Eras of Innovation Quiz

Eras of Innovation

• There are four distinct eras of innovation
• Each era is driven by a specific paradigm shift
• Entering new segments is a key factor in driving innovation

Paradigm Shift

• Paradigm shifts are essential for creating new eras of innovation
• They involve significant changes in the way businesses operate
• Companies must embrace radical innovation to open up new eras

Radical Innovation

• Radical innovation is critical for businesses to thrive
• It helps companies to enter new segments
• It's essential for opening up new eras and achieving long-term success

Innovation is Key to Survival

• Innovation is essential for long-term survival. It enables companies to adapt to changing market conditions, stay ahead of competitors, and create new opportunities.
• Different Types of Innovation
  • Product innovation includes changes to goods and services.
  • Process innovation includes changes to technology and organization.
  • Digitalization has significantly impacted both services and technological innovation.
  • New business models arise from innovations in process, technology, or products.

Product Life Cycles and Innovation

• The product life cycle illustrates the stages of a product’s development, maturity, and decline.
• The S-curve shows how innovation can drive growth but eventually leads to stagnation.
• Fluid Phase: characterized by high levels of uncertainty in the market.
  • Emphasizes frequent task redefinition, limited hierarchy, and high lateral communication.
  • Adaptability is crucial in this phase.
• Specific Phase: characterized by low uncertainty.
  • Emphasizes stable tasks, hierarchy for control, and top-down communication.
  • Predictability is key in this phase.
• Transition from Fluid to Specific Phase: involves major changes in organizational structure, behavior, power dynamics, and focus.
  • The shift from informal to formal structures, from flexible to rigid behavior, entrepreneur leadership to managerial hierarchy, and from external to internal focus.

Innovation Discontinuities & Competence

• Innovation Discontinuities occur when new technologies create significant advancements.
  • Competence-enhancing innovations build upon existing knowledge and enhance performance. This benefits established players.
  • Competence-destroying innovations render existing knowledge obsolete, requiring entirely new skills; new entrants often benefit.
• Digital Disruption is a type of competence-destroying innovation that creates new opportunities while often leaving established players behind.

The Importance of Innovation During Recessions

• Recessions offer opportunities for innovation.
  • Focusing on innovation during economic downturn can help maintain performance and gain a competitive advantage during recovery.

Challenges to Innovation Within Organizations

• Economic barriers: sunk costs prevent companies from investing in new technologies.
• Cognitive barriers: lack of understanding about new technologies. Companies may be stuck in their existing ways of thinking.
  • Core rigidities: these are the limitations of existing skills and resources that hinder adaptation to change.
  • Competency traps: companies become reliant on outdated skills and resources, making them slow to adapt.
• Social/psychological barriers: these include:
• Complacency - a lack of urgency to innovate.
• Fear of change and disruptions to existing power structures.

Impact of AI on Strategy and Organization

• Increased Automation: AI and LLMs are expected to automate a significant portion of jobs in the coming years.
• Singularity: a moment when AI becomes more intelligent than humans. This could be closer than previously predicted.
• Global Economic Impact: AI is expected to significantly boost global GDP.
• AI Applications in Professional Contexts: AI is already used in areas like medicine, law, business, education, and more.
• AI's Ease of Use: The availability of AI tools with low barriers to entry has democratized access to powerful capabilities.
• AI's Opacity and Challenges
  • Hallucinations: AI can make mistakes and produce inaccurate results, sometimes in unpredictable ways.
  • Trial and Error: requires ongoing learning and sharing of experiences to address AI's limitations.

AI's Impact on Performance

• BCG Experiment: Study showed how AI enhanced performance for consultants in tasks within its capabilities.

• AI's Impact on Legal Work: AI is transforming legal tasks, but its effectiveness is limited to specific activities.

• AI's Impact on Writing: AI can help with writing tasks but is still in the early stages of development for complex writing and strategic decision-making.

• Beyond Technological Frontier - AI's Limitations*

• AI's effectiveness is limited for tasks beyond well-defined creative, analytical, or writing tasks.

• Challenges in Dynamic, Unpredictable Environments: AI struggles in situations requiring:

  • Open methodologies
  • Interconnected tasks
  • Tacit knowledge
  • Shifting attention

• AI's Impact on Creativity*

• AI can enhance creativity: AI can generate high-quality ideas but may lack the novelty and originality of human thought.

• Human Creativity: remains essential for breakthrough innovation.

