Monday, January 29, 2007

Stages of Maturity - Innovation in Organizations

Consider the following comment, from Jaime Green, NPower Seattle Director:
“NPower was founded here in Seattle, and the first 3-4 years, our innovation was around that startup energy, where you're inventing everything, including things that other businesses know how to do. The kind of time that you dedicate to innovation, build before you codify. But now we're moving into a stabilizing life cycle, what things we want to maintain stability around, but how to balance that with maintaining stability. Where do you prioritize, staying flexible, and how do you dynamically manage that flexibility? Get your bills out on time, the way that you deal with customers, so it's a dual challenge.”

Organizations can be tracked on an evolutionary path in terms of their innovative behavior. During the early days, the organization will likely be quite small and will be focused on getting the operations started. During this time, the focus of the organization will be to try and leverage the collective know-how of the personnel and transform these into products and services of interest. Early on, the amount of innovative behavior in the firm will be high. The entire focus of the organization will be to disrupt incumbents in the industry to carve out a niche for themselves. Moreover, the need to make an impact in the industry will be the overriding concern and will be the driving force behind the creative spirits. It is common to see organizations in this mode of operations go after almost any option or opportunity so as to showcase the skills possessed by the organizational members.

Over time, the organizations that move out of this early phase of rapid response and organizational shape-shifting have identified their core competencies and have carved out a niche in one or at most two products or services. The next phase that the organization will enter will be one of thriving on being flexible. Here, the focus will be to reuse the knowledge and experiences captured in products and services and reaping the benefits of reselling these to multiple parties. Moreover, the organization will be able to stretch the range of their operations and in doing so extend the scope and scale of the efforts, most notably the efforts in distributing products and services. So, for example, if the organization was first serving only ten clients, the focus of this stage will be to scale up to serve thirty or forty clients. It is important to note that here the focus is not so much on product innovation, but on process innovation, i.e. scaling the business processes to extend the reach of the firm. This line of thinking will be apt for only a short period. The reason is that soon there will be new firms in the marketplace, who will be trying to overthrow the firm, in the same way that the firm entered the market.

Hence, the organization will move to the third phase – adaptation. Here, the firm will focus on trying to imitate the work of the newer firms and respond to them. The focus here is not so much on scaling the product or service delivery efforts as was the case in the previous stage, but to quickly add components to the current offerings so as to keep them from obsolescence and prevent the loss of market share and clientele. During this time, the organization will realize that they need to go back to their bread and butter, the things that got them into the business in the first place – product innovation. So, efforts in the area of product innovation will start to be commissioned again, albeit in a reactive manner, based on competitors and market research.

Organizations that make it through this stage will enter the stage of exaptation. Expatation is a term borrowed from biology – it means the ability to use your existing features for novel functions. In business, that means using existing assets to create or apply to new markets, products or services that you did not know existed before. Organizations similarly will be able to innovate using their existing resources in novel ways – they will develop breakthrough innovations, most often in the context of new products or revised business models here. The challenge for the organization here will be balance between its current size and the difficulties in innovating with the large size. This is why the concept of exaptation is fitting here. The organization probably cannot shrink back down to a small size or reverse the clock. Hence, it is important for the organization to use its current structure and yet seek ways to innovate. The final stage in the model is where the organization displays agility in terms of its innovative capabilities. This will occur if the organization can sustain its capacity to innovate on a continuous basis.

There are risks is moving through the phases noted above. Most organizations get trapped in the stage of flexibility. The reason for this is that the organization has just expended a great deal of energy getting through the stage of operability and now would like to take a breather and reap the benefits of the original inventions created during the initial stage. Moreover, a comfort factor sets in as the organization realizes that it has carved out a niche, and now they do not have to consistently innovate to continue the business. Instead, they just have to scale up to redistribute the invention to as wide of a scale as possible. Failing to address that task seriously and with respect for the innovative capacities that the organization was built upon leads to stagnation at the flexibility stage. The other risk is that when organizations get trapped in the adaptability stage. Organizations may just try to imitate and continuously try to keep up with their competitors rather than work to redefine the competition. Most organizations are fearful of conducting exaptation as there is a great risk that they might fail and lose everything they have created.

