processes take place on the individual or group level. Thus, the selection
within the problem-solving cycle should be up to the people directly involved in the creative
process. Of course, there needs to be prioritization and choice of possible solutions by
management prior to implementing a solution on a large scale.

3M employs a so-called "innovation funnel" which consists of three phases: The "doodling"
phase, the "design" phase, and the "direction" phase. Innovations in the first phase are put in
the funnel where there's still enough room to experiment with new ideas. As the new concept

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is getting more seriously considered, it gets down the funnel. At least, the prospective product
gets more management attention when strategic metrics for financial investment and return
are set up in the last phase. Along the phases, there are adequate innovation processes
supporting the invention to market maturity (Gundling 2000: 178-181).

The delegation of decision-making power from upper management down the ladder is
possible and should be connected to the effects the innovation could have on the organization
and the financial support needed. This term paper will show in the next chapter that
delegation of authority depends on innovative culture and innovation maturity.

3.4 Assessing innovation culture
Trust towards company staff is one of the key factors positively influencing an innovative
corporate culture. This can be seen in the model of "High-Involvement Innovation" by Bessant
(2003) which suggests a learning and innovation cherishing culture involving a large number
of employees.

Another model is about "Lateral Leadership" by Sloane (2003). Managers and other key
players within a corporation lead by curiosity, inspiration and empowerment. Key
characteristics of an innovative company culture in this model are (Sloane 2003: 125):

"[…]
1. openness to ideas and input;
2. questioning of authority and conventional wisdom;
3. agility – ready, willing and able to change quickly;
4. goal achievement oriented;
5. entrepreneurial spirit at all levels;
6. ready to take risks and learn from failure."

These are soft factors which are hard to measure objectively, and intricate to assess. That's
why, this term paper will now introduce a model to judge the development of company
culture by its results.

As discussed earlier in this term paper, business processes create artifacts which reinforce
culture; thus, all elements introduced to foster innovation represent culture as well. The

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methodologies applied and the achievements delivered while running a business with its
distinct corporate strategy, its business processes and its corporate culture are summed up by
Bessant in a model for innovative maturity (2003: 57).

The Five-Stage Model of High-Involvement Innovation
modified from source: Bessant 2003, Page 57

High
Level 5

Level 4
Performance
(cultural artifacts)

Level 3

Level 2

Level 1
Low
Low Practice High
(learning stage)

Diagram 6 – The Five-Stage Model of High-Involvement Innovation (Bessant 2003: 57)

The model is explained with the following example: A company starts with its innovation
maturity on level 1 with low practice and thus low performance on innovation. But this
company might be interested deeper in the topic, and starts an innovation experiment in a
small, dedicated area with low expectations. As the results turn out to be more positive than
expected, the question arises how to continue and how to achieve the buy-in of further
stakeholders. Thus, management launches a programme. This lifts the company on level 2. In
the course of the same, programme members have developed a monitoring system for
innovation and are continuously incorporating the feedback to re-fine processes and policies.
Unfortunately, the tyre of the programme seems to lose air: Ideas appear to have no impact,
and there are no 'big hits' advancing the company's success. So, the major point now is to keep
promoting the idea of ongoing innovation, and reinforcing the innovation processes and
policies. As the company reaches level 3 after a couple of month, the programme is still
running smoothly. But there is a new obstacle coming up. This time, it seems that there is "a
lack of a strategic focus to the problem-solving activity". The reaction of management is
assessing and readjusting the strategy, and breaking down the high-level objectives to
innovation objectives. On level 4, innovation is rooted in culture. There is a high level of trust
amongst company members. Innovation is now deeply linked to strategic goals. Progress and
success of innovation objectives are constantly monitored and measured whereas the
innovation project teams largely act on their own authority. Innovation is focusing on the

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optimization of business processes related to quality and costs. Still, there are challenges to
implement innovation on novel products, services and processes as well as additional business
elements. Finally, the company achieving innovation maturity level 5 is an innovation itself.
People feel supported, actually are empowered to constantly innovate, and lead their
innovations to success, or learn from inherent failure of innovation. They share their
experiences, invite others to join, coach innovation beginners and so on. The organization has
turned into a pool of constant learning and innovation (Bessant 2003: 57-64).

