I want to fi nish with a key point that I started this book with:
innovation is not one thing. There are different types of innova- tion, all capable of creating new market space. Furthermore, what a company needs to do to achieve one type of innovation may be totally different from what it must do to achieve another type.
At the very minimum, innovations sort neatly into two groups. The fi rst group consists of innovations (such as product extensions or the creation of new brands) that tend to build on a fi rm ’ s existing skills, competences, mind - sets, and culture. They are neither competence - destroying nor complementary asset – destroying — instead, they are what Christensen (1997) labeled sustaining innovations. The second group consists of innovations (such as the creation of radical new products or business - model innovations) that tend to undermine the fi rm ’ s existing skills, competences, and values. They are both competence - destroying and complementary asset – destroying — what Christensen labeled disruptive innovations.
To achieve the fi rst type of innovation, a fi rm simply has to improve its existing “ organizational environment. ” By organiza- tional environment, I mean four basic elements:
The culture of the company, which includes its norms, values, and unquestioned assumptions
The structure of the company, comprising not only its formal hierarchy but also its physical set up as well as its systems (information, recruitment, market research, and the like)
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The incentives in the company, both monetary and nonmonetary
The people of the company, including their skills and attributes
It is the combination of these four elements that creates the organizational environment, which in turn supports and pro- motes the fi rm ’ s strategy of innovation.
Consider, for example, 3M, recognized worldwide as one of the most innovative companies in the world. How has 3M maintained its high level of innovation, year after year? How has its strategy of innovation been supported and promoted? A look at Figure 8.1 suggests that the answer to this question is “ by expressly designing an organizational environment that pro- motes innovation. ” The culture, structure, incentives, and peo- ple at 3M have been explicitly designed and arranged to promote innovation.
What 3M has done is only a small fraction of what a company could do to promote the fi rst type of innovation. Over the past fi fty years, academics and consultants have developed a wealth of ideas on how a company could improve its existing organizational environment to promote this type of innovation — the next box provides a (long) laundry list of ideas. But try as its people may, improving the existing organizational environment of a fi rm will not produce the second type of innovation in the fi rm ’ s own indus- try. Sure, as I explained in Chapter Seven , established fi rms have all the incentives to promote game - changing business - model innovation when they attempt to enter another industry or when they try to scale up another niche market. But when it comes to promoting business - model innovation in their own industries, this might be a bridge too far. To achieve this type of innova- tion, a fi rm needs to do much more than simply improve what it already has in its organizational environment.
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• By virtue of its incentives and culture, 3M attracts top scientists and engineers. • The company is able to recruit and retain creative people with an entrepreneurial mind-set. • Because of its dual career ladder, top scientists can coexist with top managers without internal competition.
• 3M assigns cross-functional teams to work on research projects. • Each team is headed by a “product champion” who is responsible for building culture. • One of 3M’s top managers becomes a “management sponsor” who helps the team secure resources and overcome bureaucratic obstacles. • Divisions within 3M are run as separate companies. Divisional VPs have the same responsibility as a CEO in many other companies. • Hierarchies within divisions are kept flat. • The Annual Technology Fair allows scientists to showcase their latest research findings and exchange ideas and information.
Structure
Culture • 3M policy allows employees to spend 15 percent of their time developing projects of their own choosing. • Employees are encouraged to take the initiative and are empowered to make decisions. Failure is accepted. • The pervading culture is characterized by the rule that you have to kiss a lot of frogs to find one prince. • A flat hierarchy makes people feel responsible for everything that goes on in their divisions. Incentives • The company has established career ladders for scientists that are separate from those for managers. • Teams that introduce successful new products are rewarded. • Successful new products can be spun off as separate divisions with their own profit-and-loss statements. The original product champion becomes divisional president. • 3M has set a formal goal that 25 percent of sales must come from new products. Managerial performance is measured and rewarded according to this goal.
People Innovation
Figure 8.1. Innovation at 3M.
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How to Promote Innovation
Encourage participation from everybody and from every level in the hierarchy.
Encourage experimentation and do not punish failures.
Reward good ideas.
Remove bureaucracy and encourage the fl ow of ideas and people across the fi rm.
Develop a supportive culture.
Promote innovators to signal the importance of innovation.
Systematically analyze opportunities on an ongoing basis.
Improve communications across departments and encourage
“diagonal” rather than vertical and horizontal communications.
Remember that effective innovations start small, are clearly focused, and try to do one specifi c thing.
Keep things simple—overly complicated or clever innova- tions are usually unsuccessful because they are diffi cult to adapt or change as more about them or the market is learned.
Make sure the number of projects is within the range the com- pany can digest. Too much innovative activity at one time dilutes the effectiveness of the efforts.
