Innovation @ Merage - UCI Paul Merage School of Business : Management Processes, Organization/Staffing

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

Rethinking Marketing

admin — Tue, 30 Mar 2010 22:18:00 GMT

Abstract: In order to maintain a competitive advantage in various industries it is important for companies to shift strategies and structure across the organization to be customer centric. In the past, companies have focused on vastly dispersing information to market their products to customers; however, companies are now shifting their marketing strategies to construct a two-way relationship between businesses and consumers. To implement this change, companies have transformed their marketing departments into “customer departments” and have replaced the CMO with a Chief Customer Officer (CCO). The CCO’s responsibility is to execute the company’s customer relationship strategy and oversee all “customer facing functions”. Rust, Moore, and Bhalla found that successful CCO’s removed obstacles that obstructed the flow of customer information throughout the organization. Brand Managers must become customer managers and no longer be focused solely on the sales of their products, but more globally on what the customers are asking for which will result in higher profits for the company. Lastly, functions such as market research, research and development, customer relationship management, and customer service must shift focus from their independent silos to cultivating customers for the entire company. The implementation of a customer centric strategy will result in new incentives based on customer lifetime value metrics in order to maintain sustainable health for the company. This strategic shift will soon be the only way to sustain a competitive advantage.

Authors: Roland T. Rust, Christine Moorman, and Guarav Bhalla

Published: January – February 2010

Link: Harvard Business Review

Using Network Analysis to Build a New Business

admin — Thu, 28 Jan 2010 19:52:00 GMT

Abstract: As organizations become more global, it is important to explore network connectivity internally and externally. Often employees collaborate with those that they already know and feel comfortable with; however, it is essential to build value-added ties effectively and efficiently to reap maximum benefits. This article explores ways in which employees can create and leverage networks as a means to promote collaboration and innovation. For example, it suggests that well connected people in the organization who are seen as opinion leaders for specific topics should be publicized as experts throughout the organization. By organizing a bi-weekly status call and encouraging members to make connections with at least one peripheral partner, an organization can improve cohesion by 20% within the network.

Authors: Rob Cross, Ana Dutra, Bob Thomas, and Carrie Newberry

Published: 2007

Link: Science Direct

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.

P&G's Innovation Culture

admin — Thu, 23 Oct 2008 21:22:00 GMT

Abstract: How we built a world-class organic growth engine by investing in people.

Published: Autumn 2008

Authors: A.G. Lafley with Ram Charan

Link: strategy+business

In Search of Growth Leaders

admin — Fri, 18 Jul 2008 21:08:00 GMT

Abstract: Most companies have managers who can turbocharge results. The trick is finding -- and nurturing -- them. This article is the product of three years of interviews and testing – it is a look at the characteristics and strategies that distinguish growth leaders, as well as a guide to developing such managers in any company.

Published: Wall Street Journal, July 7, 2008

Authors: Sean D. Carr, Jeanne M. Liedtka, Roberts Rosen, Robert E. Wiltbank

Link: http://online.wsj.com/article/SB121441083243003809.html

How to Pick Managers for Disruptive Growth

admin — Tue, 29 Apr 2008 13:20:00 GMT

Abstract: "Right Stuff managers may be entirely wrong to lead a new-growth business. An excerpt from The Innovator's Solution by Clayton M. Christensen and Michael Raynor."

Published: Harvard Business Working Knowledge, October 23, 2003
Authors: Clayton Christensen and Michael Raynor

Link: http://hbswk.hbs.edu/item/3712.html

Measuring the Performance You Want

admin — Wed, 19 Mar 2008 23:58:00 GMT

Measuring the Performance You Really Want

By Jone L. Pearce
Professor of Organization and Management

There is no doubt about the importance of accountability, but accountability for what, exactly?

The power of what is measured to drive performance is clear. The difficulty is not in understanding this but knowing how to set up job performance measures you really want. Perfect measurement of employee performance is very rare in practice. If it were possible, organizations could hire contractors rather than employees. This means the popular hope expressed in the box below is nearly always a false hope.

True or False?
We just need to design a better performance measurement system.

We have employees because we cannot precisely measure everything we might want from them in advance, and we will always depend on their willingness to exercise good judgment. But we still want employees to have clear expectations about what they should do and be accountable for their actions. This dilemma can be addressed in part by carefully avoiding the following impediments to measuring the employee performance we really want.

MEASURING QUALITY

The measurable actions and performance outcomes are not always the actions and performance outcomes most needed. A rigid adherence to what is most measurable can result in goal displacement: neglect of what you really want to achieve in favor of what is most easily measured. This can lead to serious problems for organizational performance.

One form of goal displacement is a sole focus on performance quantity because it is easily measured: sales volume, deadlines met, earnings targets exceeded, and the like. For most jobs, these outputs should be measured.

