MBIE1903-8273

Enterprise Innovation
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WEEK 5: Organizing For Innovation
 Organizing for Innovation
 Crafting an innovation strategy is not enough. Innovation needs to be
built and embedded into the organization (challenge).
 Successful innovation requires choosing and preparing the right
organization and people for executing and scaling the innovation.
 Many large firms fail at this – organizational components of innovation are
rejected or marginalized by the mainstream organization.
 Antibodies kill off the innovations, resources and processes responsible for
the innovation.
 Organizational structure influences every aspect of how innovation
occurs.
 Developing an Internal Marketplace for
Innovation
 An internal marketplace where ideas and functions of innovation
can flourish and ensure successful innovation.
 The true commercial value of every idea will be reflected in the
management attention and the funding it receives within this
marketplace.
 Truly valuable innovations must proceed to commercial realities
even if they appear threatening to existing businesses or even if
they appear to be difficult.
 Developing an Internal Marketplace for
Innovation
 E.g. Bank of America – Created the innovation and
development team to pioneer new services and service-
delivery techniques.
 Their goal is to create an “innovation market” within the bank’s
existing environment.
 Critical to creating a marketplace is balancing creativity and
value capture so that both thrive.
 Balancing Creativity and Value Creation

 Value creating and value capture operate very well in

companies where innovation thrives as Management
recognizes the importance of this and supports it.

 Such companies have developed their own internal

marketplaces that weigh, select and prioritize innovations for
their creativity and inherent commercial value to the company.
 Innovation Requires Balance between
6 Creativity and Commercialization

Case Study: The Marx Brother

 Balance Changes as Organization
Matures
 Early stages – focus is placed on creating new, improved,
products/services.
 Attention to maximizing value capture (faster, better, cheaper
delivery) is relatively low. A problem with some start ups.
 Later stages of growth and maturity, the drive to be creative usually
decreases and is replaced by a shift to increasing value capture –
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CHALLENGES OF BALANCING
CREATIVITY AND VALUE CAPTURE
 1- Displaying bias towards the creative
process
Emerging companies place a higher premium on
creativity.
Their internal markets are biased towards radical
ideas and breakthrough innovations that can give
the young company a competitive advantage.
Many startups have a great deal of creativity and
radical new business models.
 2- Balancing creative and value
capture
 As companies grow and mature they learn to balance their
creative processes with solid commercialization skills – a
question of survival.
 Radical breakthroughs are not enough – the company needs
to excel in execution and the ability to commercialize
innovations that flow from the creative process.
 E.g. Amazon.com
3- Focusing on the value capture

 As companies continue to mature, emphasis on

commercialization surpasses the attention to creative
markets.
 Management mantra becomes ‘profitability, asset
utilization, capital management, efficiency, benchmarking’
(this is all about value capture process).
 Creativity then has decreasing or negative value as the
company settles into maturity and fights for market share.
 3- Focusing on the value capture

 Mature companies with strong commercial but weak creative

functions measure innovation in terms of discounted cash flow,
return on investment (ROI) etc. None of which support creative
activities.
 Incremental innovation is the norm here.
 Radical and breakthrough ideas and the people responsible for
them disappear.
5 Steps to Balancing Creative and
Commercial Markets
1- Develop innovation platforms for the different types of
innovation you wish to pursue.
2- Create portfolios of projects in each platform.
3- Form internal and external partnerships and networks.
4- Ensure that markets for creativity and
commercialization are open and transparent.
5- Guard against organizational antibodies that may
limit or destroy your revived creative markets and
processes.
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OUTSOURCING INNOVATION
Outsourcing Innovation

 How to organize yourself and your people for innovation – a choice

between internal and external options.
 Internal – funding traditional R&D departments, setting up centers of
excellence, creating separate business units for innovation.
 External – outsourcing to different partners – suppliers, customers
and others.
 Right question should be : In which parts of our innovation should
we partner? How much should we rely on our partners and how
much should we take on ourselves?
 Outsourcing Innovatio

Innovation – too important to outsource completely.