Characteristics of these stages in the performance and practice area are represented in the
following table completely taken over by Bessant (2003: 68-69):

Level Performance Practice
0 = No high-involvement No impact from high-involvement Problem solving random
innovation activity innovation No formal efforts or structure
Occasional bursts punctuated by inactivity and non-
participation
Dominant mode of problem solving is by specialists
Short-term benefits
No strategic impact
1 = Trying out the ideas Minimal and local effects only High-involvement innovation happens as a result of
Some improvements in morale and motivation learning-curve effects associated with a particular
new product or process—and then fades out
again. Or it results from a short-term input—a
training intervention, for example—and leads to a
small impact around those immediately concerned
with it. These effects are often short-lived and
very localized
2 = Structured and Local-level effects Formal attempts to create and sustain high-
systematic high- Measurable high-involvement innovation activity, involvement innovation
involvement e.g. number of participants, ideas produced, etc. Use of a formal problem-solving process
innovation Measurable performance effects confined to projects Use of participation
Little or no ‘bottom line’ impact Training in basic high-involvement innovation tools
Structured idea management system
Recognition system, often parallel system to
operations
Can extend to cross-functional work but on an ad hoc
basis
3 = Strategic high- Policy deployment links local and project-level All of the above, plus formal deployment of strategic
involvement activity to broader strategic goals goals
innovation Monitoring and measurement drives improvement on Monitoring and measurement of high-involvement
these issues, which can be measured in terms of innovation against these goals
impact on ‘bottom line’—for example, cost In-line system
reductions, quality improvements, time savings,
etc.
4 = Autonomous Strategic benefits, including those from All of the above, plus responsibility for mechanisms,
innovation discontinuous, major innovations, as well as timing, etc., devolved to problem-solving unit
incremental problem solving High levels of experimentation
5 = Strong high- Strategic innovation High-involvement innovation as the dominant way of
involvement Ability to deploy competence base to competitive life
innovation capability advantage Automatic capture and sharing of learning
Everyone actively involved in innovation process
Incremental and radical innovation

Table 1 – Explanation of the Levels in the Reference Model (Bessant 2003: 68-69)

Turning a company into a 'high-involvement organization' is a long-term change process. It is
about managing change with a clear strategic vision and commitment to innovation. A

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company might have invented innovation departments, processes and policies without success
on a larger scale. Looking at Bessant's model (2003) and its characteristics should provide
guidelines for where a company stands, and wing hope where it should be heading.

Additionally, there is evidence in a research paper on the "Relationship between knowledge
inertia, organizational learning and organization innovation" by Liao et al (2008: Chapter
2.5) that the older and larger the company is, the better the organization has embedded
organizational learning. Unfortunately, the authors conclude that so-called "learning inertia"
which is adopted by large companies is rather hindering innovation culture in contrast to this
"experience inertia" fosters values and norms in favor of creativity.

It seems that it's a balance of both ways again – the 'mechanistic' way of learning and the
'organic' way of innovation. The following critical view on the models gives further hints on
elements to balance when implementing innovation.

4 Critical review
As the research on this term paper has shown, most innovation approaches are focusing on
product and service innovation. Process innovation follows from the need of quality and cost
improvements in the value chain of product and service delivery. But yet, there seems to be no
focus on innovating business processes or even management principles.

As discussed with the model of the learning organization by Bessant (2003), this might be
related to the question of innovation maturity within a company.

Therefore, Hamel's model (2006) might address the right ideas towards "management
innovation" but it seems applicable only to large organizations that have a long track of
successful innovation experience. Another question on management innovation is: Why
should companies publish radical innovations of their management practices as competitors
could benefit of those revolutions as well? So, maybe it is rather a question of intellectual
property and protecting the competitive advantage than on developing those management
innovations and bring them to a wider public space.

The leadership model by Sloane (2003) seems to be trend-setting since organizational
practices and policies preferably see the advantages of employee involvement. Nevertheless,

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there are two obstacles to the notion of 'creating leaders by leaders'. One is the question
whether all employees could and should become leaders to the same extent. The second is
concerned with human nature. People are not working for a company for their income. They
have personal motives or even character traits that might partly, temporary or constantly
prevent the wish to support innovation and become leaders themselves. On the company side,
there might be management behaviors that lower or prevent individual contribution to
innovation. Some of these are: putting too much emphasize on 'mechanistic' production, no
efficient planning of time for employees, low training opportunities, low level of trust towards
staff, and so on.

Still, every concept has its right to exist: the idea of Bessant (2003) for its corporate learning
approach to innovation, Hamel's theory (2006) as a 'wake-up call' to management innovation,
and Sloane's model (2003) for his belief in human beings and their creative potential.

The perspective of Brache (2001) of a company as a holistic organism might bring together
the single parts and give insights into the links between the different elements of a business.
As Brache states (2001: 212):

"Unfortunately, organizations are not that simple. Since a business is an
integrated system, you cannot effectively address one variable in isolation."

Yet, there is another dimension to assess that has been discussed within the term paper:
Implementation of innovation processes and an innovative corporate culture. There might
some boundaries to the approach itself.

For a successful implementation of innovation, the commitment of management needs to be
enormous and must be constantly reinforced. The costs of implementing can grow immense
whereas returns can be expected in the long run but are not secure at all. Implementing
innovation might only be advisable at certain phases of the organizational development. In
turn, it might be more than threatening to the continuity of a business when applied in an
already existing company crisis. In a globalizing world, the environmental culture, i.e. the
culture of the country or area within a country, could negatively influence the transferability
of an innovation culture and processes from the headquarter to its subsidiaries, or from one
subsidiary to another – if not make transfer impossible.

