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Managing innovation within firms

1.The dilemma of innovation

2.Managing uncertainty
Managing innovation within firms 3.Organisational characteristics that facilitate the
innovation process
Chapter 2

Dr. Nguyen Thi Hanh

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Learning outcomes
• Iden fy the factors organisa ons have to manage to achieve
success in innova on.
• Explain the dilemma facing all organisa ons concerning the
need for crea vity and stability.
• Recognise the difficul es of managing uncertainty.
• Iden fy the ac vi es performed by key individuals in the
management of innova on.
• Recognise the rela onship between the ac vi es performed
and the organisa onal environment in promo ng innova on.
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Money currently invested in technology stocks? Sept 2020 Managing the tension between the need for creativity and
efficiency
Allianz Investment Trust £1billion Polar Capital Investment Trust £2.7billion

Apple Inc 6.11% Apple Inc 9.58%

Microsoft Corp 3.68%
Microsoft Corp 9.06%
CrowdStrike Holdings Inc Class A 3.46% Facebook Inc A 4.43%
Tesla Inc 3.43% Tencent Holdings Ltd 3.60%
Zoom Video Communications Inc 3.01% Alibaba Group Holding Ltd ADR 3.34%
Zscaler Inc 2.98% Alphabet Inc Class C 2.92%
Twilio Inc A 2.88% Alphabet Inc A 2.89%
Samsung Electronics Co Ltd 2.73% Amazon.com Inc 2.83%
Square Inc A 2.47% Samsung Electronics Co Ltd 2.81%
The dilemma of innovation management
PayPal Holdings Inc 2.46% Advanced Micro Devices Inc 2.55%

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Some firms seem to be more innovative than others The dilemma of innova on management
• Long-term survival is associated with innovation.
• Many science- or technology-based companies are often associated with
• So, how do firms try to reduce costs and slack to improve
innovation (visible).
For example: Zoom, Tesla, Microsoft and Dyson are regarded of innovative companies. competitiveness on the one hand and then try to provide slack
for innovation on the other?
How to become innovative?
• The role of research & development (R&D) (Siemens)? To resolve the innovation dilemma, why do
• Can you acquire technology from outside? firms not simply separate the creative side of
• The role of ‘prior knowledge’ their business from the operational side?

Dr. Nguyen Thi Hanh

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Innovation dilemma in low technology sectors Dynamic capabilities

• Food and FMCG industries #18 - Purpose
Understanding To provide a coherent framework which can
• The paint and photographic industries Your Firm’s Core both integrate existing conceptual and
Competencies in David J. Teece
empirical knowledge and facilitate
• The innovation dilemma in low-tech sectors is even worse than an Innovative prescription.
Market feat. - Assumption
high tech sectors David Teece GARY PISANO
Firms can achieve and sustain competitive
https://www.yout
advantage by developing the dynamic
ube.com/watch?v
capabilities approach to address rapidly
=SHjM3ijMwEg changing environments.
AMY SHUEN

Dr. Nguyen Thi Hanh Dr. Nguyen Thi Hanh

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Dynamic capabilities - How, then do firms escape Dynamic capabili es

from the innovation dilemma?
- Incremental innovation reinforces the capabilities of
established organisations, while radical innovation forces
them to draw on new technical and commercial skills.
- Thus the organisation learns that it has dynamic
capabilities.
- Firms that have dynamic capabilities, that is, those routines
that relate to the creation of new products and services, are
able to change ‘old’ routines with ‘new’ ones.
• The term dynamic refers to the capacity to renew competences so
as to achieve congruence with the changing business environment.
• The term capabilities emphasizes the key role of strategic
management in appropriately adapting, integrating, and
reconfiguring internal and external organizational skills resources
and functional competencies to match the requirements of a
changing environment.
• The term dynamic capabilities refers to the firm’s ability to
integrate, build, and reconfigure internal and external competences
to address rapidly changing environment.
• Dynamic capabilities implement the change of old routines with new ones.
Dr. Nguyen Thi Hanh

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Pearson’s uncertainty map

Teece, D. J. (2018). Business models and dynamic

capabilities. Long range planning, 51(1), 40-49.
(Pearson, 1991)
Dr. Nguyen Thi Hanh Source: Pearson, A.W. (1991) ‘Managing innovation: an uncertainty reduction process’, in Henry, J. and Walker, D. (eds), Managing Innovation, Sage/OU.

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Managing uncertainty Pearson’s uncertainty map

• The raison d’être of managers - develop something different, • Quadrant 1 - a high degree of uncertainty about means and ends
– Ex: Microso conducts the majority of its research in Sea le, United States.
maybe something new .
• Quadrant 2 - the end or target is clear but, the means of fulfilling this has
• Managing uncertainty is a central feature of managing the yet to be established
innova on process. (Pearson, 1983) – Guinness ‘In-can system’
• Quadrant 3 – discover how the technology can be used most effec vely
– material kevlar
• Quadrant 4 - improving exis ng products or crea ng new products through
the combina on of a market opportunity and technical capability
– Samsung

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Business pioneers in technology

If most new products are minor modifications of existing products, why do firms
continue with high-risk, high-cost projects?
What can we learn from some of the most
successful technology pioneers?

