MBIE1903-8273

Enterprise Innovation
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WEEK 6: Managing Systems: Designing the Process
of Innovation
 Systems and Processes Make Things
Happen
 Decisions made regarding strategy guide where you focus your
innovation efforts.
 The structure put in place becomes the foundation for the
innovation process. However, innovation could fail if systems are
inadequate.
 Small organizations – innovation happens through insight, talent and
interaction of a small group of people.
 Systems and Processes Make Things Happen

 As organizations expand, people may not interact, the information

may not flow to the right places and the motivation to take risks may
reduce (risk of developing silos – barely communicating much less
striving to innovate).
 Therefore, large organizations such as GE or P&G need systems to
manage innovation.
 IBM CEO Sam Palmisano cited You have to create the right
environment for innovation to flourish within the organization.
 Systems and Processes Make Things Happen
 Innovation systems are established policies, procedures and information
mechanisms that facilitate the innovation process within and across organizations.
 Innovation Systems determine the shape of daily interactions and decisions of
staff:
 the order in which work happens,
 how it is prioritized and evaluated on a daily level and
 how different parts of the organization use the organizational structure to communicate.
 Decisions on a product enhancement requires communication between many
parts of the organization including R&D, manufacturing, marketing and sales and
finance.
Well Designed Innovation Systems –
Objectives
 Many managers wrongly assume that structure and process are the natural rivals
of creativity.
 Structure enhances creativity if used in the right way. The five roles of good
innovation systems are:
 Efficiency
 Communication
 Coordination
 Learning
 Alignment
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 1- Efficiency
 This is all about moving great ideas from concept to commercialization with great
speed and minimum use of resources.
 Specially relevant for incremental innovation (following a defined set of stages
and decision points accelerates time to market and increases the return on
resources invested).
 E.g. Tetra Pak uses the product stage gate management process to speed
effective commercialization of product improvements by moving the innovation
speedily through the steps of conceptualization, initial design, prototype design
and commercialization rollout.
 Innovation systems where efficiency is paramount, define relatively broad stages
leaving room for teams to maneuver.
 2- Communication
 The second role of innovation systems to create lines of communication within the
company and with outside organizations.
 Systems must facilitate timely access to information by the innovation teams
(technology team, manufacturing team, marketing and sales team).
 Cross functional teams enable communication through the different knowledge
bases of team members or through a plan that describes when certain functions
will join the team.
 Formalized systems also facilitate communication with internal and external
partners. E.g. Microsoft and Compaq used these systems during hardware and
software product development.
 3- Coordination

 The third role of innovation systems is coordination between projects and team
with minimum effort.
 E.g. A plan to allow parallel work on projects with minimum communication –
offices in California, London and India all use the same shared tracking system but
at different hours.
 Projects that run round the clock in different parts of the world are possible
because of communication technology and the discipline that systems impose.
 Ensuring that resources are available on time is another coordination issue that
systems facilitate. (Tetra Pak was able to lower product development times by 40%
by increasing the efficiency of its management systems increasing the level of
collaboration and involving the right people at the right time).
 4- Learning
 Systems establish a discipline to manage the knowledge that is constantly created
in innovation.
 Systems can capture the information on the innovation performance throughout
the life of the project and make it available to the innovation team and
management.
 Information can then be used to identify problems and potential improvements.
 Knowledge management systems facilitate learning.
11 4- Learning … 2
 Learning increases the understanding of the innovation process itself.
 Every time an innovation project is executed, something is learned about
how to improve it specially for incremental projects in which similar efforts
are undertaken repeatedly.
 Innovation systems are like software – new versions are periodically
released to improve on previous versions. A system for capturing learning
enables that to happen.
 Knowledge is also generated about the business model, technology and
opportunities identified. (e.g. Chrysler and Audi).
 5- Alignment
 People throughout the organization need to understand the company strategy
and its implications for operations. Systems are needed to ensure consistency of
message and inclusiveness.
 As a company grows larger, senior management cannot rely on informal, social
interactions as the vehicle to achieve this alignment of understanding and
behavior.
 Innovation systems also align organizational objectives with personal objectives.
 Information regarding innovation performance must be communicated and
compared with innovation objectives. This allows people in the organization to
assess how their actions fit the organization’s innovation objectives.
Choosing and Designing Innovation
Systems
 Innovation is a flow – starts with many but ends with few. Systems manage this
flow. The process is a funnel. In the creative phase, a lot of ideas float around.
 As the ideas progress through the funnel, there is rejection of some (abandon) and
evaluation of a few (move forward).
 Those that move forward receive a major resource commitment and move to the
execution stage.
 Ideas which become intellectual property move to value creation stage.
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 Choosing and Designing Innovation Systems

 At the far end, the funnel grows larger again reflecting that value creation needs
to be maximized for the intellectual capital that has been developed (apply to
more than one product or cross license).
 Management systems play a role in ideation – funding – execution.
 Which ever innovation systems are chosen, they must be effective in moving
through all stages – ideation, selection, execution and commercialization.
 Most often these stages do overlap – creativity flows through the whole process.
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 1- Systems for Ideation – Seeing the Gaps
 Ideas are the engine of innovation. Begin with the recognition and understanding that
somewhere a gap exists (large or small – a new product feature, a new business model
element, an improved process technology or an entirely new business model).
 E.g. APPLE, GILLETTE, SOUTHWEST AIRLINES.
 All processes for identifying great ideas are aimed at creating perspectives that make
these gaps visible. Sometimes top management or a team member sees these gaps.
 The management challenge is to create an environment to nurture the generation of
large quantities of great ideas (economically viable) about gaps and to move the
ideas (manageable number) to the next stages in the innovation process.
 2- Structured Idea Management (SIM)
 A highly structured process that many companies and industries have used for
more than 20 years.
 E.g. Canon used SIM to develop the concepts of new cameras during 1990-2000.
 IDEO uses this by mixing designers, scientists, and others to scrutinize problems and
identify possible solutions.
 Its individual steps are designed to maximize the achievement of desirable goals:
 Control of the working environment to ensure maximum possible creativity
 Use of the best and most rigorous screening mechanisms to ensure the highest quality
output
 Structured Idea Management