Saturday, January 27, 2007

New York…New York…IBM-NYU Global Sourcing Workshop…

I just attended the IBM-NYU Global Sourcing Workshop ( at the Stern School of Business. I would like to thank Natalia Levina (Assistant Professor, NYU) for inviting me. Natalia, and her team, organized a high-impact day with an eclectic array of speakers. All details, from the logistics of getting to NY, to lodging, food, and even the closing dinner, were handled with the utmost care.

The day began with talk by Dianne Bellantoni-Sammon, Director of Global Diversity, at IBM. Dianne discussed IBM’s resourcing program, and also the various disruptive issues that need to be managed in sourcing relationships. During the Q&A session, she was asked to comment on the skills needed by business students to be successful in today’s marketplace. Not surprisingly, she cited the need to have students who can communicate effectively, argue their positions, pull the business case together, and manage relationships.

Next there were talks by prominent scholars on various themes of outsourcing research. Cynthia Beath and Rudy Hirscheim began by discussing the State of Affairs. Cynthia’s presented her analysis of the literature on outsourcing. Rudy provided a personal reflection on current happenings in outsourcing. This was followed by several sessions of talks: Working across Boundaries: Challenges and Solutions (speakers: Erran Carmel, Alberto Espinosa, Jens Dibbern, and Natalia Levina), Accounts from Offshore Providers (Anand Gopal, Kate Kaiser, and Ravi Aron), and IT Outsourcing Performance (Jeanne Ross, and Vijay Gurbaxani).

During lunch, I participated in a roundtable discussion on knowledge sharing and innovation issues in outsourcing. Members of the roundtable included: Natalia, Sirkka Jarvenpaa, Joe Rottman, Alberto Espinosa, and Manuel Arriaga. We wrestled with the idea of developing new theories for work, questioning the notion of organizational boundaries, and even the concept of culture.

The day ended with a nice wine reception, followed by dinner at Zoë. During dinner, I had entertaining discussions with Alberto and Cynthia…

Overall, an excellent event, and once again, a big thank you to Natalia…

Tuesday, January 23, 2007

Air Products, Part 3: Air Products, cont., How to use Metrics

The successful innovative environment at Air Products depends upon metrics and evaluations, and for the research project Demystifying the Link Between Innovation and Business Value, several key lessons were learned.

First, metrics are easier to devise for incremental innovation programs where one is working in a structured and well-defined space. Metrics to gauge radical innovation efforts are not easy to devise. New ideas need time and space to be developed so that applications can be fully understood. Moreover, the environments where such ideas might be deployed are also less understood than the traditional domains in which the company is operating in.

Second, metrics for innovation are normally calculated at the process level (e.g. efficiency values) or the output level (e.g. customer satisfaction, customer retention, etc).

Third, when allocating resources for innovation, most often organizations only hold managers’ responsible for spending their budgets. Instead, managers must be held accountable both for spending and returns and there must be systems in place to shape innovative ideas into useful business plans and projects.

Overall, Air Products is a model of an innovative culture created in an established industry. Their business process innovations have been dramatic and sweeping, and have created an organization with firm procedures and metrics around incremental innovation that contributes to their market success.

For more information, contact Kevin Desouza for the final report!

Monday, January 22, 2007

Air Products, Part 2: Air Products cont., Alerts and Conversations

In addition to having structures and people in place for encouraging internal innovation, Air Products also scans the environment to inform employees about developments in the industry, in markets and throughout the world. Kerri Freidl highlighted the process by which external ideas are brought into the organization. Air Products has an excellent system that uses many of the principles and goals of information science and business research. Automated tools (e.g., data retrieval systems, text mining, etc) scan several external databases (from the structured such as patent filings, to the unstructured such as blogs) for ideas and innovations. Managers have profiles and personalized alerts about key developments are sent to them individually. On average, 1000 sources are searched and over 4000 alerts are sent out per year.