Strategic Entrepreneurship and Organizational Renewal

• Strategic Schizophrenia: Companies need to embrace the paradox of simultaneously managing their core business and exploring new innovative ventures.
• Innovation Ambition Matrix: helps companies assess the potential of innovative ideas based on their disruptive potential and impact on the core business.
• Managing Paradoxes in Top Management Teams:
  • Leadercentric teams: rely on the CEO as the primary integrator of different perspectives.
  • Teamcentric teams: empower all team members to be both advocates and integrators.

Innovation Killers

• Lack of Separation for Radical Innovation: Companies often struggle to create the appropriate space for radical innovation to flourish.
• Resistance to Change in Leadership: Leaders can be resistant to embracing new technologies or disrupting existing business models.
• Inflexible Systems: Rigid systems and processes can stifle creativity and innovation.

Strategic Entrepreneurship - Execution Process

• H1 Businesses: Focus on cost control and profitability.
• H2 Businesses: Focus on revenue growth and market share gains.
• H3 Businesses: Focus on market development, identifying potential customers, and proving technical and economic feasibility.

Leadership, Culture, and People as Innovation Killers

• Leadership Challenges:
  • One-size–fits-all Management:
  • Rigid Resource Allocation:
  • Resistance from Core Business
• Culture Challenges:
  • Us vs. Them thinking:
  • Fear of Losing Control
  • Lack of Psychological Safety

Key Takeaways

• Innovation is crucial for long-term success.

• Organizations need to overcome internal barriers to innovation.

• AI will have a profound impact on organizations, but it is not a panacea.

• Leadership and culture play a critical role in fostering innovation.

• Strategic entrepreneurship requires a balance between core business operations and new, disruptive ventures.

• A systematic approach to innovation is essential for success.### Innovation Killers

• Corporate culture focused on preserving the status quo can hinder resource allocation towards innovative ideas.

• Prioritizing standardization over innovation discourages experimentation and risk-taking.

• Cultures that reward conformity can suppress creative thinking and the willingness to challenge existing practices.

• Leadership may protect existing sales and investments by ridiculing early and later stage innovations, leading to procrastination on upscaling and market introduction.

• Economic barriers include loss aversion bias (protecting sales) and sunk costs bias (protecting investments).

• Cognitive barriers include avoiding failures (failure myopia and action bias) and denying failures (escalation of commitment).

• Social-emotional barriers include denying failures (fear of scapegoating) and avoiding & denying failures (failure being seen as fault).

### Innovation Killers for People

• Lack of empowerment for employees to pursue innovative ideas.
• Fear of non-conformance with the existing business model.
• Inability to act swiftly, allowing startups to gain an advantage.
• Leadership may not like employees involved in innovation, leading to a lack of trust and talent leaving the organization.
• Senior management may micromanage innovation teams, substituting their ideas with personal judgments.
• Not trusting individuals in innovation roles, resulting in lack of inspiration, fear, and a lack of innovation experience with senior management.
• Social-emotional barriers include affinity bias when allocating resources and a lack of trust, leading to narcissism, fear of losing control, and difficulties in changing leadership styles.

Worldclass Innovators

• Alignment of Conditions
  • Success achieved by aligning strategy & leadership, structure & systems, and culture & people.
  • These factors need to work together for innovation and renewal to be successful.
• Culture & People
  • Key dimensions
    • Willingness to cannibalize existing products/services
    • Future orientation
    • Tolerance for risk
  • Strategic Entrepreneurship/ Venturing - Three Phases
    • Discovery: Experimentation and risk-taking are key.
    • Incubation: More experimentation with a focus on refining the product or service.
    • Acceleration: The innovation is integrated into the broader business.
  • Willingness to Fail, Learn, and Improve
    • “Try, Fail, Learn, Improve” emphasizes the need to accept failure as part of the innovation process.
  • Psychological safety and constructive conflict are key team conditions for enabling this environment.

Three Phases of Innovation

• H3 (Creators): Focused on high creativity and experimentation.
• H2 (Intrapreneurs/ Business Builders): Focused on building a business and balancing creativity with execution.
• H1 (Managers): More risk-averse, focused on operationalizing and scaling innovation.

H2 People – Business Builders

• Key Character Traits:
  • Appetite for risk-taking
  • Internal locus of control
  • Self-confidence
  • High energy level
• “Hybrid personalities”
  • Highly adaptive (agile) & focused (disciplined)
  • Big dreams & hands-on actions (dirty hands)
  • Crave for recognition & handle rejection.
• Key skills:
  • Comfortable managing ambiguity
  • Internal and external networks
  • Socially intelligent: ‘tolerated Maverick’
  • Balance between ‘Cajoler’ - ‘Pick a fight’ - ‘Ambassador’

Volvo Digital Innovation & Integration

• Disruption is detectable, clear, inevitable, and leads to a new normal.