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Of course, the way of implementing is also mission-critical. If the leadership capabilities to be
developed come from outside an existing company, or if corporate strategy is something that
is imposed rather than discussed with the future leaders, or if the new way of doing things
differently is just 'lip service', or if there are too many exceptions to innovation rules and
policies, the 'innovation dashboard' should have all warning lights blinking.

Thus, looking only at one business element to invent innovation, can't be successful.
Moreover, a company should be viewed from a holistic perspective. Thus, innovation needs to
take place in corporate strategy, corporate culture, its business processes, and – which is the
most important element – its people. Independent from the role that employees play in a
corporation, these are human beings that create the artifacts that corporate culture comprise
of.

5 Conclusion
This term paper has developed an understanding of innovation fundamentals like the modes
of innovation, the types of innovation, and the elements of innovation from a strategic
perspective. Whereas, the company management must decide upon the first two points, i.e.
how should innovation be setup in the organization, and what kind of innovation the company
is striving for, the latter point is more about taking a holistic view and the relations of the
individual business elements.

Innovation neither requires a certain type of organizational structure nor does an existing
organizational structure limit the potential of a business. It is more a question of balancing the
'organic' setup of innovation project teams as new opportunities by innovations arise.

Although, innovation is frequently put in context to product innovation only, it is not limited
to it. Process innovation in respect to product or service delivery follows product or service
development itself. Still, there is the discipline of process innovation from a management
point of view. This is along with management innovation itself a new field which has just
recently been stressed, and thus requires more in-depth research.
When it comes to implementation of innovation processes and an innovative culture,
leadership is a good starting point. This invokes strategic values which in turn results in
business process supporting and doing culture. Innovation processes are artifacts of the

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corporate culture and reinforces the same. This kind of self-reference is one of the intriguing
points in the holistic perspective.

Leadership is role-modeling to the company's staff, provides a basic corporate culture, and
formulates strategy. Strategy should address the management's commitment to innovation,
provide direction and coaching in innovation, build an innovation capable organization which
is flexible, and controlled by the results of innovation. The implementation of the overall
innovation strategy is a long-term process. Business processes depend on strategy. Innovation
supporting processes need to be streamlined and refined to support an innovative culture.
Focus should be put on the measurement, communication, and rewarding of innovation.
Essential innovation processes are the problem-solving cycle as a kick-off to creativity as well
as the organized assessment and selection of high-potential innovations. Corporate culture is a
result of leadership, business strategy, and business processes and just as it provide reference
for the same elements. Innovation culture can be measured in terms of innovative maturity
which relates capabilities in and the results of innovation.

Despite the variety of obstacles arising during the journey of implementing innovation,
introducing it and working in an innovative enterprise should be challenging and interesting
to everybody involved in micro-economics for their individual professional development and
for the development of perspectives outside one's own box.

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Literature
• Bessant, John 2003. High-involvement Innovation: Building and Sustaining Competitive
Advantage Through Continuous Change. Chichester: John Wiley & Sons Ltd.

• Brache, Alan 2001. How Organizations Work: Taking a Holistic Approach to Enterprise
Health. New York: John Wiley & Sons Inc.

• Gundling, Ernest 2000. The 3M Way to Innovation: Balancing People and Profit. Tokyo:
Kodansha International Ltd.

• Gunn, Robert W. 2008. The Rewards of Rewarding Change. Boston: Harvard Business
School Publishing.

• Hamel, Gary 2006. The Why, What, and How of Management Innovation. Boston:
Harvard Business School Publishing.

• Khazanchi, Shalini, Marianne W. Lewis and Kenneth K. Boyer 2007. 'Innovation-
supportive culture: The impact of organizational values on process innovation'. In: Boyer,
Kenneth and Morgan L. Swink (Editors in Chief). Journal of Operations Management,
Vol. 25 (2007). Oxford: Elsevier Ltd; pp. 871-884.

• Liao, Shu-hsien., Wu-Chen Fei and Chih-Tang Liu 2008. 'Relationships between
knowledge inertia, organizational learning and organization innovation'. In: Linton, J.
(Editor in Chief). Technovation, Vol. 28 (4). Oxford: Elsevier Ltd; pp. 183-195

• Sloane, Paul 2003. The Leader's Guide to Lateral Thinking Skills: Powerful Problem-
solving Techniques to Ignite your Team’s Potential. London: Kogan Page Ltd.

• Wheelen, Thomas L. and J. David Hunger 2008. Strategic management and business
policy: Concepts and cases. Upper Sadle River, New Jersey: Pearson Education Inc.

Internet Sources
• 3M 2002. A Century of Innovation – The 3M Story. St. Paul: 3M. (downloaded from
http://multimedia.mmm.com/mws/mediawebserver.dyn?6666660Zjcf6lVs6EVs666IMhC
OrrrrQ- on April, 21st 2008)

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