Source: Nemanja Cosovic/Shutterstock

Mark Zuckerberg and Bill Gates both
established their businesses as 19 year olds.

Yet, Huawei was started by a 43-year-old.

Steve Jobs returned to Apple later in his career

to help turnaround the firm into the success it is Source: whiteMocca/Shutterstock

today.

Young or older knowledge of the industry in

which you want to succeed seems critical.

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Matrix of complexity of architectural/component knowledge A two-dimensional typology of innova on projects

Source: Henderson, R. and Clark, K. (1990) Architectural innovation: the reconfiguration of existing product technologies and the failure of established firms, Administrative Science
Quarterly, vol. 35, no. 1. Reproduced with permission of Johnson at Cornell University.

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Organization innovation Organization innovation

• Crea ve enterprises are businesses that focus on innova on,
this is not only reflected in the successful implementa on of a
new solu on, but also in the culture of the enterprise, which is
how every employee in the organiza on thinks and acts about
innova on as a daily habit.

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Organization innovation Innova on work space

Firms Core Innovation capability
Apple Leadership creativity
Google Encourage employees to freelance research
Samsung Product development speed
Procter & Gamble Make good use of external technologies
IBM Patent collaboration and sharing
BMW Design
Starbuck Understanding customers and their culture
Toyota Understanding customers and their culture

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Table 4.1 Innovation management measurement areas

Innovation stimulus, capacity and performance

Framework category Measurement area

Inputs People
Physical and financial resources
Tools
Knowledge management Idea generation
Knowledge repository
Information flows
Innovation strategy Strategic orientation
Strategic leadership
Organisation and culture Culture
Structure
Portfolio management Risk/return balance
Optimisation tool use
Project management Project efficiency
Tools
Communications
Collaborations
Commercialisation Market research
Market testing
Marketing and sales
Source: D.I. Prajogo and P.K. Ahmed (2006).

Source: Adams et al. (2006).

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Apple - Innova ve organiza on Critical factors for innovation success

Source: van der Panne et al. (2003).

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Innovation management measurement areas

If we know what organisational characteristics are required for

innovation, why are not all firms innovative?

Source: Adams et al. (2006).

Dr. Nguyen Thi Hanh

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Technological linkages among different types of firms

Source: Pavitt, K. (1994) Sectoral patterns of technological change: towards a taxonomy and theory, Research Policy, vol. 13, 343–73.

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Organic versus mechanis c organisa onal structures Paradox of ERP systems and innova on
organisa onal requirements

Source: Slevin, D.P. and Covin, J.G. (1990) Juggling entrepreneurial style and organizational structure: how to get your act together, Sloan Management Review, Winter, 43–53.

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Key individual roles within the innovation process Innovation management tools and methodologies (1 of 2)

Source: Based on Roberts, E.B. and Fushfield, A.R. (1981) Staffing the innovative technology-based organisation, Sloan Management Review, Spring, 19–34. Source: Hidalgo and Albors (2008) and Coombs et al. (1998).

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Innovation management tools and methodologies (2 of 2)

ISO 56002

Source: Hidalgo and Albors (2008) and Coombs et al. (1998).

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What is the annual level of investment in R&D/ innovation?

An Innovation Audit
Growth targets?
What percentage of sales are derived from products/services
Innovation Management System– ISO 56002:2019
introduced in the past three years?

• ISO (The International Organization for Standardization) – the

What model of innovation is used?
international standards organization is an international
What level of time is provided for staff to improve existing operations standard-setting body that sets commercial and
and or develop new products/services?
industrial standards on a worldwide scale.
What is the firm’s innovation heritage?
• ISO issued the Innovation Management System
Implementation Guide – ISO 56002:2019 in July 2019.
How effectively does the firm tackle the innovation dilemma?
• This system consists of 7 main elements: Context, leadership,
How does the firm incorporate innovation within its operations
processes?
planning, support, organization operation, evaluation and
improvement.
What strategic alliances does the firm have?

