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Short Summary 'Managing Innovation'

Management of innovation processes (Universiteit Utrecht)

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Super short summary of Tidd’s book

PART 1
Innovation and competitive advantage (CA)
There are various sources of CA (see RBV and Porter). However, a pattern can be found which
suggests the role of an organization to mobilize knowledge, technology and experience to create
novelty. One should be aware also that shifts in the socio-economic environment may create
opportunities and constraints. CA in innovation can be obtained through: novelty, complexity, timing
and legal protection.

Types of innovation
4Ps: Product, process, position and paradigm.
Degree of novelty: Incremental and radical.
Concept-links: According to the degree of change in concepts and links between elements there are
4 types: incremental, modular, architectural and discontinuous.

Christensen’s disruptive innovation theory

Existing players are too used in working with mainstream users, failing to see the long-term potential
in new markets. New firms may see the opportunity better.

Decreasing the change of failure

Innovators should manage the innovation funnel. The process involves:
- Searching: internal & external environment scanning on signals of opportunities and threats
- Selecting: deciding which of these signals to respond to by answering: does it help us reach our
strategic goals? Do we know enough about this to pull it off?
- Implementing: translating the potential in the trigger idea into something new and launching it
in an internal or external market. This step requires attention to:
 Acquiring the knowledge/technology resources to enable the innovation
 Executing the project under conditions of uncertainty which require extensive problem
solving
 Launching the innovation and managing the process of initial adoption.
 Sustaining adoption and use in the long term – or revisiting the original idea and
modifying it (re-innovation)
- Learning: this cycle process allows firms to learn and to improve the way the process is
managed.
Tidd argues that one central concept is learned capability: every firm must deal with innovation
management in their own context. Simply copying is not enough.

Can we manage innovation? Routines

There are patterns –routines- for success. They reflect a set of shared beliefs and an underlying
organizational culture. They are a result of repeated experience, becoming an automatic response to
particular situations. As important as building routines, it is to recognize how to destroy them and
when to build new ones.

Road to success

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Successful innovation management is based on a process and not a single event. Also, influences on
the process can be manipulated to affect the outcome.
Successful innovators learn: they acquire and accumulate technical and managerial capabilities over
time.

Routines in the Innovation funnel

Search: Development of mechanisms for identifying, processing and selecting information such as:
defining the boundaries of the marketplace, understanding market dynamics, trend-spotting,
monitoring technological trends, market-tech forecasting, involving stakeholders, involving insiders.
Selection: Algorithms and heuristics to make choices that fit the overall business strategy of the firm
such as: portfolio management approaches, building a business case, building coalitions.
Implementing:
Acquire: Combine existing and new knowledge sources. Knowledge and technology transfer.
Execute: Actually execute and develop the innovation with: early involvement of users,
concurrent working, appropriate project structures, team working, shared project vision,
advanced support tools.
Launching: Preparing the market (internal and external) where it will be launched. This
includes collecting information, solving problems and focusing efforts towards a final launch.
More specific marketing efforts and understanding buyer behavior are relevant.
Learning: Information must be gained on successes and failures during the innovation.

Key contextual influences

The funnel is influences by various internal and external contextual factors: strategic context,
innovativeness of the organization and connection between the organization and key elements in its
external environment.

PART 2
Summary
Firm-specific knowledge and the capacity to exploit it are essential features of competitive success.
Therefore, an essential feature of corporate strategy should be an innovation strategy. Its purpose:
accumulate such firm-specific knowledge. It should cope with a complex, changing and uncertain
external environment.
Internal structures and processes must continuously balance these conflicting requirements: (a) to
identify and develop specialized knowledge within technological fields, business functions and
product divisions; (b) to exploit this knowledge through integration across them.

Innovation strategies
They are a part of a wider process of continuous learning from experience. We identify two types:
rationalist and incrementalist. The first is less effective than the latter since the latter continuously
adjusts in the light of new knowledge and learning.