Managers can then choose alerts that that are of interest, and commission background reports – backgrounders. About 50-100 backgrounders are created each year. The Technology Partnerships Group generates backgrounders by digging deeper on alerts of interest to provide a more comprehensive picture of the idea. If the idea is still appealing, the Technology Partnerships Group can generate a more detailed report – analyses. Twenty to twenty-five analyses are created each year, and these are used to facilitate structured discussion around ideas and decision making.

All these structures to encourage thoughtfulness and innovation also require opportunities for discussion, debate and cross-fertilization of ideas. Pushpinder Puri discussed the various mechanisms by which ideas get shared at Air Products. For example, a mentoring system helps incoming employees get acquainted with the innovation process. The various technical groups hold weekly symposiums and discussions where ideas are shared. In addition, there are several internal, organization-wide, conferences where ideas are put through a peer review process and chosen for discussion and presentation.

Air Products has a slogan: "Tell me more – the heart of a meaningful conversation." The organization shows this slogan demonstrates day-to-day activities.

Sunday, January 21, 2007

Air Products, Part 1: Creating Accountability for Thinking Ahead

I recently visited Air Products and Chemical Inc., in beautiful Allentown, Pennsylvania. Air Products is a gases and specialty company with about $8.8 Billion in revenues. 50% of the sales occur outside the U.S. The company is organized into its four main domains – electronics and performance materials, TGEE (Transportation Energy, Hydrocarbon Recovery, and Power Generation), Homecare, and Merchant Gases. For more details see Much of what we know today of how to extract, compress, and distribute gases has existed at some level since 1900. As noted by Jon Irven, some might argue that the only thing that changed in the delivery of gases was the color of the cylinder. Air Products has successfully and amazingly met the challenge of innovating in this highly mature, commoditized, and stagnant market. I walked away from the meeting with one major point – if Air Products can innovate, anyone can.

Consistent innovation requires leadership, and Air Products has met this challenge by forming a specific group of responsible individuals. Jeff Kramer heads up the Corporate Development Office (CDO) whose role is to (1) ensure that the company has a healthy business portfolio, (2) that the portfolio meets and exceeds investor’s profitability and growth expectations, (3) the company is well positioned to generate solid, and sustainable, returns for the foreseeable future, and (4) to critically examine performance based on internal and external comparisons.

The CDO group does not get involved in the day-to-day running of the various business units (e.g. Homecare or TGEE). Instead, the group looks to the future. The group studies new ideas that have high risks and high payoff, while of course trying balance the portfolio of opportunities. The CDO works with the Growth Board (a senior leadership team involving the COO, CFO, CTO, and VP of Corporate Development) to screen, fund, incubate, and develop future business opportunities. One of the major functions of the CDO is to engage the Senior Leaders of the organization with ideas that might be risky or radical – as was noted several times during the day, if you want senior executives to bet on risky concepts it is best to get them in the loop ahead of time.

Wednesday, January 17, 2007

Communicating IT Effectiveness, Part 2

This blog recently discussed IT investments for innovation and gave a framework for communicating and discussing those investments (from Poniatowski & Wischer, 2006). Clearly, the next question becomes what metrics exist to evaluate and communicate about IT investments? In an interesting article, Chabrow (2006) outlined twelve techniques for measuring IT effectiveness. We discuss them briefly in the following paragraphs, with the names and the real-life examples taken from Chabrow's (2006) article.

1) Missed Opportunities: American Power Conversion (APC) focuses on continuous customer service. They have designed and implemented an alert system that informs employees of failures in customer service. Furthermore, they measure success by decreases in missed opportunities to provide services, creating an ever-higher bar for excellent customer interactions.