• Two Dimensions of Organizational Identity

  • Organizational domain identity: Focus on organizational category and competitive position.
  • Organizational role identity: Focus on organizational impact on the overall development of its category and its relationship with other actors.

• Volvo's identity as a Shaper: Volvo is actively shaping the future of the automotive industry, particularly during times of disruption.

• Four key concerns Volvo faces in digital innovation:

  • Internal vs. external collaboration: Balancing internal development with external partnerships.
  • Product vs. process: Balancing product innovation with process innovation.
  • Control vs. flexibility: Maintaining a balance between centralized control and flexibility for innovation.
  • Ability to integrate: Cognitive, economic, and social-emotional integration.

• Volvo's Connectivity Hub: A heavyweight team focused on adjacent/system innovation with a strong project leader.

• Volvo's App Dev Group: A tiger team focused on radical innovation with a high degree of autonomy, an independent budget, and a strong project leader.

Conditions for Integration of Innovations

• Ability to integrate: Coordination and exchange of knowledge flows, leading to cognitive integration.
• Willingness to integrate: Reduction of agency conflicts between innovation teams and the organization, leading to economic and social-emotional integration.
• Volvo Case: Rotation of individuals between different departments, fostering development as "serial intrapreneurs" and diminishing the "us vs. them" attitude.
• Strategic Paradox: Integrating existing business models with new, innovative initiatives which can be challenging, but essential for sustainable growth.
  • Shared vision and organizational identity are crucial for this integration.

Guest Lecture 6.1 – Eric Tinga

• “Lack of costs can also be a sign to radical innovation”

Lecture 6: Summarize all the weeks

• Catching up to best-in-class can be challenging due to conflicts of interest and resistance.

Innovation in Different Settings

• Traditional Fields: Consulting, law, education, medicine
  • Structured Methods: Emphasize established procedures and processes.
  • Independent Tasks: Work is often compartmentalized and less interconnected.
  • Codified Knowledge: Relies on established, documented knowledge.
  • Stable Attention: Work requires focused and consistent attention.
• Frontier Fields: Start-ups, new tasks, rapidly evolving industries.
  • Open Methods: Embrace adaptable approaches and experimentation.
  • Interconnected Tasks: Work requires collaboration and integration across different areas.
  • Tacit Knowledge: Relies on experience, intuition, and informal learning.
  • Shifted Attention: Work demands flexibility and responsiveness to changing circumstances.

AI vs. Human Creativity

• AI excels in:
  • Generating ideas of higher average quality, but with lower variability.
  • Increased financial and environmental value for ideas.
• Humans excel in:
  • Developing ideas with higher novelty and "out-of-the-box" thinking.
  • Potential for breakthrough innovations.

Innovation Challenges within Companies

• Positive Aspects:
  • Economic Drivers: Innovation is driven by the need for new initiatives, technological advancement, and overcoming revenue challenges.
• Negative Aspects:
  • Cognitive Barriers: Distance between innovation and core business, leading to hesitation and risk aversion.
  • Social-Emotional Barriers: Fear of disruption to existing power dynamics, causing reluctance to embrace change.

Solutions to Innovation Challenges

• Cognitive Barriers:
  • Scenario planning to anticipate future disruptions and strategize accordingly.
• Social-Emotional Barriers:
  • Using cognitive frameworks to manage conflicting ideas and accept complex realities.

Innovation in Times of Recession

• Innovation is especially crucial during economic downturns to mitigate performance decline.
• Recessions present opportunities for innovation to emerge and drive growth.

Deeper Organizational Barriers to Innovation

• Economic: Sunk costs, lack of motivation, and reliance on existing investments.
• Cognitive: Lack of understanding, insufficient skills, and difficulty interpreting emerging trends.
• Social-Psychological: Complacency, fear of change, and prioritizing risk avoidance over experimentation.

Innovation Killers at ToolsMed

• Economic: Lack of strategic focus, reluctance to embrace ambiguity, prioritization of existing markets, and budget cuts for innovation.
• Cognitive: Limited capabilities for market analysis, difficulty in interpreting “weak signals” of upcoming trends, inadequate skills for starting new ventures, and lack of foundational infrastructure for innovation.
• Social-Psychological: Cultural resistance to messy and challenging innovation, prioritization of flawless execution over experimentation, and lack of senior management support.

Key Barriers to Innovation

• The most significant barriers are rooted in organizational conditions, especially the absence of market intelligence.