Rationalist strategy
Linear model: appraise, determine and act. SWOT: strength, weakness, opportunity and threat.
However, managers have difficulties in appraising accurately their real situation for 2 reasons:

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external environment is complex (lots of actors) and fast changing (technically, economically, etc.)
Therefore, usually they disagree on the SWOT because their knowledge of what goes on inside the
firm is imperfect.

Incrementalist strategy
Incrementalists argue that a firm has only imperfect knowledge of its environment and its own
strengths and weaknesses. A firm must therefore adapt its strategy continuously based on new
information and understanding. This has two sets of implications: (1) corporate strategy should be
seen as a form of corporate learning and (2) successful management practice is never fully
reproducible. Therefore, tacit knowledge is central.

Porter’s 5 forces
Unit of analysis: industry. There are 5 forces driving competition: suppliers, buyers, new entrants,
substitute products and rivalry. The goal of a strategy is to find a position where a company can best
defend itself against these competitive forces or use them in its favor. Then, there are 4 generic
market strategies: cost leadership, product differentiation, cost focus and product focus. Also, they
must choose between 2 innovation strategies: leadership and followership.
Technology can become a distinctive competence, however it can never be fully monopolized and
therefore firms should continuously analyze the market.
Porter underestimates the importance of technological trajectories and the power of technology to
change the rules of the game. He overestimates the capacity of managers to identify and predict
important changes outside the firm (uncertainty). He also assumes equal access to resources for all.

Dynamic capabilities
There are 3 elements of an innovation strategy:
1. Market and national positions: relation and position with technology, customers and
suppliers.
2. Technological paths: strategic alternatives available.
3. Organizational processes: routines and the way things are done in the firm.
In this approach, the importance of dynamic change and corporate learning is highlighted by: the
changing environment and the key role of strategic management to change accordingly.

Positions
The position of the firm within the National System of Innovation influences the direction and vigor
of its innovative activities. It can be divided in: economic mechanisms (demand, prices, rivalry),
competences (workforce, research) and institutions (corporate governance, funding).
The position of the firm within the market when compared to competing firms is important to know
what technological developments are being undertaken by competitors and how the innovations can
be made to work.

Capturing the benefits

There are 9 ways to maintain the lead/benefit: secrecy, tacit knowledge, lead times and after sales
service, learning curve, complementary assets, product complexity, standards, pioneering and
patents.

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Paths
Strategies are path dependent; they are constrained by the firm’s current position and specific
opportunities. The learning process is also path dependent. The consequence of these is that firms
cannot easily jump from one major path to another by just hiring individuals (corporate
competences matter!). From here, we derive the notion of technological trajectories.

Technological trajectories
It can be divided on: size, type of product, type of innovations, sources of innovation, origin of own
innovation. Mostly we use Pavitt’s taxonomy of 5: supplier dominated, scale intensive, science-
based, specialized supplier and information intensive.

Developing firm-specific competencies

The ability of firms to track and exploit technological trajectories depends on: their specific tech and
org competencies and the difficulties that competitors have in imitating them (uniqueness).
Therefore, a firm’s CA lies in their core competencies rather that in their products. Core
competencies are technologically, physically and strategically distributed. They can become core
rigidities when they become too dominant, neglecting or underestimating new important
competencies.

Developing and sustaining competencies

The trick is to balance the exploitation of existing competencies and the exploitation and
development of new competencies. Success depends on the dynamic capabilities of management of
learning in knowledge building and strategic positioning. New core competencies thus cannot be
identified immediately or without trial and error.

Processes
The most critical dynamic capabilities are the processes that ensure effective integration and
learning. Three key areas are identified where integration and learning are essential:
Locating R&D activities: The problem deciding between corporate (specific/in-depth) and
divisional (responsive/flexible). Also, the decision passes unto the physical location and
funding. The decision is heavily influenced by the firm’s technological trajectory, degree of
maturity of the technology and corporate strategy.
Allocating resources for innovation: Due to uncertainty it is impossible to calculate the value
of R&D. then, the successful allocation of resources depends less on the robustness of
decision-making techniques than on the organizational processes in which they are
embedded. There are 3 categories of R&D that must be financed: knowledge building,
strategic positioning and business investment.
Technology and corporate strategy: Corporate strategy defines objectives for technology and
technology defines the opportunities and constrains for corporate strategy. Three strategic
styles are dependent on different types of technology and market: financial control, strategic
planning and strategic control. Mismatches between a firm’s strategic style and its core
technology can be caused by: imposition of a strong financial control in a sector where high
tech investments are high and the changing nature of technological opportunities.