Partnership or rather partial outsourcing a solid proven
approach to enhancing innovation.
Reaching outside for ideas, additional resources,
expertise or different perspectives can be highly
valuable when combined with the internal ability to
understand and use what your partners bring.
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 Examples – Effective Partnerships
 INTEL (Open four labs)
 Schlumberger (Sells innovative ideas to competitors)
 IBM (to manage excess capacity - Manufacture chips for
others)
 Dreyer’s Grand Ice Cream (Sells the use of its logistics and
distribution to others)
 Procter & Gamble (New CEO declared that half of the
innovative ideas should come from outside)
 Making Good Use of your Partners

A key competitive advantage in innovation E.g.

innovation testing by customers….?
E.g. Microsoft using customers for beta testing its new
products….
Universities such as Stanford potentially valuable –
prolific source of new technologies and business
models with sizeable market opportunities.
Universities capture value through licensing
agreements.
 Making Good Use of your Partners
Open source software development projects – internet
based communities of software developers voluntarily
collaborate to develop software that they or their
organizations need.
Creating and maintaining truly effective partnerships is
not very well understood - Each type of partnership
requires different goals, performance metrics and
incentives, conflict resolution and governance.
Getting them to work cohesively requires planning and
effort.
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INTEGRATING INNOVATION IN THE

ORGANIZATION
 Integrating Innovation in the
Organization
 Outsourcing ideation (development of good ideas that can be
turned into innovation) can be a good way to speed up the
innovation process.
 Mattel, Walmart and other toy manufacturers and retailers use idea
brokers like Big Idea Group to scout for new ideas.
 Big Idea Group takes submissions, refines and pitches the more
promising ones.
 The outsourced company may create ideas for innovations, but the
original organization still needs to commit resources within its
innovation group to take the ideas to the next level.
 Case Study : CEMEX – Design of Innovation Structure
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 Value of Networks and Innovation
Platforms
Creating and maintaining the correct structure is
hard.
A major misconception that is, innovation is present
everywhere in the company and that all partners
and customers should be a part of the process all the
time, this is Wrong.
Innovation is not everyone’s job.
Those who are truly innovative will get frustrated if you
put them with untalented people who dilute their
effort.
 Value of Networks and Innovation
Platforms
Involving everyone in innovation could prove counter
productive.
Everyone can have access and participate but not
equally and not all the time.
Innovation must happen in areas that have been
outlined in the strategy.
Spending time and money anywhere else is a waste.
 Value of Networks and Innovation
Platforms
Create innovation platforms and networks of
individuals where selected individuals can share with
each other.
Innovation platforms provide the basis for innovation
by focusing resources and providing processes.
Innovation platforms are organizational units of
networks within a company that direct resources
towards specific areas of innovation.
 Value of Networks and Innovation
Platforms
Resources dedicated to operations cannot break
away to perform innovative functions.
Resources dedicated to innovation cannot be cut off
from operations, markets and finances to produce
valuable innovations.
Platforms allow organizations to share in both –
operations, and innovation & networks provide the
channels for communication and collaboration.
 Value of Networks and Innovation
Platforms
Innovation platforms include:
Business model and technological change and a
portfolio of incremental, semi-radical and radical
innovation.
Networks of people (inside and outside) who can
effectively contribute to idea creation, selection,
development and implementation and preserve the
intellectual capital and knowledge in the company
during downsizing.
29 Example of Innovation Platforms and
Business Units
The Corporate Venture Capital (CVC)
Model
Inspired by external venture capital firms.
Useful when promoting radical innovation but not
hindering incremental.
Evaluates potential innovations in the same way that
an external venture capital firm would.
CVC is a hybrid between an independent venture
capital firm and an incubator within the organization.
 The Corporate Venture Capital (CVC)
Model
Typically a venture capital team would include a
number of senior executives from different areas
(technology, marketing, operations) and a select
few external partners.
The venture capital structure receives the ideas,
selects the ones with most potential, funds them
and then sells them.
So a Venture Capital Arm in an organization acts as
a ‘radical innovation hub’.
 The Two-handed Organization

 Organization establishes multiple groups handling different types of

innovation and operations projects, thus promoting different
cultures and processes for innovation needs.
 Radical innovators are separated from traditionalists who run the
core business. (E.g. IBM).
 Some organizations try to insulate the innovation function with a
completely separate business unit with different rules and culture.
 The Two-handed Organization

Companies such as BMW and Microsoft have insulated

their innovation teams in Silicon Valley.
Teams are allowed to break the rules and are
protected from organizational antibodies.
However, they must have access to the brains and
resources of the larger organization.
This could also result in limiting the amount of
information on innovation available to the organization.
 Organization and Innovation Rules – CEO
Actions
 Run a quick diagnosis – which one does our company do best? Do we
suffer from too much incremental? Does the mix of creative and value
capture fit our innovation strategy?
 Develop innovation platforms for the different types of innovation we
want to pursue.
 Create portfolios of the projects in each platform.
 Define the mix of internal and external resources needed and form
internal and external partnerships.
 Ensure internal markets are open and transparent.
 Guard against organizational antibodies.
 Leverage your innovation organization with the Internet (virtual
collaboration or electronic collaboration across distances).
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Questions?