2) Client Impact: Paul Heller, CIO of Vanguard Group, the mutual fund company, has created a metric consisting of a 3x3 grid to measure the intersection of client impact and operational impact. Each is ranked as low, medium or high impact, but the overall company benefit (or lack thereof) can be easily and consistently visualized. IT funding is allocated and tracked for low, medium and high client impact.

3) Self-Help: Pacific Blue Cross in Vancouver, British Columbia, categorizes IT expenditures as either innovation or support projects. Sometimes, those two intersect, as in the domain of self-help for filing claims. Their new e-claims system has been considered successful because dentists who use it are increasing and manual claims are decreasing, reducing operational overhead.

4) Staff Mix: Effectiveness of an IT project can also be assessed in terms of knowledge gained and hours spent, which can be characterized by the proportion of in-house and outsourced staffs. Though outsourced projects may be cheaper, with territory specific projects, knowledge of local needs, challenges, and obstacles are critical to long and short term project success. One company, EMC, strives for a 40% outsourced, 60% in-house staff to maximize knowledge and minimize costs.

5) Tied To Profit: Steve Phillips, CEO of Avnet, benchmarks IT spending against gross profit instead of revenue or expenses. IT spending is evaluated by if it increases revenue or decreases cost.

6) Perception Counts: A group at MIT's Sloan School of Management has developed a methodology for assessing gaps between an organization's IT security measures and employees' perception of security. Organizations then have a checklist for areas for operational, security improvement, particularly with regards to current practices.

7) Development Speed: Incorporating best practices during software development can help with the ever-important development speed of IT projects. University of Pittsburgh Medical Center has adopted Capability Maturity Model Integration and went from performing best practices 30% of time to currently seeing them 90% of the time.

8) Dropouts: This measures success of a new Web feature. Vanguard Group, the mutual fund company, conducts 80% of customer interactions online. Vanguard tracks the number of people who use a feature and when and where they stop using it--or if it is highly popular.

9) Sales Engine: IT centers must understand and engage customers to increase revenue. At Global Crossing, CIO Dan Wagner encourages IT people to attend customer meetings to understand business issues firsthand and hopefully deliver possible solutions to increase revenue. Knowing the customer changes development processes and can inspire new kinds of IT projects.

10) Innovation: IT projects can focus on creating new capabilities. While CIO Wagner at Global Crossing speaks of "strategic software development," CIO Randy Mott at Hewlett-Packard talks about IT "innovation." Innovative IT capability has to be actively pursued. Global Crossing insists that IT employees keep track of the hours spenton new projects, so as to assess time spent on new capabilities per IT project.

11) No Train, No Gain: CIO Wagner at Global Crossing emphasizes employee training. Each employee's training is tracked and the linkage to business requirements or objectives is essential. In other words, training for IT groups is actively pursued to create new business opportunities and growth.

12) The Ultimate Test: Vanguard Group, the mutual fund company, regularly surveys employees with two key questions: Will I recommend my area to a co-worker, and will I recommend my boss to a co-worker? Engagement with the job is thus assessed, and job switching is encouraged across business functionalities. Employee satisfaction takes on new meaning and can direct job placements.

Chabrow, E. (2006) Techniques For Measuring IT's Effectiveness, Information Week, October 23, available at

Tuesday, January 16, 2007

24/7 Innovation = Hype?

Reading marketing and technological innovation literature, it is easy to get the impression that businesses today cannot survive without completely satisfying customers’ needs by continuously innovating processes and technology that new product features and new products are based upon. Market share can only be guarded from competitors’ probes by offering innovative products, reasons traditional literature. Yet, is never-ending innovation really the key to the ultimate success?
It seems that truly successful businesses know better. Having interviewed senior executives of some of the most innovative Slovenian companies, I was struck by two of the answers. On the question of rate of innovation and measuring the innovation process success, the Executive Director of Development in a manufacturing company argued:

“Sure, we do set goals, we do measure and we do assess the rate of innovation. But this is only for incremental innovation, small ideas that improve daily working practices and result in minor product changes. We are situated in a mature industry with narrow profit margins and products with approximately 5 to 10 years of shelf-life…. So our development goals are not oriented towards rapid renewal of product lines and our activities are not labeled with aching urge to replace existing products. Rather, we are harvesting our crops from well-designed products throughout the life-cycle…We are nevertheless working hard on figuring out the future trends and steadily and prudently updating our product portfolio – when the time is right and with the features and products that are aligned with customers’ needs and which promise the best margins.”