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Innovation Management System – ISO 56002:2019 Innovation Management System– ISO 56002:2019
Enterprise context
• Operation: Is the process of implementing innovation,
Leadership
including the process of realizing that idea and
commercializing it. The basic process from finding
Operation opportunities, problems -> ideas -> selecting ideas ->
IDEAS VALUE
Innovation process prototypes -> Testing…
• Evaluation: The operation of the innovation system should be
Support assessed to identify strengths and weaknesses
Plan Check
• Improvement: based on evaluation, the system can be
upgraded to overcome weaknesses.
Improvement

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Innovation Management System– ISO 56002:2019 Innovation principles

• Context: Enterprises need to pay a en on to trends, internal and 1 Realization of Value
external factors, for example: User experience, internal capabili es,
Future-Focused Leader
opportuni es and challenges 2

• Leadership: Based on understanding of the context, managers 3 Strategic Direction

need to demonstrate leadership and commitment to innova on
through vision, strategy, policies, and regula ons on innova on. 4 Innovation Culture

• Planning: Innova on goals, organiza onal structure and innova on 5 Exploitable Insights
por olio need to be established by management from the
beginning 6 Managing Uncertainty

• Support: Factors suppor ng innova on need to be established: 7 Adaptability

personnel, finance, tools as well as intellectual property protec on
8 Systems approach
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Realization of value Strategic direc on

– Be it financial or non-financial value, it is recognized through
implementation, dissemination and social impact on stakeholders.
– Include social value and economic value or build competitiveness
For example:
– Many enterprises invest in R&D but cannot commercialize their
products, many studies show that investment in R&D has no
relationship with business performance of enterprises.
– Therefore, R&D alone is not enough.
• Strategic direction
– Drive innovation activities based on vision, and strategic goals to
support timely and right resource allocation.
– Successful teams spend 54% of their working time discussing and
devising strategies that match available resources.
For example:
– Discuss strategic direction before the state providing examples of
innovation opportunities and categories

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Future-focused leaders Innovation Culture

– Leaders at all levels should be curious and interested in innovation, • Innovation Culture
face challenges as opportunities, continuously motivate people – Shared values, beliefs, behaviors and openness to change, taking
through visions and goals, and inspire creativity to achieve their risks, collaborating and creating.
goals.
– Open-minded, acknowledged, sophisticated, committed,
For example: adventurous, cooperative, diverse, enthusiastic.
– Leaders can share their successes and failures, train mid-level staff
• For example:
and above
– Encourage diversity in the workgroup
– Encourage networking to find opportunities and solutions

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Exploi ng insights Adaptability

• Exploiting insights
– Many studies do not commercialize because they do not properly grasp the
needs of customers, the ability to search for "insight" is considered the most
important principle for businesses implementing innovation.
– The goal is to discover the perceived and unrealized needs of the customer.
• For example:
– Engage with users, customers, partners and other interested parties to exploit
their "insights" to create a unique knowledge base for the company.
– CEO, Electrolux, “Electrolux should develop their solutions based on customer
needs rather than on company technology and skills”, Hans Stråberg
• Adaptability
– The business environment is always changing, so businesses need to
change to adapt to the environment
– Requires organizational structure, operating processes, value
recognition model to be flexible and change over time
• For example:
– Create the organizational structure to serve the future context,
prepare for the transformation, the necessary structures and
resources

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Managing uncertainty Adaptability

• Managing uncertainty
– Uncertainty and risk are assessed, controlled and managed through
an iterative testing system and with portfolio management tools.
– Lean startup model “Build – measure – evaluate – Learn”
• For example:
– Support experimentation and risk taking, that you soon, success
soon.
– Build an innovation portfolio
Convert assumptions
into knowledge

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Systems approach
• Systems approach Choose an organization, carry out the necessary search (quick)
– Innovation management is based on a systems approach with answer the question (Please answer the question with evidence):
endogenous and exogenous factors, and the system should be Should the organization have ISO 56002 certification?
regularly evaluated and upgraded.
• For example:
– Ensure all relevant functions are present to assist the organization in
implementing an effective governance system

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Innova ve within company

Innovation leaders

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Characteristic traits of
Ac vity: Innova on leaders
good leaders
Each group search the web and find examples of innovation leaders and what they
do, what they seem to focus on, how they lead? And what don’t they do? • bright, alert and intelligent;
• seek responsibility and take charge;
• skillful in their task domain;
• administra vely and socially competent;
• energe c, ac ve and resilient;
• good communicators.
E.g. Steve Jobs an entrepreneur who revolutionized six industries: personal
computers, animated movies, music, phones, tablet computing, and digital BUT
publishing; OR
Larry Page (Google), Jeff Bezos (Amazon), Bill Gates (Microsoft), etc. There is no brief and universal list of enduring traits that
all good leaders must possess under all condi ons.

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Innovation leadership
Key points
1.We have many tools to assess the level of innovation within a firm.
2.Large asset management firms place bets on innovative firms by expecting
3.Future returns.
4.We know many of the organisational characteristics that are necessary for
Reviews of research on leadership and performance suggest leadership directly 5.Innovation to occur.
influences:
6.Firms have to manage the innovation dilemma.
• Around 15% of the differences found in performance of businesses;
7.Managing uncertainty is key here.
• Contributes around an additional 35% through the choice of business strategy;

• So directly and indirectly leadership can account for half of the variance in
performance observed across organizations.

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