SIM is also designed to prevent the two most common mistakes companies make
when undertaking the innovation process.
 Understanding the difference between assessing incremental vs radical ideas –
they need different approaches not the same forums not the same criteria. Ideas
which have the largest number of unanswered questions are dropped first.

 Recognizing the value of idea fragments – a common mistake to use

brainstorming meetings to generate finished concepts rather than thinking about
fragments of ideas that when put together could generate a major breakthrough.
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 3- Experimentation

 Radical innovation relies on ongoing experiments that test, disprove, modify and
validate potential radical breakthrough concepts.
 Experiments provide a probing dynamic into new technical, business and market
spaces.
 Well designed experiments provide insight and uncover hidden value.
 They provide learning that guides the radical innovation process by defining the
right questions and suggesting the best answers.
 E.g. The Computer Industry.
 4- Prototyping
 Prototypes are spreadsheets, process maps or simulations – anything simple that
enables us to visualize and understand something better.

Successful prototyping requires attention to three rules:

 Think modularly – don’t try to solve all the pieces – build prototypes that provide
insights into one or two key uncertainties.
 Fail fast and cheaply – small practical tests that can be done cheaply. Work with
a partner to share costs, risks and learning. Get the results, determine what was
learned and what new questions arose. Modify the prototype.
 Fail often in order to succeed faster – use the ready, fire, aim and then start over
approach.
 Prototyping
 Several companies use the prototype approach to commercialize radical innovations.
 The best prototypes are those that customers and suppliers can play with – early
prototypes should be extremely simple in order to learn the basics. Later the second
and subsequent prototypes could be more robust and focus on the essence of the
design.
 Best prototypes also provide designers, customers and suppliers with the opportunity to
make sequential improvements. A prototype provides powerful clues on the direction
of the next steps in innovation.
 Needs to be a core competency of the radical innovation team and a primary mode
of thinking and operating – build, test, refine, refute and validate……
 5- Making Deals
 Turning good ideas into robust innovation requires investors to see value. Advocates
must be able to put forth a compelling picture of the potential attractiveness of the
innovation.
 Remember investors dislike hype. What is needed is a sufficiently complete picture of
real value and risks of investing.
 Deal making positions key people in the company as buyer and seller. The seller is a
champion and wants the buyer to buy-in. They move the deal forward by changing,
accelerating, redirecting, leveraging, or otherwise improving the deal.
 The greater the deal flow, the greater the odds of achieving successful innovation.
 Not every deal is a winner.
 6- Innovation That Fits
 Leading companies (GE, Wal Mart, P&G) focus their innovation on areas that enhance
their core competencies. This is the key to success.
 Sometimes, companies limit their innovation opportunities by considering very narrow
range of opportunities that could fit their company. These could be missed
opportunities.
 Companies that venture into businesses where they have no competencies or relevant
experience have wrecked themselves.
 The question is ‘how close a fit is close enough’….going too far is a disaster…staying
too close could be limiting and lose value creation opportunities. (E.g.
Apple/Amazon.com).
 Careful definition of the company’s competencies and looking carefully beneath the
surface to determine real competencies and potential fits is the way to move. (E.g.
DELLs expansion into servers).
 Management Systems Comparison
 Multitude of different types of management systems are used in innovation – stage
gate project management, portfolio management, structured idea management,
brainstorming, project selection processes, experimentation, prototyping, product and
service rollout and commercialization.
 No set of systems serves all companies. The processes selected should be determined
by the innovation strategy and the balance of radical, semi-radical and incremental
innovation in the portfolio.
 Senior management should oversee the development and installation of the systems
to ensure that they match the company’s needs and operating styles.
 Management should also monitor the system’s performance against objectives.
Systems should be changed and adapted over time to meet changing needs.
 Electronic Collaboration
 Increased use of outsourcing and telecommuting is becoming a common mode of work.
 Negative effects of separation – mismatching of time zones, cultures and communications
technologies.
 Online revolution makes it possible for companies to virtually extend the organizational
boundaries, overcome the separation and tap into customers, suppliers and partners. (E.g.
Boeing 777– Computerized engineering system).
 Open source software development projects are also becoming important (e.g. Source-
Forge.net) lists more than 10,000 projects and more than 30,000 registered users. This is
challenging the traditional views of how innovation should work.
 Examples – Eli Lilly (Online knowledge broker - InnoCentive)and Tetra Pak.
 Management Systems and Innovation
Rules
 Management Systems are the key to balancing aspects of innovation.
 Systems must be combined to manage the dualities of technology and business
models, radical and incremental innovation, creativity and value capture and
networks and platforms.
 The management systems a company chooses should flow directly from its choice
of innovation strategy and balance it seeks in its portfolio. E.g. DELL and APPLE.
 The systems should allow a seamless blend of idea generation, selection and
execution by the network of innovators inside and outside the company.
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Questions?