Lectures SEOR - College Notes 1-8 PDF

lOMoARcPSD|7864644 Lectures SEOR - College-aantekeningen 1 t/m 8 Strategic Entrepreneurship and Organizational Renewal (Vrije Universiteit Amsterdam) Scannen om te openen op Studeersnel...

lOMoARcPSD|7864644 Lectures SEOR - College-aantekeningen 1 t/m 8 Strategic Entrepreneurship and Organizational Renewal (Vrije Universiteit Amsterdam) Scannen om te openen op Studeersnel Studeersnel wordt niet gesponsord of ondersteund door een hogeschool of universiteit Gedownload door Roos Snels ([email protected])  lOMoARcPSD|7864644 Strategic entrepreneurship and organizational renewal Lecture 1 (Why innovate?) The life expectancy of organizations (start-ups)is going down during the years that go by. What makes you in the end the one that belongs to the 0.1% that survive after 40 years? Is money goanna help you to survive or not? You need some money to experiment but beyond a certain point money doesn’t help you anymore. ‘’Being bigger is being better.’’ But it is not about: - Being big (size) - Being strong (money) - Being smart (IQ) It is about being able to adapt and renewal (It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change, Darwin). Organizations are not designed to adapt but they need to adapt to be successful and survive. The lower box is the innovation box This box is basically the activities that organizations (larger or small, young or old) do to innovation. At a certain point they think now we have hit the jackpot now we scale up and commercialize these project. - Being creative, start to experiment, doing R&D etc. The organizational conditions effects (positive of negative) the execution process For many companies these conditions form a hostile environment for innovation. Product life cycle (S-Curve) -> the beginning of the new product it works but it is not perfect and it will improve overtime (technology push). It gets better and better. In the beginning it is more the technology pushing innovation and at a certain point it is more market pull that drive the innovation (consumer oriented). The investment has the same pattern in the beginning there are limited innovations and overtime the investments increasingly moves up. You see a lot of emphasis in product innovation in the beginning make it work make it reliable. And at a certain point you want to unlock a larger market you need to invest in process innovation (the product needs to be cheaper). Tree phases in the product life circle: 1.Fluid phase - Frequent redefinition of tasks (flexibility) -> start up - Limited hierarchy - High lateral communication Gedownload door Roos Snels ([email protected])  lOMoARcPSD|7864644 Strategic entrepreneurship and organizational renewal - Organic structure. An organic structure is highly adaptive (and on the opposite it is highly inefficient) and therefor fits the fluid phase. 2. Transitional phase 3. Specific phase - Stable tasks - More hierarchy: coordination and control - Top-down communication - Mechanic structure. Predictability (low environmental uncertainty) We tend to think about a mechanistic structure in an negative way. Many companies these days have a mechanistic structure. What does a mechanistic structure offers? Control over your processes, cost reduction and predictability (you are reliable in the eyes of the consumer) What happens if you go from fluid to specific phase? (transitional phase) Structure -> from Informal to Formal Organizational behaviour -> rom Flexible and Responsive to Rigid and Predictable Power -> From Entrepreneurs to Managers Orientation -> From External (strongly find to find market opportunities) to Internal (they have kind of procedures within the organizations are more important that satisfying the needs of the customers) This is almost like a natural law, every organization is going to this process! Why it is so difficult for companies to adapt? See the picture of the horses on the slide. You cannot say if the where the with horses turn black it is a smooth process. The same happen at organizations. Innovation discontinuities Two types of innovation discontinuities: 1)Competence enhancing -> Sustaining innovation - Large improvements in price/performance Gedownload door Roos Snels ([email protected])  lOMoARcPSD|7864644 Strategic entrepreneurship and organizational renewal - Builds on existing knowledge - New products or new processes - The rich get richer 2) Competence destroying -> The old players will move out and the new entrances (can be start-ups but also players from an established industries) are the ones who benefits. Strong established players are moving out. - Large improvements in price/performance - Existing knowledge becomes obsolete/irrelevant - Entirely different knowledge and competencies - The rich get poor 20 years ago we saw a lot of competence enhancing innovations these days we see more and more competence destroying innovations. Examples: - Incumbent (blocker) vs. disruptor (action) - Incumbent (Sheraton) vs. disruptor (Airbnb) - Booking was a disruptor in the travel agent, but now booking might be disrupt by Expedia. So a disruptor can become a incumbent. Increase Inventions and acceleration innovations If you look the world is changing faster and faster and an important driver of that faster changing world is increasing of technological inventions that used to be created in Western countries (but now also china etc.) But that is in term