Innovation @ Merage - UCI Paul Merage School of Business : Leadership Style, Innovation

Are Overconfident CEOs Better Innovators?

Charlie Baecker — Thu, 07 Jun 2012 18:01:00 GMT

Paul Merage School of Business professors, David Hirshleifer and Siew Hong Teoh, were recently featured in Forbes for the paper they co-authored with Angie Low entitled, “Are Overconfident CEOs Better Innovators?”

ABSTRACT: Previous empirical work on adverse consequences of CEO overconfidence raises the question of why firms hire overconfident managers. Theoretical research suggests a reason, that overconfidence can benefit shareholders by increasing investment in risky projects. Using options- and press-based proxies for CEO overconfidence, we find that over the 1993 to 2003 period, firms with overconfident CEOs have greater return volatility, invest more in innovation, obtain more patents and patent citations, and achieve greater innovative success for given research and development expenditure. Overconfident managers only achieve greater innovation in innovative industries. Our findings suggest that overconfidence help CEOs exploit innovative growth opportunities.

Paper

Creating Value Through Business Model Innovation

Charlie Baecker — Thu, 15 Mar 2012 21:41:00 GMT

Raphael Amit and Christoph Zott highlight “business model innovation as a way for
general managers and entrepreneurs to create and appropriate value” in their paper
“Creating Value Through Business Model Innovation.” According to the authors,
business model innovation focuses on “how to do business,” as opposed to questions such
as “what product to bring to the market”, “when and where to enter the market” or “what
differentiates the firm and its product in the market?” We offer managers and
entrepreneurs a conceptual primer on business model innovation emphasizing the
importance of activity system thinking.

They believe that innovation should not be simply about new product lines or improved
processes, but also relate to “the firm’s activity system, specifically, its content, structure
and governance.” Their findings show that in a highly interconnected world, particularly
one where financial resources are scarce, “entrepreneurs and managers must look beyond
the product and process and focus on ways to innovate their business model.” This type
of “fresh” business model can “create and exploit opportunities for new revenue and
profit streams,” which can work to counteract an aging model that has historically tied
the firm down with declining revenues and pressures on profit margins.

In this regard, the authors suggest that managers ask themselves the following six key
questions about their business models: (1) What perceived needs can be satisfied through
the new model design? (2) What novel activities are needed to satisfy these perceived
needs (business model content innovation)? (3) How could the required activities be
linked to each other in novel ways (business model structure innovation)? (4) Who
should perform each of the activities that are part of the business model (e.g., the focal
firm or a partner), and what novel governance arrangements could enable this structure
(business model governance innovation)? (5) How is value created through the novel
business model for each of the participants? and (6) What revenue model fits with the
firm's business model to appropriate part of the total value it helps create?

The authors believe that addressing the aforementioned six questions can help “managers
see their firms’ identities more clearly, in the context of the networks and ecosystems in
which their firms operate.” Adopting such a clear business model perspective will assist
managers in purposefully structuring the “activity systems of their firm in the context of
other firms and economic agents in their ecosystems.” They conclude that “this
purposeful design and structuring of business models, which encompasses internal as
well as boundary-spanning activities, are key tasks for general managers and
entrepreneurs and can be an important source of innovation, helping the company look
beyond its traditional sets of partners, competitors, and customers. Most importantly,
perhaps, this approach encourages systemic and holistic thinking when considering
innovation instead of concentrating on isolated, individual choices. The message to
managers is clear: when you innovate, look at the forest, not the trees – and get the
overall design of your activity system right before optimizing the details.”

Paper:
http://www.management.wharton.upenn.edu/amitresearch/docs/2012/Amit_Creating_Val
ue_Business_Model_Innovation.pdf

Incentives to innovate and social harm: Laissez-faire, authorization or penalties?

Charlie Baecker — Tue, 17 Jan 2012 19:39:00 GMT

When private actions generate harmful externalities, previous research has shown that public intervention can improve welfare if it appropriately trades off social harm reduction with enforcement costs. On the flip side of this, however, public intervention may thwart the firm’s incentives to undertake research by reducing its expected profitability, depending on the approach used.

