Innovation: staying ahead of the Red Queen

Transcription

1 1 Innovation: staying ahead of the Red Queen Innovation. Globalization. The twin aspirations of companies. How can companies harness these mutually opposite forces? Can the corporate centre play a valueadded role? The innovator s dilemma Globalization pressures, rapidly-developing emerging markets, and technological advances require multinational corporations (MNCs) to constantly invent and reinvent themselves in order to survive. Hence innovation is the key to long-term sustainability. Given that innovations can occur anywhere in the company, are crucial for success but costly to develop, it makes sense that innovations developed at one location are leveraged for use in other parts of the company. In fact, it would be ideal if there was an automatic flow of know-how and new ideas between subsidiaries. Easier said than done? On the one hand, innovation transfer does not take place automatically and its process can be arduous, costly and time-consuming. As a result, corporate intervention is often required to enable the transfer of innovation. On the other hand, while interventions by the corporate centre can be very important in influencing the flow of innovation, the nature of intervention itself can dilute the process of development. In fact, highly-integrated subsidiaries are particularly susceptible to having their innovations stopped by the corporate immune system. Figure 1 summarizes the innovator s dilemma faced by many global companies today Hay Group. All rights reserved

2 Innovation: Staying ahead of the Red Queen 2 Figure 1: The innovator s dilemna Development of innovation Transfer of innovation With intervention Without intervention Herein lies the rub: the greater the subsidiary s innovativeness, the more likely it is that the products, services and capabilities that are developed are not leveraged by the rest of the organization a true demonstration of how prophets are not heard in their own land. Capability, not outcome Taken a step further, the innovator s dilemma reflects a more serious underlying issue: the current angle from which organizations understand innovation and its processes is too narrow. Most organizations view innovation as an outcome, and hence is conventionally understood as a dual process of development and transfer. In other words, whenever any business subsidiary develops a novel idea, the organization naturally shifts its attention to the novel idea and how the idea can be fully leveraged throughout the company. Although this approach optimizes the value of existing innovations and creates efficiency, it often blocks newer (and perhaps more powerful) innovations. To avoid this trap, we propose to add a third pillar of innovation: scalability. Scalability is the process of replicating innovative business units beyond geographical and functional boundaries, even in the absence of intervention from the centre. In this aspect, scalability also serves as the catalyst for the development and transfer of innovation, as well as the solution to the innovator s dilemma. In this way, companies can create infinite, diverse innovation opportunities which not only contributes to the firm s value, but also hedges the risks of failure. Scalability is particularly important because headquarters do not have the monopoly on knowledge or innovation. Solving the innovator s dilemma Hence, corporate centres play a critical role in solving the innovator s dilemma that is, fostering innovation scalability. As with all replication processes, such scaling is a highly-disciplined process that requires a high amount of consistency and therefore, intervention. The conventional form of corporate intervention, that is, direct intervention, entails dictating the subsidiaries actions through formal company policies, reward and bonus schemes, and standard operating procedures. As we have discussed earlier, a high level of direct intervention by the corporate centre is stifling. Hence, we propose an alternative form of corporate intervention, that is, indirect intervention to retain control over subsidiaries without suffocating them. Unlike direct intervention, the indirect approach subtly influences subsidiaries to act in the best interests of the company (Figure 2) Hay Group. All rights reserved

3 3 Figure 2: Direct versus indirect corporate intervention Strong control over subsidiaries/units Level of intervention/ control Weak control over subsidiaries/units Level of intervention/ control Centralization Decentralization What does indirect intervention involve? Essentially it is a three-step process that we call BAR management : Boundary modification Attention change Reputation management Creating dynamic boundaries Even within an organization, subsidiaries often have their own norms, values, cultures and coding schemes. Although these create unity within the subsidiary, they also inhibit effective processing of information and communication across units. Nonetheless, the latter are the keys to extending innovation capability from one business unit to another. By creating dynamic boundaries, team structures become flexible, thus widening each member s circle of knowledge and influence across units and borders (Figure 3). The boundary team creates a common ground for units that are inherently different, stimulating interactions and possibilities for new ideas and developments. They also serve as an avenue for sharing innovation outcomes, reinforcing transfer of innovation. Ideally, members of the team should be rotated among the respective business units for optimal results. Figure 3: Create dynamic boundary across organizational units Subsidiary A Subsidiary B Dynamic Boundary

4 Innovation: Staying ahead of the Red Queen 4 As described in the box story on the facing page, Procter & Gamble has incorporated these boundaries into their everyday operations. Focusing organizational attention Even though the boundary sets the context for developing and transferring innovations, innovation may still not take place because team members, owing to their different backgrounds, may have different interpretations of the team s objective, thus causing their attention to vary. By explicitly directing their attention to the purpose, their behaviours, decisions and actions will be effectively channelled (Figure 4). How Apple used the Top 100 retreat to focus employee efforts is described in the box on the facing page. Manage internal reputation Corporate brand is one of the most valuable intangible assets of a company; and it follows that a sufficiently strong brand can drive innovation from within. Brand is best defined as a shared vision of the relationship between an organisation and its enduser. When the brand is seen as a relationship, it implies a promise from the organisation to the end-user to keep that relationship alive. This brand promise then functions as the foundation for brand-driven innovation as it controls focus and direction of process and individuals involved in it. Consequently, the brand promise guides innovative subsidiaries to unite all innovation efforts, thus providing consistency in the innovation portfolios (Figure 5). Figure 4: Changing attention focus of boundary teams Issue #1 Issue #2 Subsidiary A Subsidiary B Attention focus Figure 5: Managing internal reputation via boundary teams Subsidiary A Subsidiary B Innovative 2012 Hay Group. All rights reserved