Concentrate on what you can do right now. Attempts as innovation “for the future” generally fail.
Focus innovative efforts on your strengths, or be prepared to build new strengths. Innovations that stray from the core become diffuse and remain ideas.
Generate an innovation-promoting corporate vision.
Establish clear and cohesive goals, objectives, and strategies.
Make sure top management and middle management agree on the desirability of the vision and objectives of an entre- preneurial strategy. In other words, make sure the strategy is supported from the top down.
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R E T H I N K I N G I N N OVAT I O N I N T H E B I G F I R M 167
Encourage management of the process of innovation, not the project.
Identify the ways in which corporate structure impedes inno- vation and correct them.
Identify the individual markets or product and service areas where there is a need for an entrepreneurial strategy.
Encourage planning and innovative activities at the lowest possible organizational levels.
Provide timely, relevant feedback on achievement toward goals.
Identify, confront, and accept the risk and uncertainty of a new venture.
Involve employees in productivity improvement efforts.
Tolerate and support specifi c types of failure.
Learn from your mistakes.
Make your strategy process democratic.
Bring the characteristics of capitalism inside the organization.
Create cross-functional teams.
Create fl at structures.
Encourage attention to the outside marketplace and competition.
Develop supportive compensation systems.
Reward and recognize exceptional performance.
Develop rewards proportionate to the risk being asked.
Encourage long-term views.
Encourage the perception of change as opportunity rather than change as threat.
Maintain a limited number of new ventures at various start- up stages at one time.
Encourage entrepreneurial efforts by making frequent and public statements in support of it.
Develop special, separate funds and spending authority over them for use by those with a proven record of innovative success.
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Create small profi t centers and provide separate budgets for new ventures.
Organize new ventures as separate entities, and keep them away from established divisional management, allowing them to be responsive and quickly adaptive.
Develop procedures to evaluate, screen, and develop new ideas and encourage middle management to keep the process moving.
Keep venture groups small to take advantage of the small- company atmosphere that will develop.
Provide freedom and funding in a controlled way, avoiding the main hazard of too much, too soon, with too little con- trol—followed by too little, too late, with too much control.
Develop procedures that systematically encourage employees to take risks.
Make sure that the entrepreneur with the vision, the per- son or group responsible for development of the new idea, remains attached to and responsible for the new idea until it is launched and is either a success or a failure.
Duplicate the climate of a small, independent, fast-growing company in as many ways as possible.
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Confl icting Skills and Attitudes
Imagine the following scenario: You wake up one morning and decide that you don ’ t like the way your seventy - year - old par- ents look. Nor do you think they live an active enough life. You decide that what they really need is a change — instead of golf, they should take up squash; instead of looking like seventy - year - olds, they should adopt a dietary and fi tness regime designed to make them look young again; and instead of spending their time watching TV, they should visit the gym twice a day. You are so determined to achieve this transformation that you invest
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R E T H I N K I N G I N N OVAT I O N I N T H E B I G F I R M 169
most of your free time, urging your parents along and giving them advice on what to do and when. In your quest to make them teen- agers again, you know no boundaries!
How silly does this sound? Yet this is exactly what academics and other advisers have been trying to do with big, established companies. Not satisfi ed with how innovative they are, we have come up with all these “ valuable ” ideas and advice to make them more entrepreneurial so that they too — like all those agile and pioneering start - up fi rms — can create new markets and lay the foundations for the industries of the future. How? By developing the cultures and structures of the younger start - up fi rms. Look, we tell them. Don ’ t you want to be like Dell or Cisco or Virgin?
All you have to do is adopt their structures, cultures, and pro- cesses. Who says elephants can ’ t dance? Just go on a diet and lose some of that excess weight, learn a few tricks from the younger fi rms, and off you go!
Unfortunately, the probability that such a thing will happen is equal to the probability that you will convert your parents into teenagers again. Zero.
The problem is not that established fi rms do not agree with these ideas or that they do not want to adopt them. To the con- trary, they will fi nd these recommendations (such as developing cultures that encourage experimentation or making their strat- egy process democratic or even developing a self - cannibalizing attitude) constructive and useful. But despite agreeing with all of this, they will not succeed in adopting these attitudes and cultures.
This is because they already have a set of skills and attitudes that they need to compete successfully in their existing busi- nesses. This set of skills and attitudes makes them good at exploi- tation, which is exactly what they need to do well in their mature businesses. Now, all of a sudden, the so - called experts want them to also adopt a set of skills and attitudes that will make them good explorers. But the skills and attitudes needed for exploration are diffi cult to maintain alongside the skills and attitudes needed
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