Giovanni Immordino, Marco Pagano and Michele Polo consider public policies and approaches that may affect a firm’s effort to discover new technologies and the actual use of that technology once discovered in their paper, “Incentives to innovate and social harm: Laissez-faire, authorization or penalties?” They compare four different regulatory responses: 1) laissez-faire; 2) a lenient authorization regime, where inventions can be used commercially once they are ascertained to be safe during tests; 3) a strict authorization regime, where they can be used commercially only if they are ascertained to be beneficial; and 4) a regime based on penalties, where the commercial use of innovations is sanctioned ex-post if found to be harmful.

There results indicate that the regulatory regime should become more stringent and cogent as the danger of social harm increases. In other words, “if fines are unbounded, laissez-faire is optimal if the social harm from innovation is sufficiently unlikely; otherwise, regulation should impose increasing penalties as innovation becomes more dangerous.” Furthermore, if fines are bounded by limited liability, “it is optimal to adopt (indifferently) penalties or lenient authorization, while strict authorization becomes optimal if social harm is sufficiently likely.”

Paper

The Innovation Dilemma: How to Innovate When the Market Is Mature

Charlie Baecker — Tue, 17 Jan 2012 19:24:00 GMT

Robert G. Cooper recently addressed a common issue in the present market in his article, “Perspective: The Innovation Dilemma: How to Innovate When the Market Is Mature.” If you are trying to grow your business wishes in the midst of mature, commoditized markets, this is a good article to read that discusses examples of bold innovation, which are breakthrough products, services and solutions that create growth engines for the future.

Cooper outlines five different vectors that can act as drivers of innovation. First, have a product innovation strategy that focuses your development efforts on opportunity-rich strategic arenas, much like Corning and Apple do. Second, foster the right climate and culture for innovation, driven by senior executives, as found at Grundfos and 3M. Third, set up a system to generate, capture and handle proactive ideas, similar to what Swarovski has done. Fourth, design a robust idea-to-launch stage-gate process to manage large and complex and development initiatives, which companies like P&G, Emerson Electric and Kennametal have done. And finally, do the necessary up-front due diligence and make the right fact-based investment decisions in riskier projects, such as portfolio management, much like Corning, Green Mountain Coffee Roasters and Grundfos do.

Click here for the paper to read more about these examples

Management Innovation and Leadership: The Moderating Role of Organizational Size

Charlie Baecker — Tue, 17 Jan 2012 19:20:00 GMT

Recent research on new managerial processes, practices and structures that can change the nature of managerial work show that this form of management innovation can be an important source of competitive advantage. Ignacio Vaccaro, Justin Jansen, Frans Van Den Bosch and Henk Volberda hone in on this research at the organization level in their paper, “Management Innovation and Leadership: The Moderating Role of Organizational Size.” Because top management has the ability to influence such management innovation within organizations, the authors investigate the role of leadership behavior.

They define two forms of leadership: transformational and transactional. They see transformational leadership as being “aimed at the followers’ identification with its purpose and common goals. It stimulates employees to attain to organizational goals by appealing to high-level needs for self-actualization.” Through its four dimensions of idealized influence, inspirational motivation, intellectual stimulation and individual consideration, transformational leadership can affect all facets of management innovation. Transactional leadership, on the other hand, involves leaders who are “primarily concerned with gaining compliance from subordinates – which they will do by targeting their self interest – by agreeing upon the conditions and rewards that will follow the fulfillment of certain requirements. With two dimensions of contingent reward and active management by exception, transactional leadership is also positively related to management innovation within an organization.

The authors further find that organizational size moderates the effectiveness of both transformational and transactional leadership on management innovation. Their results indicate that the effectiveness of transformational leadership increases with organizational size. In contrast, smaller, less complex benefit from transactional leadership when realizing management innovation.

Paper

Innovation Lessons from Pixar: An Interview with Oscar-winning Director Brad Bird

admin — Thu, 17 Feb 2011 02:58:00 GMT

Abstract: Brad Bird, Pixar’s two-time Oscar-winning director hands-on approach to encouraging creativity among animators provides many lessons for any executive hoping to nurture innovation in teams and organizations. Bird joined Pixar in 2000 and won Academy Awards (best animated feature) for two groundbreaking movies, The Incredibles and Ratatouille. Brad Bird was attracted to Pixar because the one thing that was unbelievably different about the company was that the heads of Pixar were worried about directors becoming complacent with their success.

Brad Bird’s first Project, The Incredibles was all about shaking things up and involved everything that computer-generated animation had trouble doing. With artists who were known for doing things differently than told, Brad Bird changed the way a number of things were done at Pixar. This was possible because the heads of Pixar allowed Brad Bird and his team to try crazy ideas. As a result, Brad Bird and his team made the movie that had three times the number of sets for less money per minute than was spent on the previous film - Finding Nemo.