On a similar question of innovation efforts, rate of innovation and innovation measures, Director of Products and Solutions of a telecommunications company responded: “As we are smaller than our competitors, we can only engage i.e. 1.000 man-years per development of a product for which our bigger multinational competitors will engage 5.000 man-years. In terms of product characteristics and features, I admit that due to lack of resources we don’t offer everything our competition does. However, we are nevertheless experiencing better results on the market. Why? We are more focused on nurturing only the truly value-added innovations. Besides, we don’t deal with so many complexity issues in the development, production, sales and after sales stages."

These responses echo Gottfredson and Aspinall’s article in Harvard Business Review on the Innovation versus Complexity topic (2005). They suggest that companies can identify the point at which product innovation maximizes both profits and revenues and argue that for most firms, number of product and service offerings that would optimize profits and revenues is considerably lower than the number they offer today. Continual launches of new products and line extensions add complexity throughout a company's operations, and as the costs of managing that complexity multiply, margins shrink. Organizations that fail to check proliferating product lines and overly-customized services lose efficiency and confuse their customers.
Instead, organizations must figure out their zero-complexity baseline and justify additional offerings one by one: “What would your company look like if it made and sold only a single product or service? Answering that question is important for two reasons. First, virtually every complexity reduction exercise we have seen that does not do this has failed to break through organizational resistance.... [Second, only] by stripping away all the products, options, and configurations do managers get a clear sense of the extent of the complexity and its costs,” (Gottfredson & Aspinall, 2005).

For example, custom truck builder Navistar found that most consumers would opt for a generic model if Navistar could deliver it cheaply, quickly, and reliably. It introduced a modular design and realized a 25% assembly savings. The few customers who still wanted customized configurations went to Navistar’s competitors, who picked up the complexity and costs of providing that customization. Burger King saw that several products were complex and costly to handle as some of the ingredients required special manufacturing (bake, freeze), distribution and handling in outlets. They replaced those products with – from the customer perspective – similar ones, for which all of the ingredients could go through the usual supply chain, inventory management would be simpler (not requiring costly frozen storage). Sales did not drop; the complexity and the costs were driven down.
After thinking about this, “24/7 innovation” seems like hype, or maybe even dogma. It appears that the best advice is to make competition irrelevant by redesigning buyer value to expand existing markets and create entirely new ones (as suggested in influential (Kim & Mauborgne, 1997) article), rather than seeking the Holy Grail of eternal products and upgrades.

Gottfredson, M., & Aspinall, K. (2005). Innovation versus complexity: what is too much of a good thing? Harvard Business Review, 83(11), 62-71.
Kim, W. C., & Mauborgne, R. (1997). Value Innovation: The Strategic Logic of High Growth. Harvard Business Review, 75(1), 103-112.

[Summary by: Peter Baloh]

Monday, January 15, 2007

Communicating the value of IT

The old IT metrics like IT investment as a percentage of total firm revenue and total-cost-of-ownership are passé. IT operational excellence is not just cost efficiency (Poniatowski and Wichser, 2006). Business excellence requires focusing on deriving value out of IT initiatives. IT budgets reveal costs, but benefits can be distributed across the organization. Emphasis on single-mindedly cutting IT costs will be ruinous and stymie any efforts at creatively using IT to support business processes. The authors identify three important questions firms should address to achieve excellence at harnessing IT:

1. How can IT function determine what really matters to the company?
2. What is the most effective way to align IT activities and investments with the overall business strategy?
3. How can CIOs track and manage not just IT operating efficiency, but also IT effectiveness?