Top Management Team (TMT) Challenges

• TMT uses harsh language about new entrants and start-ups.
• TMT maintains a strong adherence to the company's current identity.
• Economic Causes: Loss aversion bias, prioritization of core business over potential threats.
• Cognitive Causes: Confirmation bias, overlooking opportunities for radical innovation, limited experience with disruptive change.
• Social-Emotional Causes: Strategic paradox, fear of identity conflicts, and fear of losing control.

Strategic Entrepreneurship: Execution Process

• H1 Businesses: Mature, established businesses focused on cost control and profitability.
• H2 Businesses: Rapidly growing businesses focused on revenue growth and market share gains.
• H3 Businesses: Future options with high risk, focused on market development, customer validation, and technical feasibility.

Innovation Killers for Systems

• Inflexible Systems: Prioritizing efficiency over experimentation, hindering innovation.
• Standardized Reporting: Rigid reporting systems based on financial projections, limiting adaptability.
• Carved-in-stone Resource Allocation: Resistance from core business to shift resources toward innovation.

Innovation Killers for Leadership

• One-size-fits-all Management: Applying a uniform strategy to both established business and innovation stifles creativity.
• Rigid Resource Allocation: Favoring core business over innovation limits opportunities for growth.
• Resistance from Core Business: Established units resist new projects, hindering progress.

Leadership Communication Barriers

• Emphasizing “must” in communication: Creating a sense of obligation rather than opportunity.
• Alluding to threats rather than opportunities: Focus on potential losses instead of potential gains.
• Pushing the “urgency button”: Creating a sense of panic and limiting strategic thinking.

Strategic Identity Questions

• Who is the company in relation to its role in industry development?
• What is the company's relationship with other players in its field?

Volvo's Identity as a Shaper

• Volvo positions itself as a "Shaper" in the automotive industry, actively shaping the future of the sector, especially during times of disruption.

Volvo's Digital Innovation Concerns

• Internal vs. External Collaboration: Managing the balance between internal teams and external partnerships.
• Product vs. Process: Balancing product development with process innovation.
• Control vs. Flexibility: Finding the right level of control and adaptability for innovation.

Volvo's Digital Innovation Integration

• Emerging Innovation Champion: A framework for discovering and nurturing new ideas before integrating them into the company's existing structure.

Conditions for Integration of Innovations

• Ability to Integrate: Facilitating knowledge exchange and coordination between innovation teams and the organization.
• Willingness to Integrate: Reducing conflicts between innovation teams and the core business to encourage collaboration.

Volvo Digital Innovation Teams

• Connectivity Hub: A heavyweight team responsible for adjacent and system innovations, with a clear hierarchy and defined tasks.
• App Dev Group: A tiger team with a focus on radical innovation, granted substantial autonomy and independence.

Volvo HR Strategies for Innovation

• Rotation of People: Promoting a career path in innovation by rotating employees between core business and innovation roles.

AI Impact on Performance

• Ease of Use: AI has low barriers to entry, with minimal upfront investment and cost.
• Opacity of AI: Performance varies drastically, exhibiting both strong performance in some instances and failures in others.
• BCG Experiment (April 2023): 758 consultants from BCG (7% of total) used AI.
• Generic AI Impacts: AI amplified task volume by 12%, accelerated task completion by 25%, and improved task quality by 40%.
• Impact on Specific Roles: AI significantly impacts consultants, marketers, grant writers, data analysts, HR professionals, and managers.
• Impact on Writing Tasks: AI effectively aids in tasks like press releases, reports, and emails, completing 20-30 minute assignments.
• Frontier of AI Performance: AI's effectiveness varies based on task complexity.
  • Inside Technological Frontier: AI enhances tasks like creativity, analytical reasoning, writing proficiency, and persuasion.
  • Beyond Technological Frontier: AI performance may be hindered by complexity beyond well-defined tasks.
• Impact on Skill Levels: AI acts as a great equalizer for tasks within its frontier, boosting performance for both low and high-skilled participants.
• Impact on Entrepreneurial Tasks: The study found entrepreneurs in Kenya, operating in a complex environment outside well-defined tasks, experienced decreased performance with AI.

Innovation During Recession

• Importance of Innovation: Innovation remains crucial during economic downturns, mitigating performance impact.
• Recession as Opportunity: Recessions create substantial opportunities for innovation.
• Organizational Barriers to Innovation: These include sunk costs, lack of understanding, and fear of change.
• ToolsMed Case Study:
  • Economic Barriers: Lack of strategic focus, aversion to uncertainty, strong reliance on existing markets, and budget cuts impacting innovation.
  • Cognitive Barriers: Lack of data collection on new markets and trends, inability to interpret 'weak signals', inadequate entrepreneurial skills, and absence of supporting infrastructure.
  • Social/Psychological Barriers: Cultural resistance to innovation, fear of failure, focus on precision, and lack of senior management passion.
• Most Significant Barriers: Organizational conditions, specifically lack of market intelligence.

