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«This section is about global changes—why they are bigger, come more often, and are becoming more difficult to predict. It’s also about what ...»

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Management Principles for Continuous

Innovation

This section is about global changes—why they are bigger, come more often, and

are becoming more difficult to predict. It’s also about what companies have done,

and are doing, in order to take advantage of the opportunities and avoid the threats

embedded in these ever accelerating changes.

Certain changes are products of shifting technologies. One established technol-

ogy is replaced by something new. We’ve seen this before. Steam engines were replaced by internal combustion engines and electricity, electricity grew into electronics, landlines are being replaced by mobile telephones, and newspapers and paper books are increasingly being supplied as digital files for tablets and e-book readers. These changes also affect how people live their lives. Even when they are staying home with their sick child, they are now expected to be accessible by phone and to answer your e-mail. Some experience this as a source of stress, while others find greater freedom. Most of us experience both these feelings as a result of the changes that follow in the wake of innovations.

When something new appears, whether a technological solution or a change in social norms, things generally start manageably. As the innovation gains adherents, development accelerates, and finally, when the change has become widespread, the rate of change tapers off. Subsequently, a new innovation appears, and the process begins again. We often depict this process as an S-curve. The transition between one technological curve and another is an indication of innovation. I call this a phase transition. When a phase transition occurs, it creates opportunities for companies that are able to innovate. For those who are not able to manage this, the phase transition signals the start of a process of decline.

Researchers who have studied such processes1 explain that the more people or companies quickly adopt the innovation, the steeper the S-curve becomes. In addition, the greater the diversity in age, cultural affiliation, and other qualities 1 The pioneers are located at the Santa Fe Institute in the United States, as well as in France, the UK, Belgium, and Chile, where qualified research is being carried out related to research that concerns complex adaptive systems.

11 A. Steiber, The Google Model, Management for Professionals, DOI 10.1007/978-3-319-04208-4_2, # Springer International Publishing Switzerland 2014 12 2 Management Principles for Continuous Innovation among those who adopt the innovation, the more powerful the change is and the sooner the next phase transition will occur. Today’s mobile phones with their touch screens, Wi-Fi connectivity, and capacity to stream music have little in common with the rather clumsy mobile phones first launched a few decades ago. Mobile telephony is an example of a technology that has changed people’s lives in a multitude of ways in so many places around the globe.

The pace of external changes is accelerating as ever-larger groups of people and companies adopt advances in ever-shorter spans of time and as the diversity among those adopting these advances grows. This means that the S-curves become steeper, and the life cycles of technical solutions and new products become shorter. As a result of this shift, larger numbers of companies are required to handle continuous innovation, an ability that also demands speed and scalability.

2.1 Continuous Innovation

Innovation is a broader concept than R&D. Innovations affect every part of a company. ‘The Organisation for Economic Co-operation and Development’ (OECD) describes four types of innovations2: product innovations, process innovations, marketing innovations, and organizational innovations.

A company is innovative when it possesses the ability to change its business or management model, as well as to develop and implement new products that respond to expressed and unexpressed customer needs. A customer can be a company or an individual. But employees, owners, suppliers, and the public sector can also be stakeholders that may well determine a company’s success or failure. A company that is continuously innovative can manage to constantly change its business and management models and to develop new products. Companies that never fail may be refusing to take risks, and this can be a sign of limited innovation capabilities. On the other hand, the ability to learn from one’s mistakes can be a sign of good Innovation Capabilities.

Continuous innovation requires a holistic approach to leadership and organization. It entails creating the basis for an innovative climate and innovative interaction between people. If we wish to increase the Innovation Capabilities of a company or other organization, we need to increase our understanding of how each part of the innovation process can be coordinated within the framework of a company system for continuous innovation.

As the pace of external change accelerates, the need for continuous innovation grows.

2 The OECD’s definition of innovation is “the implementation of a new or significantly improved product (good or service), or process, a new marketing method, or a new organizational method in business practices, workplace organization or external relations” (Oslo Manual by the OECD 1997).





2.3 The Company Model of the Future: A Paradox 13

2.2 System Effects: We Don’t Know Exactly What’s Happening

Most of us have at some point been sitting with colleagues discussing a problem that none of the participants seems able to solve. Then someone comes up with an idea. It might not be a particularly good one, but it stimulates someone else to come up with a different idea that may still not be good enough. Finally, the group arrives at a satisfactory solution. No one is able to explain where the final idea came from, but we know now that our creative abilities are at work. The innovation is a system effect—the product of complex interplay between individuals and other components in a system, whether that system is a company, a region, or an entire country. When talking about a company, the term company system can be appropriate. As we cannot predict exactly how various components of a system will interact, we develop a company system through trial and error. We must be aware that things may not get things right the first time, and instead we must try various solutions and learn from these experiences in order to better succeed at our next attempt.

When the properties of the whole are greater than the sum of the properties of its parts, system effects appear. We discover these later, but we cannot predict with accuracy just what these effects will be.

We usually distinguish between linear thinking (cause and effect) and systems thinking. Continuous innovation is based on systems thinking.