The authors emphasize that organizations need to create a portfolio of IT investments that are aligned with their business objectives. They classify IT investments into four broad categories of innovation, growth, productivity, and maintenance. Organizations have to be clear about the strategic objectives of each of these four IT investment categories. Innovative IT investments are strategic, unproven, and risky, but can radically change the business environment and bring startling profits. Examples of celebrated innovative IT investments are first implementation of package tracking, the first online auction site, and the introduction of ATMs. The second category of growth IT investments are also strategic but less risky. These initiatives boost firm revenue and bring efficiency in business operations. Examples of this category of IT investments are customer self-service, Web-stores, and in-store kiosks that increase revenue and business size. The last two categories of productivity and maintenance IT initiatives are operational in nature and aim at improving business productivity and operational excellence. Examples of productivity IT investments are POS and properly implemented ERP systems that help in margin and asset utilization improvement. Maintenance IT investments include systems like accounting, control, and payroll that can help in preventing margin erosion and asset deterioration.

Therefore, business technology executives have to become more creative in employing metrics that measure and benchmark benefits from IT that are aligned with company objectives and enhance firm value and competitive advantage. Chabrow (2006) in an interesting article outlined twelve techniques for measuring effectiveness for IT. We discuss them briefly in the following paragraphs.

1) Missed Opportunities: American Power Conversion (APC) is in the business of selling uninterruptible power supplies and understandably, believes in uninterruptible customer satisfaction. APC company has a culture of continuous engagement with customers and has developed an alert system which notifies appropriate employees in case of failure in customer service. This company values IS that helps engage with customers and hence stresses its success measure in terms of minimization of the number of missed opportunities in providing services. Value of IT has to be measured in its effectiveness in creation of new businesses with existing and new customers.

2) Client Impact: Paul Heller, CIO of Vanguard Group, the mutual fund company, believes that each IT project has to be mapped into one of the nine boxes of a 3 by 3 grid, with three levels of client impact on one dimension and three levels of operational impact on the other dimension. The impact levels are categorized as low, medium, and high impact. The value of each IT project has to be assessed in terms of its impact on clients and operations. Also, overall IT spending has to be tracked in terms the proportion spent on high, medium, or low client impact.

3) Self-Help: Pacific Blue Cross in Vancouver, British Columbia, categorizes IT spent in terms of innovative projects versus support function projects. Innovative projects that enhance business value are encouraged. For example, e-claims system is proving to be a success as increasing number of dentists are using it to file claims. Pacific Blue Cross is aligning IT with business processes to enable dentists to file claims electronically, self-help, rather than handling manually.

Therefore, business technology executives have to become more creative in employing metrics that measure and benchmark benefits from IT that are aligned with company objectives and enhance firm value and competitive advantage.


Poniatowski, S. and Wichser, J. D. (2006) A Better Metric For IT Efficiency, Optimize, May 1, available at

[Summary by Sanjeev Jha]

Sunday, January 14, 2007

How standardization affects innovation?

Benner and Tushman (2003) explore how process management techniques affect technological innovation and adaptaition. Total Quality Management, ISO standardization, BPR, Six Sigma, and other management concepts are based around process based view of an organization, and they help to map and improve organizational processes. They fuel continous innovation that results in improved efficiency, cost reductions, improved customer satistfaction and higher profits. However, long term success is not only based on (efficient) exploitaiton of existing resources.

Yes, companies do get better and better while integrating and building upon existing capabilities, however, core capabilities can become competency traps (Leonard-Barton, 1992; Levinthal & March, 1993). A firm's ability to compete in a long run also depends on simultaneously developing fundamentally new capabilities (Teece, Pisano & Shuen, 1997). In other words, while incremental innovations develop existing technology and serve existing customers, exploration into new knowledge or departure from existing skills leads to radical innovation serving emergent customers or markets (March, 1991).