However, alone they are incomplete measures of most jobs because they say nothing about performance quality, something that usually requires someone’s subject judgment after the fact. Sales volume may be important, but not if it comes from front loading the orders and so robbing sales from the next reporting period. Deadlines must be met, but not by producing incomplete and thoughtless reports.

Furthermore, if good job performance is defined solely as numeric targets, no one should be surprised if employees produce quantity without helping customers and co-workers, problem-solving, and exercising good judgment. They are just doing what they have been told the organization really wants.

Goal displacement can be avoided by assessing performance quality and contextual performance along with quantity measures. For example, sales associates might also be judged on the number of calls to clients and client evaluations of the associates. Examples of good judgment and citizenship can be recorded and discussed during feedback sessions.

However, quality and behavioral assessments can rarely be specified with the same precision as performance quantity measures. Assessments of work quality and employee effort often rely on someone’s judgment, and so are subject to interpretation and dispute. Such measures will be contentious and never perfectly satisfactory to everyone. Recognizing the imperfection of job performance measurements is fundamental to managerial maturity.

MEASURING INNOVATION

Specific, difficult goals encourage employees to meet these goals, but because innovation is inherently unpredictable and unknowable, it cannot be subject to strict accountability for goals met. Such goal accountability can be interpreted as high evaluation pressure, leading to less experimentation and innovation. In practice, employees are admonished to innovate, but innovation is rarely measured.

Years ago a major bank established a program to promote innovations in new products and customer service. However, employees’ performance was still measured as meeting routine targets such as number of new customer accounts. There was little innovation. This bank’s attempt to encourage innovation is all too common: because innovation could not be defined in advance with specific goals and measures, it was left completely outside the performance management system. Organizations that say they want innovation, but hold employees accountable for what is most easily measured, will not get innovation from their employees.

Research indicates that having multiple performance measures, such as current job performance and innovation, does not impede experimentation as long as there is low evaluation pressure. Just because innovation must be assessed after the fact does not mean it cannot be assessed as part of expected job performance.

WHAT IS REALLY IMPORTANT WILL CHANGE

Change within organizations is inevitable. And change continuously undermines existing employee accountability systems.

All measurement systems decay over time, something that Marshall Meyer has called the performance paradox, showing that once a measure of performance is used to evaluate, those being evaluated will seek to improve their performance on that measure. Over time, they either learn how to perform better on that measure or are removed for poor performance and who are evaluated on that measure will do well on it. This inevitable process leads organizations to continuously add new measures that can better differentiate performance. But again, performance inevitably improves on the new measures, and so other measures should be added.

Performance paradox is why we often find very baroque measurement systems, as evaluators constantly seek to discover the better performers, and performers constantly seek to improve on their performance measures. Over time, measurement systems can become extremely elaborate and complex, with ever more time and resources devoted to maintaining them. The more performance measurement is used to differentiate employees, the more severe this decay will be.

Too often, this ratings inflation is not correctly attributed to the external cause of the performance paradox, but is falsely attributed to soft-hearted performance raters. This mistaken internal attribution has led to attempts to force dispersion (i.e., must have high and low performers in a predetermined distribution) on a measure on which all employees are actually performing identically. Such strongarmed human resources policies are rightly decried as arbitrary and unfair by both the employees and the managers rating their performance.

These forced performance distributions are all too frequent, and as Marshall Meyer has persuasively demonstrated, based on an ignorance of the inevitable decay of all measures used to differentiate performers. It is fairer and more credible to add new measures than to force a distribution of ratings on a performance measure with no actual differences between high and low performers.

Inevitably, attempts to change and adapt organizations are undermined by existing employee measurement systems. The more detailed the performance management system, and the more specific the goals, the greater the likelihood that existing accountability systems will undermine change. The more sophisticated and elaborate the measurement system, the more resistant everyone is to changing it.

How exactly will employees need to allocate their efforts on these new initiatives? Employees worry about how they will fare under new systems. If the new performance measurement system is not calibrated correctly, will they still be judged fairly? Furthermore, change requires managers and employees to devote considerable time to redesigning performance measurement systems, and this takes time away from other job responsibilities.

Tips on Performance Quality:

• Approach performance measurement as you would diagnose any quality improvement effort: use process flow charts and cause-and-effect diagrams to identify wasteful practices, rework, sources of conflict, and opportunities for improvement.
• Performance problems should first be viewed for any possible problems in system design rather than rushing to blame individuals.
• Initiative, quality and innovation should be identified as necessary components of job performance, and examples of successful performance should be identified and discussed during performance reviews.
• Employees should be held accountable for quality improvement suggestions as well as for quantitative performance goals.