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PART 3
Learning from markets
Firms must have a clear idea of the maturity of technologies and markets (Faber’s matrices) with
different types of products for each quadrant:
 Differentiated products: Use of PIMS (Profit impact of market strategy) and QFD (quality
function deployment to translate customer requirements into development needs.
 Architectural products: Behavioral segmentation of consumer and business markets.
 Technological products: Identify and classify perceptions affecting buyer’s behavior.
 Complex products: build close linkages between developers and users (Von Hippel?)

Diffusion of innovation
Diffusion is influenced by 2: characteristics of the innovation and process of commercialization.

Learning through alliances

Why collaborate? Reduce cost/time/risk and learn. What are the risks of collaborating? Leakage, loss
of control and divergent objectives resulting in conflict.
Types of collaboration (SEE TRV!!)

PART 4
Funnel of Innovation
Search, Select, Implement (Acquire/Execute/Launch) and Capture. +Learning
1. Search: Pick up various trigger signals that come from inside and outside the organization.
Effective routines: defining the boundaries of the marketplace, understanding market
dynamics, trend-spotting, monitoring technological trends, market-tech forecasting,
integrated future search, learning from others, involving stakeholders, involving insiders,
mistakes management, communication and connection.
2. Select: What could we do? (Strategic analysis), what are we going to do? (Strategic choice)
and is it still what we want to do? (Strategic monitoring). To answer, develop an innovation
strategy by understanding the key parameters of the competitive game (markets,
competitors, external forces, etc.) and the role of tech knowledge as a resource.
To be successful, innovation shouldn’t be an impulse but rather dependent on our
understanding of our own technical competence and desired development trajectory. The
underlying questions are: (1) does it help us reach our strategic goals? and (2) do we know
enough about this to pull it off?. Hey routines: portfolio management approaches, building a
business case, building coalitions, help strategic monitoring.
3. Implement: Acquire, Execute, Launch.
a. Acquire: Combining new and existing knowledge to offer a solution to the problem
of innovation. It involves the generation and transfer of technological and market
knowledge. Firms need to be informed of the alternatives to acquire knowledge and
technology. Firms have to know how, where and when to obtain these resources.
For this, the ability to communicate, absorb (cognitive distance!!) and network-
building is important. The relevant routines are: clear strategic direction, effective
communication and buy-in to that direction, integration of effort across different
groups.

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b. Execute: The task of making innovation happen. Here is where Cooper’s Stage-Gates
approach is used: idea formulation, concept, product development, test and
international marketing. The model uses a series of gates at key stages and
reviewing the project’s progress against clearly defined and accepted criteria. Only if
it passes, the gate will open. Otherwise, the project should be killed or returned for
further development. The importance of these gates is that they ensure a structure
for reviewing technical and market aspects of the innovation as we move from high
uncertainty to high resource commitment. Routines: early involvement of users,
concurrent working, appropriate project structures, team working, shared project
vision, advanced support tools.
c. Launch: Identifying, exploring and preparing the market for launch of a new product.
It’s about how we can improve the chances of successful adoption and diffusion. We
must take into account the adoption behavior, buyer behavior and adoption
decision. Routines: customer testing, test marketing, development of a marketing
strategy, development of a marketing plan, development of a support organization,
launch into an internal market.
4. Capture: According to Faber. Here is where firms decide how to capture profits. Business
strategy to try to enter larger markets, improve and maximize sales. There are 9 factors:
secrecy, tacit knowledge, lead times, learning curve, complementary assets, product
complexity, standards, pioneering and patents.
5. Learning: The final stage is the review of the completed project and an attempt to capture
learning from the experience. Effective learning requires a commitment to an open and
informed review. This is where dynamic capabilities take place: timely responsiveness and
rapid innovation coupled with the management capability to effectively coordinate and
redeploy internal and external competencies. Problem of learning and unlearning.