This article concludes that the first step in achieving the impossible is to believe that the impossible can be achieved.

Published: McKinsey Quarterly, April 2008

Authors: Hayagreeva Rao, Robert Sutton, and Allen P. Webb

Link: Innovation Lessons from Pixar

China’s Drive for 'Indigenous Innovation' - A Web of Industrial Policies

admin — Thu, 17 Feb 2011 02:28:00 GMT

Abstract: This report published by U.S Chamber of Commerce concludes that China’s plan for “Indigenous innovation” is a massive plan to turn the Chinese economy into a technology powerhouse by 2020 and a global leader by 2050. Central to the plan is to trade market access in exchange for know-how and technology.

The report conclusion is that the indigenous innovation campaign and its corresponding industrial policies represent the beginning of a new phase in the US-China economic and political friction.

Published: U.S Chamber of Commerce Report

Link: China's Plan for Indigenous Innovation

Crafting Organizational Innovation Processes

admin — Thu, 21 Jan 2010 00:19:00 GMT

Abstract: Very few organizations have defined processes to plan innovative company initiatives. In this article over thirty US and European companies that have specific innovation processes in place are studied. These processes are broken down into stages as follows: idea generation and mobilization, screening and advocacy, experimentation, commercialization, and diffusion and implementation. At each stage tensions and innovation strategies are discussed in order to achieve a successful innovation process framework. Managers must pay attention to operational details and create a learning focused environment so employees feel empowered to explore. They must also balance between loose and controlled idea generation within the organization.

Authors: Kevin C. Desouza, Caroline Dombrowski, Yukika Awazu, Peter Baloh, Sridhar Papagari, Sanjeev Jha, and Jeffrey Y. Kim

Published: April 2009

Link: Innovation Enterprise

Consequential Strangers: The Power of People Who Don’t Seem to Matter…But Really Do.

admin — Tue, 20 Oct 2009 19:53:00 GMT

By Melinda Blau and Karen L. Fingerman, W.W. Norton (2009). While this book builds on the established notion of weak ties being valuable information sources, it also offers a handful of insights into how those weak ties work in innovation. It starts with a simple self test: a list of 22 occupations. You check off whether you’re related to someone in that field, are friends with someone, or just know them as what you might call acquaintances—someone you could talk to. Most people know people in about six or seven of the occupations—the best performer could check off 19. According to Blau and Fingerman, the more of them you know, the more likely you are to get diverse experience, ideas, and more tools for solving problems. It even works virtually. When InnoCentive posted scientific inquiries, within four years 80,000 people had signed up—and the best solutions came from diverse groups of scientists in a variety of fields. This book is eye-opening on a personal level (you’re more likely to find a new job through these consequential strangers in your network than through friends and family), and it offers a number of examples that reinforce the importance of diverse opinions in creating breakthrough ideas. I’d give it an 8.5 on the LL Innovation Meter for anyone who wants to increase your own effectiveness or that of your team.

Do You Matter? How Great Design Will Make People Love Your Company

Lynda Lawrence — Wed, 17 Jun 2009 23:30:00 GMT

By: Robert Brunner and Stewart Emory, FT Press (2009).

If you know anyone in love with an iPhone, you may understand the feelings that Brunner and Emery describe. According to them, this fierce devotion extends past the product to the company, and enables Apple to charge higher prices and be forgiven for any mistakes.

Does this apply to companies that don’t make the latest must-have gadget? Only if you concentrate on designing the customer experience as carefully as Apple has designed the entire experience of an iPhone purchase: the meticulous product design, the anticipation, the storytelling, the retail stores full of techies to answer questions, the exquisite packaging, the intuitive interface, the geniuses who do the set up, the follow-up emails, and the easy (and often free) downloading of thousands of apps you never realized you wanted.

If, and only if, you create a company that is focused on creating better-than-expected customer experiences, you can reap the benefits. That means top-down permission to play, no cutting corners, no incremental changes substituting for innovation (think Razr phones), quick prototyping, and even quicker response to the market (think GM).

While the recommendations are easier to apply to a product-focused company, they will apply to services. If you’re in charge of a small company that needs to innovate, or in charge of design and need to sell your ideas company-wide, this would be a good book to use.
I’d give it an 8.5 on the LL innovation meter—not a lot of new insight, but a persuasive argument.