Influence of Founding Teams' Affiliations

admin — Wed, 19 Mar 2008 23:57:00 GMT

The Influence of Founding Teams’ Affiliations on Company Behavior

By Christine Beckman
Assistant Professor of Organization and Management

What type of management team impacts a new company the most?

This paper argues that the composition of a company’s founding team—in particular, the prior affiliations of team members—shapes the behavior of new companies.

Firms with founding teams whose members had worked at the same company engage in exploitation, meant in its most positive context, because they have shared understandings and can act quickly. Conversely, founding teams whose members have worked at many different companies have unique ideas and contacts that encourage exploration. In addition, firms whose founding teams have both common and diverse prior-company affiliations have advantages that allow them to grow.

The terms “exploration” and “exploitation” have been used broadly to capture a wide array of a firm’s actions and behaviors. Exploratory behaviors are those that increase variance and generate internal variety (1). Exploration involves radical innovation, creating new markets and products, frequent change and discovery (2).

Exploitive behaviors are variance-decreasing and efficiency-oriented (3). Exploitation involves incremental innovation, implementation, refinement, routinization, local search and efficiency (4).

Although there are benefits to doing both, organizations that explore may have processes, strategies, structures and capabilities quite distinct from those engaging in exploitation (5). Existing research suggests there is an important antecedent to exploration and exploitation: managers who create the right structures or develop supportive contexts (6). How do managers decide which structure or processes to adopt?

EXECUTIVE CHOICES DRIVEN BY THE PAST

Managers bring ideas with them when they move across corporate boundaries, and an executive’s career experiences shape the range of actions she or he will consider at a new firm (7).

This study examines groups of executives that comprise a new company’s founding teams and argue that their prior experiences pre-dispose firms to engage in explorative or exploitative behaviors. In a broader sense, this view suggests that team composition both informs and constrains later action by the firm.

Prior affiliations of management team members shape company exploration and exploitation behaviors. Teams with some common prior-company affiliations share a language and a vision (8) that enable them to easily implement and routinize activities. Teams with diverse prior-company affiliations have different perspectives and points of view that enable them to develop new ideas.

Thus, firms whose management-team members have shared affiliations should be more likely to pursue exploitive behaviors such as improving on existing processes and moving new products or processes quickly to market. In contrast, firms whose teams have diverse affiliations should be more likely to pursue explorative behaviors such as investigating multiple ideas and becoming technical pioneers.

MIX OF DIVERSE AND COMMON TEAMS

Overall, this study develops the concept of team affiliations as an important antecedent to corporate exploration
and exploitation. Imagine two engineers from the same company deciding they should exploit an innovation that their current employer is not exploiting. Or imagine two sales representatives from different firms comparing notes and deciding to take advantage of a market opportunity that neither firm has acknowledged. The experiences of the individuals shape the ideas that are considered, and the combination of experiences are thus embedded in the new firm that is created (9).

LANGUAGE, CULTURE AND NARRATIVES

Founding team members with prior common-company affiliations have a shared language, culture and narratives. A shared language suggests a common perspective and trustworthiness (10). A shared organizational culture provides a common frame of reference, a shared vision and set of goals, and a conceptual filter that helps generate expectations about work (11). A shared narrative suggests that people from the same company will have many of the same stories and examples of appropriate and inappropriate behaviors.

In fact, common work experiences affect the development of shared benefits and culture as well as firm performance (12). Eisenhadt and Schoonhoven, in 1990, found that founding teams with joint prior work experience had higher levels of growth than teams with less overlapping experience. They discussed the cohesion stemming from managers having worked together in the past, but this study finds that this cohesion may result from shared affiliations as well as from direct experience with one another.

Hypothesis 1: Founding teams with common prior company affiliations are likely to engage in exploitive behaviors.

EXTERNAL SOURCES

Although common company affiliations may give a team shared understandings, firms also need access to external social capital to improve the amount of available information. External social capital refers to the actual and potential resources, outside information and new ideas obtained through external ties (13). Although common prior affiliations build internal communication, diverse prior affiliations provide new insights and knowledge that allow firms to pursue explorative, innovative behavior. External social capital increases the heterogeneity of available information, encourages deeper deliberations and discussions about the reasons for variety, and can result in debate and the surfacing of new alternatives (14).

Access to information, contacts and perspectives from a diverse set of company affiliations should encourage and facilitate exploration and innovation. Explorative behaviors include efforts to win a technology race in a new niche or to gain competitive advantage by being the first to develop new, hitherto unproven, technologies. When founders come from a range of prior companies, the common knowledge they share includes broader market issues.

Hypothesis 2: Founding teams with diverse prior company affiliations are likely to engage in explorative behaviors.