of inventions those are not innovation we see that the adaption of those inventions goes quicker and quicker. How can firms respond? You have to change your strategy. But how do you change your strategy? Fundamental strategy issue. If you look at the sort of adaptation or renewal process there are two kinds of innovations processes. Incremental -> core ideas we can always improve (trying to avoid risks). This is basically a sort of traditional new product development process. It creates al kind of improvement in the product or service. - E.g. (traditional) new product development. Improved smartphone, faster computer etc. Radical -> companies don’t like this innovation process so they don’t do it voluntary but the have to face a sort of crisis. Then there is the energy and motivation to go for radical innovation. Gedownload door Roos Snels ([email protected])  lOMoARcPSD|7864644 Strategic entrepreneurship and organizational renewal - E.g. biotechnology, Internet, Cars, Airplanes, Steam engine But also: I-Pod, mobile phones, etc. In former times improvement was mainly focussed on operational excellence. Nowadays improvement is more focussed on digitalisation. Digital is penetrating all sectors, but to varying degrees. Which one is more important? Both are important but for different reasons. Improvement: - brings a company money in short term. If you keep focussing on the improvement there is no guarantee for the long term. - generate the income and resources. Renewal: - This is where renewal comes in. Renewal cost money on the short term and there is no guarantee that the money comes back. ESSENTIAL for continuity on Long term. - Right is essentially the only way to finish first long term. Example: Amazon started as a bookstore on the web. Amazon started to invest in cloud computing. That was a really radical innovation it was a costly process. But when this cloud computing Amazon started a webservices. Amazon created a disruptive innovation that created direct competition for Amazon itself. The webstore become secondary business. So renewal overtake the improvement. There investing in something and it disrupt website and apps and disrupt therefor itself. Conclusion: If you want to have internal life as an organization you do improvement and renewal and you will live forever. Why is it so difficult? The gates bunch -> the started a company (1978) for software. Group of students with common interest in software. IBM & Bill Gates Gedownload door Roos Snels ([email protected])  lOMoARcPSD|7864644 Strategic entrepreneurship and organizational renewal Late 1970s: - IBM: “The future is in hardware, not in software” - Internal memo: “The clothes of the Gates-bunch will certainly not be appreciated by our board of directors” - The decision for IBM not to invest in software is one of the biggest mistakes of IBM. IBM almost collapsed. Early – mid 1990s: - Bill Gates: “There is no future for the Internet whatsoever” -> how is it possible that these companies make such stupid mistakes? Not only in IBM and Microsoft also Tesla etc. The cause are deep organizational barriers. Not invented here syndrome -> if we haven’t invented it it is no worth paying attention to it Deep organizational barriers Economic force(no motivation) : Classic argument against innovation are, sunk costs. We have invested already so much in our current technology that from a purely economic perspective it is rational to keep on the same track and not to invest anything in renewal. Cognitive force (no ability): dominant logic, no understanding. “Knowledge makes you wise in some ways, but can make you a blindfolded fool in others”. If you have knowledge and expertise in one domain you have by definition lack of knowledge in an other domain. If innovation (disruptive) comes from an other domain is not that you don’t understand it you might not even notice it. - Core capabilities  Core rigidities - Competency traps: use of increasingly inferior resources 1) Overvaluing of internal knowledge 2) Dismissive attitude towards external resources / capabilities  Makes firms become inward-looking “Not-Invented-Here-Syndrome (NIH)” Social/Psychological force (no courage): Fear (zones of discomfort) or complacency -> not only at the level of company also at the level of nations. Why are these barriers so strong and always there? The focus on short term and bring you money and these predictability, reliability and legitimacy. There strong because there super functional. If you don’t have these forces and you are in the specific phase you are in deep trouble. However, in the fluid phase (innovative) they become dysfunctional Answer Why is this so difficult? There always there and they functional on the short term if you’re in the specific phase. Lecture 2 (Structure & systems) Innovation in time of recession - Attention to innovation especially also important during a recession - Lack of innovating carries substantial impact on performance Gedownload door Roos Snels ([email protected])  lOMoARcPSD|7864644 Strategic entrepreneurship and organizational renewal - A recession offers relatively large opportunities! Deep organizational barriers for innovation: Economic: Sunk cost Cognitive: no understanding Social/psychological: Complacency + Fear (zones of discomfort) 70% 30% The most important innovation barriers are related to internal company issues, lack of skilled personnel is the most important external