The Designful Company: How to Build a Culture of Nonstop Innovation

Lynda Lawrence — Wed, 17 Jun 2009 23:24:00 GMT

By: Marty Neumeier: New Riders, 2009.

Despite its dreadful title, this little book is a gem. Neumeier explains why everyone should care about design (companies that win design awards have 100-200% higher returns, and must-have products are always because of good design). More important, he defines designers as everyone who makes something better, whether it’s an idea, a process or a product.

He also points out the difference between standard business thinking that measures “What is” and design thinking that posits “What could be.” Without the latter, he says, we’d all be driving the same cars and watching broadcast TV. As for getting these new ideas converted to reality, he has strong ideas about storytelling (good) and PowerPoint (bad).

Why should you care about design? Just substitute the words innovation or organizational change and you’ll see why his insights apply to just about everything you have on your to-do list for the next decade.

Definitely worth an hour of your time, I’d give it a 9.0 on the LL innovation meter. Recommended for managers, MBAs, and anyone interested in changing their organization’s status quo.

The Age of the Unthinkable: Why the New World Disorder Constantly Surprises Us and What We Can Do About It

Lynda Lawrence — Wed, 06 May 2009 23:49:00 GMT

By: Joshua Ramo: Little, Brown, 2009.

While it’s not strictly a business book, this is the best book for business that I’ve reviewed this year. It is, in fact, a whole new way of facing the future of any endeavor: Ramo suggests that the only way to deal with uncertainty is to accept that you can’t possibly predict anything.

He begins with an analogy from physics. When you methodically add single grains of sand to a pile, there is absolutely no way to tell which grain will cause an avalanche. Then, using examples from Google to Hizb’allah, he explains that no successful organization has a vision or strategic plan that can anticipate all the changes in a global and interconnected world. The successful ones, he says, are those that constantly adapt to change.

For most businesses, that attitude is too frightening to contemplate. Strategic planning, quarterly earnings projections, and overpaid executives are not guarantees of anything. Instead, he recommends that organizations think long-term, holistically and flexibly. It’s not innovation as a growth or survival strategy—it’s innovation as an organizational structure, a product and a philosophy.

This one gets a 9.8 on the LL innovation meter. I’d recommend it for anyone who wants to be part of a viable organization in the next few decades. And if any of our nation’s political leaders have the time, it should be on their reading lists as well.

Why We Make Mistakes

Lynda Lawrence — Thu, 16 Apr 2009 01:56:00 GMT

By: Joseph T. Hallinan; Broadway Books, 2009

Aside from having the cleverest (and most frustrating) cover in the history of publishing, Hallinan’s new book on the neuroscience of decision-making tells us a lot about why innovation is so hard to accomplish.

For the last couple of centuries, we’ve created a dichotomy between rational and emotional decisions, and most major decisions in business are supposedly made on purely rational terms. According to Hallinan’s research, however, there’s no such thing. Patients with brain damage that didn’t let them tap their emotions, who should have been making decisions better than Spock on Star Trek, couldn’t make even the smallest choices.

Our brains are designed to select between three and five items, and when we get more variables, we automatically revert to habit or emotion. He says you can choose a potato peeler on rational terms, but a car—not so much. Imagine then, what happens in business when you have an infinite number of variables and plenty of unknowns. Bingo. You revert to habit or emotion, and since we automatically distrust things we haven’t seen before, truly breakthrough ideas are killed. Then, of course, we rationalize those decisions because, after all, it’s business and it should be rational.

I’d give it a 9.5 on the LL innovation meter, good for anyone who has to make any kind of decision about anything. And let me know what you think about that cover.

Key Drivers for Management Innovation

admin — Tue, 17 Mar 2009 21:47:00 GMT

Abstract: The Wall Street Journal recently pronounced Gary Hamel, author of Leading the Revolution and Competing for the Future, the world's most influential business thinker. In this short video, Hamel identifies some of the key drivers that necessitate management innovation.

Published: March 2009

Link: HSM

When Service Means Survival

admin — Tue, 17 Mar 2009 20:30:00 GMT

Abstract: In a series of articles BusinessWeek explores innovative and pragmatic ways to maintain customer service in these uncertain times.

Published: March 9, 2009

Link: BusinessWeek