Learning through corporate ventures

Why do they do it? They want to expand the business out of its core or develop new
technological/market competencies. They can be also internal in a new business unit.
There are 5 stages for managing it: definition, development, identification of CV, development of CV
and assessing the CV.

PART 5
Factors for creating an innovative organization
1. Shared vision, leadership and the will to innovate: sense of purpose, dynamic capabilities.
2. Appropriate structure: Organization design that enables creativity, learning and interaction
accordingly to its structure. Not always flexible is good for all, since there are organic and
mechanistic decisions involved. Mintzberg’s archetypes:
a. Simple structure: small over dependent in one person.
b. Machine bureaucracy: centralized mechanistic dependent on specialists.
c. Divisionalized form: decentralized organic form where innovation flows from core.
d. Professional bureaucracy: decentralized mechanistic form coordinated through stds.
e. Adhocracy: Project type of organization with high flexibility and low control.
f. Mission-oriented: shared common values with high sense of purpose.

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3. Key individuals: There are 4: inventor, organizational sponsor, business innovator and
technological gatekeeper.
4. Effective team working: appropriate use of teams to solve problems.
5. Continuing and stretching individual development: the goal is to install the habit of learning.
6. Extensive communication: Communication in all directions inside (360) and outside.
7. High involvement in innovation: organization-wide continuous improvement happens in 5
stages: natural HII, structured, goal-oriented, empowerment of individuals and full HII.
8. External focus: internal and external costumer orientation.
9. Creative climate: positive approach to creative ideas supported by motivation systems.
10. Learning organization: high levels of involvement within and outside the firm in proactive
learning.

Creating innovative new firms

 Sources of NTBF: There are 4 categories of small firms: specialist suppliers, supplier
dominated, superstars and NTBFs. The sources of NTBFs are incubators, for which they
tend to cluster around them to retain contacts for financial/technical support.
 Business plan: Its main goal is to attract external funding, but also to provide an agreed
guideline for the future development of the venture. Most plans focus too much on
technical parts and too little on the business.
 Funding: There are 4 stages of financing: initial launch, initial development,
consolidation and growth. There are 2 types of funding: corporate venture and venture
capital. In the first one, there is more interest on control.

PART 6
The 4 clusters of routines
Innovation management is the search for effective routines by managing the learning process
towards more effective routines to deal with the challenges of the innovation process. Four clusters:
1. Successful innovation is Strategy-based: It depends on the position of the firm, its
technological trajectory and the organizational processes that follow in order to integrate
strategic learning.
2. Successful innovation depends on Effective internal and external linkages: Developing close
interactions with markets, customers and allies is important and may lead towards open
innovation. They offer opportunities for learning.
3. Successful innovation requires Effective mechanisms for making change happen: Systematic
problem-solving within a clear decision-making framework.
4. Successful innovation only happens within a Supporting organizational context: Requires the
creation of conditions for a learning organization.

Learning to manage innovation

Learning can be assisted by: experience sharing, introducing new concepts, experimenting and
structured reflection. Further inputs are benchmarking and auditing.

Auditing innovation management

General way is through point-scales responses to statements along 5 dimensions (strategy,
processes, organization, linkages and learning)

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Type of innovative companies

(1) Don’t know what/how to change, (2) know they need to change but not how/where to get
resources, (3) know they need to change and have some ability to generate and absorb technology
and (4) technologically capable to generate and absorb.

SCHWANINGER’S VIABLE SYSTEM MODEL (VSM)

Profit is an indicator of short term business performance and therefore, long term strategy cannot
be built upon this indicator. In a context of instability and dynamic transformation, the shortcomings
of a profit-maximization strategy on the long-term can be visible. This theory combines management
cybernetics with planning theory.
The basic idea is that there are 3 types of management: strategic, normative and operational. These
have different objectives and control variables: value potentials, viability/identity and
profit/solvency.
VSM helps organizations to behave intelligently in a valuable manner in the long run.

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