MANAGING EXPLORATION AND EXPLOITATION

Firms capable of both exploring and exploiting do better than firms rooted in either one (15). Research by He and Wong in 2004 found companies that had both strategies had higher growth rates than other firms.

Within a larger ambidextrous organization, the parallel operation of exploring and exploitation units can lead to exploration and exploitation at the organizational level. Entrepreneurial firms, however, are more likely to exist as a single business unit.

The question, then, is whether the same team can engage in both behaviors. Studies cited above suggest that engaging in both exploration and exploitation may be particularly difficult. The pattern of affiliations in a founding team may be important for understanding which firms are able to do both and, thus, this pattern may be important for understanding a company’s performance.

Diversity of poor affiliations alone will not improve performance because diversity encourages innovation but not implementation. Common prior affiliations alone will not improve performance because shared affiliations promote efficiency but not new discoveries. Teams with both common and diverse prior company affiliations will have the shared understandings to efficiently transmit knowledge and the unique perspectives to support innovation and change.

Firms whose founding teams have both common and diverse affiliations will be more likely to recruit managers with both types of affiliations and will both explore and exploit over time.

Hypothesis 3: Firms whose founding teams have both common and diverse prior company affiliations will have higher levels of performance.

METHODS OF THIS STUDY

Data for this paper were drawn from a longitudinal study of 141 young high-technology firms in Silicon Valley, particularly those in computer hardware and software, telecommunications, medical and biological technologies, manufacturing, research and semiconductors. Sampled firms had at least ten employees and were no more than ten years old.

Trained MBA and doctoral students conducted semi-structured interviews with a member of the founding team of each firm to learn about their founding teams. Sixty-four percent of the firms reported that their founding teams evolved before the companies were formed. The study controls for factors such as industry and whether the firm receives venture capital funding.

CONCLUSIONS

The results support the hypothesis and suggest that prior company affiliations of a founding team predict whether a firm pursues exploratory and exploitive behavior. Firms whose founding teams have both types of affiliations are more likely to grow over time.

This article indicates that teams are more constrained by history than current work suggests and that differences in firm exploration and exploitation are built in when the team is formed. Thus, ambidextrous firms may be those whose teams have significant common and diverse experiences when they were formed.

These results confirm that initial starting positions shape the potential for change and growth (16). The link between firm growth and founding team affiliation is consistent with the path of dependencies of learning. Furthermore, research indicating that the founding teams are generally formed for reasons of convenience (17) suggest a founding team’s ability to support innovation and incremental learning may be an accident of founding.

These findings also contribute to network theory in important ways. In addition to shared norms developing through close relationships, shared values and understandings develop through identification and experience with a common former organization, even if employees did not work for the organization at the same time.

This research suggests that managers pay more attention, during the company’s founding, to creating a team with both common and unique priorcompany affiliations. This is not to say that, without such initial team planning, history dictates a firm’s outcomes. This research suggests that rather than focusing solely on functional experience, race, or gender, managers should consider more subtle experiences that shape perceptions and alters team dynamics: prior company affiliations.

By examining the antecedents of explorative and exploitative behavior in organizations, this article develops links between the team and the firm’s levels of analysis. Team-level priorcompany affiliations, and experiences more generally, influence company-wide choices and behaviors. Firms that have founding teams whose members have both diverse and common affiliations are more likely to grow over time. This suggests that team composition is an important part of a company’s ambidexterity.

Footnotes:
(1) McGrath, 2001; Tushman and Smith, 2002.
(2) Katila & Ahuja, 2002; Miner, Bassoff & Moorman, 2001 Rosenkopf
and Nerkar, 2001.
(3) March, 1991.
(4) Beckman, Haunschild and Phillips, 2004; Benner & Tushman,
2003; March, 1991, March, 2001.
(5) Benner & Tushman, 2002; Katila & Ahuja, McGrath, Rosenkopf &
Almeida, 2003.
(6) Brown & Eisenhardt, 1997; Gibson & Birkenshaw, 2004; Smith &
Tushman, 2005; Tushman & O’Reilly, 1996.
(7) Baty, Evan & Rothermel, 1971; Boeker, 1997; Kraatz & Moore,
2002, Sorensen, 1999.
(8) Nahaouet & Ghoshal, 1998.
(9) Thanks to an anonymous reviewer for making this point.
(10) Tsai & Ghoshal, 1998.
(11) Nahapiet & Goshal, 1998
(12) Baron, Burton & Hannan, 1996; Chattopadhay, Glick, Miller &
George, 1999.
(13) Adler & Kwon, 2002
(14) Beckman & Haunschild, 2002
(15) Gibson & Birkinshaw, 2004; Katila & Ahuja, 2002; Tushman & O’
Reilly, 1996.
(16) Levinthal, 1997.
(17) Ruef, Aldrich & Carter, 2003.