5 5 Case: P&G s Design Thinking Initiative Recognizing the importance of dynamic boundaries, P&G took their innovation game to another level by developing a common model of Design Thinking Initiative to structure crossfunctional teams. The design-thinking facilitation team comprises draws its members from every function within P&G, such as marketing, research and development, information technology, and product supply and design. Marketing This cross-functional team creates a boundary and each member of the team (boundary spanner) acts as the communication gateway to ensure that ideas flow in and out of his respective functional team. Source: P&G changes its game, Business Week, July 28, 2008 ( jul2008/id _ htm) R&D Design thinking facilitation team Product supply Design Case: Apple s Top 100 Sharpening the organizational focus was one of the first things Steve Jobs did when he returned to Apple in At that time, Apple had a wide but random portofolio of computers and peripherals. Jobs stunned his team by ruthlessly pruning the product line to one desktop and one portable computer, each designed for consumer and professional use. According to Jobs, Deciding what not to do is as important as deciding what to do... That s true for companies, and it s true for products. Jobs also took his top 100 people on annual retreats each year. While the retreat was an intense three-day strategy session, it also created a common boundary around selected employees; with the agenda serving as the spotlight for members to focus their attention on. In this case, it was to work out the next three products that Apple should be doing next. Source: The Real Leadership Lessons of Steven Jobs, Walter Issacson, April (

6 Innovation: Staying ahead of the Red Queen 6 Case: The Samsung Man During the 1980s and 1990s, both Samsung s CEO Jong-Yong Yun and Chairman Kun-Hee Lee focused on employee training programs where they would learn about the right attitude and behaviors to display. The company founder designed a company sahoon (motto) and hailed employees who embodied the 9 Shared Values (subsequently revamped into the 7 DNA ) as the Samsung Man. Employees are encouraged to view themselves as the Samsung Man. Given that innovation is one of the 7 DNA that make up the Samsung Man, acting and thinking innovatively becomes a natural part of working at Samsung. So, the external brand is merely an extension of their internal brand. Samsung s 7 DNA 1. Dream, vision and goal 2. Insight and good sense 3. Trust and credibility 4. Creativity and challenge 5. Technology and information 6. Speed and velocity 7. Change and innovation Source: Interview with Samsung Co. by researchers from Hay Group s global research centre for strategy execution. If we can t scale our processes, they don t have much value for us in fact, scalability is often the justification for our existence as a multinational, diversified company. - A.G. Lafley, former Chairman & CEO of Procter & Gamble 2012 Hay Group. All rights reserved

7 7 Samsung provides a straightforward example of how a strong brand can drive innovative behaviours among employees (see facing page). Setting the BAR for innovation Innovation without scalability is nothing. As the Red Queen from Lewis Carroll s Alice Through the Looking Glass warned, if you want to get somewhere else, you must run at least twice as fast as that. Many companies today claim to innovate, but they are not keeping up the pace. Essentially without scalability, the dual processes of innovation development and transfer can only take place at the expense of one another, impeding the overall progress of innovation. Conversely, when there is scalability, both development and transfer of innovation can take place simultaneously, allowing the organization to become truly innovative and global. Hence, a rule of thumb for any corporate centre wishing to stay ahead of the Red Queen scaling innovation can only happen when organizations adopt the BAR management. If scalability means running at twice the original pace, BAR management provides the fuel to drive scalability. This paper was first presented at a round-table discussion at the Strategic Management Society s Special Conference 2012: Globalization of Innovation Strategies: Novel Moves for a Global Game, Session 8: Knowledge, Alliances and Innovation, 8th June 2012 (Friday). About Hay Group s global R&D centre for strategy execution Hay Group s global R&D centre for strategy execution researches best practices in strategy execution globally. Based in Singapore, the centre provides a unique East-West perspective for business leaders all over the world. Our research helps provide insightful advice to executives looking to build effective organizations for the future. To find out more about the centre, please go to: Contact the authors Andreas Raharso, Ph.D Director, Global R&D centre for strategy execution, Hay Group E andreas.raharso@haygroup.com T Minsi Goh Applied research associate, Global R&D centre for strategy execution, Hay Group E minsi.goh@haygroup.com T The content in this report is provided solely for informational purposes. This report does not establish any client, advisory, fiduciary or professional relationship between Hay Group and you. Neither Hay Group nor any other person is, in connection with this report, engaged in rendering accounting, advisory, auditing, consulting, legal, tax or other professional services or advice.

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