New products for new customer designed around new technology are often organizationally disruptive and require significant departures from existing activities. On the other hand, (Benner & Tushman, 2003) argue, process management leads to stabilization and rationalization of organizatioanl activities while establishing a focus on easily available efficiency and customer satisfaction measures. This triggers bias towards certainty and favors exploitative at the expense of exploratory innovation. Namely, as an organization learns and increases its efficiency through repetition of a set of activities, its subsequent innovation is increasingly incremental (Levinthal & March, 1993). Moreover, organization is focused on understanding and satisfying existing customers, thus, innovation is channeled into areas that benefit existing customers. Non-standard, exploratory activities outside the existing technological trajectory are unwanted (Levinthal & March, 1993). Process management techniques stabilize organizational routines, making cross-community linkages more difficult (Benner & Tushman, 2003), which is however in contradiction with Nonaka & Takeuchi's (1995) suggestion of a need for such organizational design that connects redundant and overlapping knowledge bases in order to increase organizational innovation. Also, compared to easy-to-measure efficiency improvements, dilficult-to-quantify exploratory activities are less attractive (Levinthal & March, 1993).

Benner & Tushman (2003) warn agains explicit focus on incremental innovation which is achieved by process management orientation which results in innovation that is closesly related to existing technological or market competencies. Organizations that must meet current customer requirements and new customer demands must deal simultaneously with the inconsistent demands of exploitation and exploration. Authors suggest that appropriate answer is an ambidextrous organization which allows for both exploratory and exploitative activities to be spurred by loose and tight organizational arrangements. Benner & Tushman (2003) suggest that within processes, the tasks, culture, individuals, and organizational arrangements are consistent, but across subunits tasks and cultures are inconsistent and loosely coupled. Tight exploitation units in technologically stable settings, will benefit by reducing variability and maximizing efficiency and control by introducing process management techniques. On the other hand, n turbulent environments, for new customer segments and for radical innovation, process management activities are less conducive to organizational effectiveness. Exploratory units will succeed by experimentation, which is encouraged by introducing variety and loose control.

Benner, M. J., & Tushman, M. L. (2003). Exploitation, Exploration, And Process Management: The Productivity Dilemma Revisited. Academy of Management Review, 28(2), 238-256.
Leonard-Barton, D. (1992). Core Capabilities and Core Rigidities: A Paradox in Managing New Product Development. Strategic Management Journal, 13, 111-125.
Levinthal, D. A., & March, J. G. (1993). The myopia of learning. Strategic management journal, 14(Winter), 95-112.
March, J. G. (1991). Exploration and Exploitation in Organizational Learning. Organization Science, 2(1), 71-87.
Nonaka, I., & Takeuchi, H. (1995). The knowledge-creating company : how Japanese companies create the dynamics of innovation. New York ; Oxford: Oxford University Press.
Teece, D. J., Pisano, G., & Shuen, A. (1997). Dynamic capabilities and strategic management. Strategic Management Journal, 18(7), 509-533.

[Summary Posted by: Peter Baloh]

Friday, January 12, 2007

HP, Part 2: Specific Practices that focus on employees

HP has a number of ways to encourage employee innovation. For example, they had a business plan competition open to all employees of the company. Teams of employees propose ideas and develop plans for new business development. In addition, for the more technical staff, HP has TechCon. TechCon is analogous to a research conference. Employees within HP submit their papers, which are refereed and judged. The best papers are selected for presentation, and some are chosen for poster sessions. TechCon receives over 1000 papers, from internal HP employees. About 550 employees are selected to attend this event and the discussions here foster future innovative efforts.

On the communication front, HP has taken concrete steps to communicate the value and process of innovation to its employees. HP hosted a Power-UP event (think road-show!) for innovation. Through this event, HP was able to showcase its cutting-edge work on innovative ideas and projects across the enterprise. As you can imagine, this is no easy feat, given all of the costs associated with moving innovations (e.g. physical artifacts) from one location to another. In addition, HP does make it clear to every employee that coming up with innovative ideas is hard work. The chances of an employee actually developing a new business practice are slim (really, really, slim!); some refer to this as the "Valley of Death". This is not done to discourage employees, but to make them aware of the effort and care needed to move these ideas ahead.