Driving Innovation

• Growth Engine: Innovation drives autonomous growth, with target percentages of breakthrough innovations ranging from 15% to 20% of revenue.
• Balancing Core and New Businesses: Companies need to prioritize their current core strength while simultaneously exploring disruptive future opportunities.
• Strategic Paradox: Balancing core business with new innovations requires embracing strategic contradictions and achieving a 'sweet spot of optionality.'

Innovation Ambition Matrix

• Managing Paradoxes in Teams:
  • Team Roles: Advocate (supporting a specific agenda) and Integrator (connecting disparate parts).
  • Leadercentric Teams: Leaders act as integrators, minimizing member interaction to reduce conflict risk. This leads to potentially lower decision quality.
  • Teamcentric Teams: Each member acts both as advocate and integrator, fostering high member interaction and potentially high-quality decision-making, but increased conflict risk.
  • Key Team Conditions: High interpersonal skills, psychological safety, and common fate reward systems for team-centric teams.
• Ansoff Strategy Matrix: A framework for assessing innovation potential and risk by considering market and product novelty.
• INBO Case Study:
  • Big C: Close to core business.
  • Little C: Distant from core business.
  • One Size Fits All: Standardizing reporting and resource allocation across core business and innovation, hindering flexibility and adaptability.
  • Leadership Barriers: A one-size fits all approach to managing core business and innovation leads to resistance and potential discouragement of new ventures.
  • Strategic Barriers: Discussions about withdrawing from emerging markets prior to successful startup growth.

Innovation Killers: Leadership, Culture, and People

Innovation Killers: Leadership

• One Size Fits All Management: Leaders applying a uniform strategy across core business and innovation may stifle creativity.
• Rigid Resource Allocation: Limited flexibility and bias towards the established core business restrict innovation funding.
• Resistance from Core Business: Existing business units may hinder the integration of new projects, slowing down innovation.
• Leadership Communication: Avoiding explicit support for innovation by emphasizing 'musts', alluding to threats, and pushing for urgency.
• Innovation Status: Allowing innovation to remain in an 'orphan' status with minimal support or, conversely, excessively adopting new ventures.
• Economic Barriers: Lack of clarity on the attractiveness of innovation to core business or vice-versa, and the need to sacrifice existing routines and resources.
• Cognitive Barriers: Lack of understanding between core business and innovation.
• Social-Emotional Barriers: Threats to personal identity, fear of reduced credibility, and resistance to change in leadership style.
• Us vs. Them Thinking: Separation in identities and perspectives between core business and new ventures.

Innovation Killers: Culture

• Inflexible Resource Allocation: Prioritizing the status quo inhibits allocation of resources.
• Standardization: Focus on existing practices and a lack of experimentation hinders innovation.
• Conformity-driven Decision-Making: Rewarding compliance limits creative thinking.

Innovation Killers: People

• Lack of Empowerment: Employees with limited autonomy cannot contribute fully to innovation.

Innovation Killers: Execution

• Avoiding Failures: Pursuing speed over quality, potentially skipping important milestones.
• Denying Failures: Moving too slowly due to a fear of failure, prolonging decision-making and progress.

Innovation Killers: Leadership (Examples in Execution)

• Protecting Existing Sales: Preventing entry of new products or services by undermining new ventures.
• Protecting Previous Investments: Resisting the integration of new disruptive ventures.
• Procrastinating on Upscaling: Delaying market introduction and growth of new products or services.

Economic Barriers to Effective Execution

• Loss Aversion Bias: Protecting sales due to a fear of financial losses.
• Sunk Cost Bias: Protecting past investments, even if they are not economically justified.

Cognitive Barriers to Effective Execution

• Failure Myopia: A short-sighted view of potential failures, leading to quick action.
• Action Bias: Acting quickly without careful consideration of potential risks and consequences.
• Escalation of Commitment: Continuing to invest in projects that are failing, due to a desire to justify the initial investment.

Social-Emotional Barriers to Effective Execution

• Fear of Scapegoating: Resistance to failure due to fear of being blamed.
• Failure as Fault: Seeing failure solely as a personal mistake or lack of effort.

Test your knowledge on the four distinct eras of innovation and the paradigm shifts that drive them. Explore the concept of radical innovation and how it influences business operations and success. This quiz delves into how entering new segments can lead to thriving in today's market.