The spread of a technological or management innovation is affected by four primary factors3: the innovation and its characteristics—, the communication channels used, the time involved, and the social system. The social system consists of individuals and organizational units that relate to each other in an effort to realize a common objective. History, norms, and opinion leaders in the social system are important to the process of circulating an innovation.

2.3 The Company Model of the Future: A Paradox

When a theory says one thing, and common sense based on one’s own experiences says something else, the result is a paradox.

In order to maintain, and preferably improve, profitability, companies must decrease costs or create new income. Productivity is a measure of what we get from current resources.4 Budgetary discipline, cost control, and constant vigilance to discover and eliminate unnecessary costs are core activities in the daily production of goods and services. At the same time, if we are to continue to compete in the future, we need to develop new products and services that provide new income.

–  –  –

Experience and common sense indicate that it can be very difficult to combine these two objectives—efficient production, on one hand, and the continuous creation of new value streams through innovations, on the other, in the same business. In other words, it’s hard to be a penny pincher regarding costs and at the same time conduct future-centric experiments that devour resources with no guarantee that the results will create new value. Reality, however, teaches us something different.

Innovative companies, such as 3M, Apple, W. L. Gore, Google, and many others have accomplished this apparently difficult, if not impossible, task. These companies have succeeded in joining various forms of logic that many see as incompatible, such as large-scale operations and flexibility, effective control and individual freedom, a focus on today’s business and a commitment to the future. By their ability to combine these ostensibly incompatible forms of logic, these companies have created the conditions necessary for both productivity and innovation.

Nevertheless, when the experience of executives leads them to one conclusion and external examples indicate something different, most executives prefer to rely on their own experience. “Forced to choose between getting what we want and maintaining second order constancy, we may choose not to get what we want,” Chris Argyris5 concluded many years ago.

Research about continuous innovation seeks answers to the question not only how one innovates continuously but also how this can be done parallel to conducting and improving the daily operations (production) in a manner that will promote quality and be cost effective.

2.4 Innovation Research

An interesting insight in management and innovation research is that a company’s ability to innovate is explained more by how that company is managed and organized than by its technological skill.6 I therefore first highlight the importance of management innovations to Innovation Capabilities and continue by describing the six management principles that support and provide the necessary conditions for continuous innovation.

5 “When our theories-in-use prove ineffective in maintaining the constancy of our governing variables we may find it necessary to change our theories-in-use. But we try to avoid such change because we wish to keep our theories-in-use constant. Forced to choose between getting what we want and maintaining second order constancy we may choose not to get what we want.” (Argyris 1976).

6 Tushman and O’Reilly (2007).

2.4 Innovation Research 15

2.4.1 Management Innovations and Innovation Capabilities

Regardless of how good a company is at developing new products and applications, these can hardly yield any results without an environment that promotes innovations. Thus we can see that management innovations, like technological expertise, are important in generating innovations. Henry Ford’s assembly line was a management innovation and provided the stimulus for a number of technological innovations. A half-century later, the semiconductor industry not only revolutionized technological development but also led to management innovations in both the private and the public sectors.

Thus, management innovations and technological innovations work in tandem in a dynamic manner, affecting each other and leading to greater effects by mutual influence than they would if only one of these was affecting the other.

Researchers have also found that the nature of a company’s organization influences not only its Innovation Capabilities but also its propensity to adopt innovations from external sources.7 We can thus see why management innovations are important for both a company’s Innovation Capabilities and its long-term sustainable success.

2.4.2 The Company System’s Importance to Innovation Capabilities

A system is a collection of components with certain properties and with certain connections among the components, as well as among the characteristics of those components.8 A company system has organizational components, and these affect one another and structure the characteristics of the system.

Organizational components include issues such as whether decision-making authority is centralized or decentralized, whether the norms allow mistakes or demand that everything be “right the first time,” whether the atmosphere is formal or informal, whether information flows freely and is accessible to everyone whose work requires it or is reserved for the few, whether supervisors give orders or coach, whether cooperation between individuals and units is encouraged, and whether internal competition is the order of the day. All these characteristics of an organization constitute the company system.

There is not much research regarding the company system’s importance for Innovation Capabilities. The innovation research that does exist focuses mainly on the process or project level or on individual components, such as company culture and leadership,9 which have been studied separately. As a result, knowledge of one component of the system is often isolated from knowledge of other components.

7 Kimberley and Evanisko (1981), pp. 689–713; Damanpour (1987), pp. 675–688.

8 Professor Eric Rhenman, a pioneer in systems thinking, first presented this definition.

9 O’Connor (2008), pp. 313–330.

16 2 Management Principles for Continuous Innovation Each of these studies aims to increase understanding, within a defined area, of the significance of various characteristics within a given organization component. It can therefore be difficult to summarize the importance of the innovative abilities of all these components, working together and reinforcing each other to produce positive or negative system effects. There is thus a challenge inherent in analyzing company systems in their entirety. The system is more important for innovation than the sum of its individual parts is. The holistic approach does justice to the organic nature of Innovation Capabilities. In Part II, we will see how Google’s organizational components work together dynamically to utilize and develop innovative ability.



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