As one executive remarked, when he joined HP Labs, he heard the saying, "ideas are cheap". Sure, ideas are cheap (a dime a dozen), but there are only few ideas that stand a chance to make it to market. As John Meyer, Director, Digital Printing & Imaging Lab, stated, "my job is to provide an environment where innovation is fostered...I do not want to interfere with my engineers and the technical staff...I need to give them the tools and support needed to help them succeed". This thinking is quite revolutionary. Most managers want to be the ones making decisions on innovation. Many managers, and believe me I have seen a fair share of these, will want to be the "judges" of innovative ideas, even if they lack the technical competencies to judge these ideas. HP has understood that this approach does not work and does not interfere with the brilliant minds of their employees. The role of the manager is to make sure that the outputs generated by the brilliant minds can be commercialized.

Of high interest to me was the metrics that HP uses to gauge the performance of its innovation programs. Surprisingly, HP is not big on metrics. As one presenter remarked, "HP has been a very informal and nurturing environment that more often than not resists too much centralized control". Metrics are loosely defined in many cases when it comes to innovation. In terms of HP Labs, the best metric used is the track record (the history) of the Labs in coming up with innovative ideas. For more operational (also known as incremental) innovations, HP does have formal processes to gauge the quality of the ideas, calculate outcomes such as return on investments (ROIs), etc.

I can go on and on about writing about my learning from this visit. For example, the transformation ambassadors are people who helped HP close down work in some areas of its enterprise and open up new areas is interesting. Also,the notion of, "invest where we can make a difference and partner for the rest," was also intriguing given the current surge in business process outsourcing efforts. The NBC (New Business Creation) Center and its role in fostering open discussion and thoughts is another area where HP's company-wide innovation can be seen.

For more details, wait for the final research project report, or email me.

Thursday, January 11, 2007

Hewlett-Packard, Part 1: A Holistic Innovation Culture

On Jan 10th, I (Kevin Desouza) visited HP Labs (see in Palo Alto, California. The purpose of the visit was to listen to HP executives about their innovation processes. The meeting was hosted in the Executive Conference Room, which is adjacent to the original offices of the founders of HP, W.R. Hewlett and D. Packard. Amazingly, the HP folks have preserved the original offices and the original conference room. Being able to see these amazing old offices is worth the trip. During the visit, I learnt about the many processes that HP has put in place to foster innovation across their enterprise.

The single most important enabler of innovation at HP is their history and culture of innovation. From the days of Hewlett and Packard, HP is a company that recognized the value of innovation throughout the organization. HP focuses on all aspects of innovation: product and service innovation; innovation in business models; cultural and organizational innovation. Throughout the meetings, I kept hearing the phrase - "managing the innovation portfolio." Using a portfolio approach, HP is able to balance out its investment in innovation efforts across the enterprise, and also across various types of projects (core, emerging, and new). The portfolio approach is a top-down management approach and gauges the efforts of senior managers and executives, and their respective units.

HP is a highly collaborative company. Collaboration is the way work gets done in HP. Like much of HP's current culture and behaviors, this attitude goes back to the days of its founders. Employees can seek for help and input on ideas across the enterprise, and more importantly they can reward people who help them. Managers have eAwards that they can give to other units who help them. An employee, with authorization from a Manager, can also provide these eAwards to other employees.

HP also has fairly mature stage-gate processes to screen ideas and innovations. Ideas are screened at multiple levels, and across the enterprise. For example, at HP Labs ideas are put through project reviews. During these reviews, the manager presents his/her view on the idea, and then almost all members of the technical team chime in and share their views as well. These meetings are open to all who are interested, and normally draw in folks who are working in allied areas. Comments and feedback shared at these meetings are used to improve ideas and develop more robust research projects.