Innovation @ Merage - UCI Paul Merage School of Business : Management Processes, Ideation

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

Motivating Innovation

Charlie Baecker — Tue, 17 Jan 2012 19:38:00 GMT

Motivating innovation is a critical part of designing incentives. Some previous research has shown that shareholders often must motivate managers to pursue more innovative business strategies. Gustavo Manso examines aspects of an incentive structure in his paper, “Motivating Innovation.”

Manso finds that the optimal incentive scheme motivates innovation by exhibiting substantial tolerance for early failure and reward for long-term success. Additional critical components to encourage innovation and new ideas include commitment to a long-term compensation plan, job security and timely feedback on performance. Furthermore, in regards to managerial compensation, Manso writes that this incentive program can be implemented into an organization via a combination of stock options with long vesting periods, option re-pricing, golden parachutes and managerial entrenchment.

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

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.

Surviving Change: Kodak's Instant Marketing Transformation

admin — Mon, 09 Jun 2008 23:36:00 GMT

Abstract: How did Kodak survive the digital transformation of the photography business that used to represent 70% of their business? By focusing on growth and including accountability as part of its innovation framework.

Published: May 14, 2008

Author: Peter Paul Roosen and Tatsuya Nakagawa

Link: IndustryWeek