barrier. What can you do about it? Positioning within the DSM innovation portfolio DSM = innovative company how introduces new products Organising for radical innovation Key mechanism: Organisational separation -> (radical) innovation - TEAMS Gedownload door Roos Snels ([email protected])  lOMoARcPSD|7864644 Strategic entrepreneurship and organizational renewal Lecture 3 (Strategy & leadership) Toolsmed case What have you identified in terms of what they have done in terms to improve the strategy? - Separation of innovation activities and separation of big N and little N -> This has nothing to do with structure (this is strategy) - Move to manufacturing -> structure - Organic growth -> strategy - The adjusted a dedicated leader -> leadership - Change in governance -> systems - Incentives, bringing rewards or punishments (more structure and systems, more hard) vs. emphasize (more culture, more soft) > in Toolsmed emphasized innovation -> How to change a culture? By changing the systems. The leaders (senior managers) emphasise innovation What is effective (strong) and what is ineffective (weak)? 1) Weak -> they only adjust the hard side of the organization. But the soft side (leadership, culture and people) is harder to change and they do not change them therefore. In addition, from cashflow to time-to-positive cashflow (the are more focussing on the short term). This is a signal for the want to change but they don’t feel like they have to change. 2) Strong -> separation Toolsmed after restructuring -> Strong focus on operational excellence and innovation (much) more important (?) Innovation and New business opportunities (INBO). Goal: develop systematic process for new growth business. How: combine best of internal and external venturing. And take advantage of underleveraged Toolsmed assets. - Venture capitalist approach -> rational approach and in the end wants to make an return on this investments. This approach also invest in different industries. If your are dealing with an VC your are dealing with the best investments opportunities that are out there. To what degree this was an success? Ansoff strategy matrix Gedownload door Roos Snels ([email protected])  lOMoARcPSD|7864644 Strategic entrepreneurship and organizational renewal This means that they also separated also adjacent innovations Adjacent innovation -> is closer to the core business, however in how much should we separated. INBO Big N: close to the core business Little N: far away from the core business - If you want to get people motivated for innovation the power of words is very important. So little is not motivating. - What does it say if something as far away from the core business is defined as little? That the company is egocentric. Little N Time horizon: 5 – 10 years (moonshots) Fund: 5 million (15 – 20 later) Strategy: new technologies and new markets Financially: cash flow (this signal that you cannot expect refund, but you want customers to buy it). So the degree of underlying motivation on a scale 1 to 10 is 2…. Adaptions to INBO Transition to manufacturing (march 2014) -> what does this signal? This is not smart because manufacturing is as core as it can be. More focus on: - IRR (internal rate of return) - Time to positive cash flow Our learning from these adjustments is that these choices moving away from an friendly environment and going to a hostile environment. INBO’s approach (1) -> Pipeline approach. It is all based on internal sources INBO’s approach (3) -> execution, INBO’s management involvement is very high - What do they do? Close monitoring and standardized approach - What does it bring? Fast decision making and experience - But what is the price? Loss of creativity If you execution right you balancing act among tree dimensions 1) Temporal: short term vs. long term 2) Behavioural: control at expense of freedom 3) Learning: borrowing at expense of forgetting INBO’s track record - 15 incubated by mid-2014 - 6 incremental and 9 adjacent/radical Gedownload door Roos Snels ([email protected])  lOMoARcPSD|7864644 Strategic entrepreneurship and organizational renewal - 2 are graduated to divisions Is it an success? It is based on what are your innovations ambitions as a company. Toolsmed systems: - Formalized structured systems: AOP, POR, Factory map and Roadmap. What is the underlying assumptions? Close to perfect information. So they have an stable and predictable environment (implicit assumption) And in the end the systems are designed to predict the future. Systems for integrating venture: systems for cost allocation and manufacturing (integral cost allocation). Why does this expense manage? There is no financial room for adopt innovation and this is not motivating Summarize structure and system - No systems in place to support transition - Basically off-budget financing for BU’s (however no credits for INBO) - Relocation: from corp strategy to manufacturing (indicative of low strategic priority) CONCLUSION: alignment of the conditions. Strategy and leadership 1) No mandate for using Toolsmed support system (IT, sales, marketing etc.). 2) No funds for upscaling from INBO -> BU’s. 3) No rewards for BU managers for integrating (only punishment). 4) No stand-alone strategy for INBO division Lack of alignment between structure and systems and leadership and strategy, but at the same time leaders say it is very important. What is going on here? Espoused theory (strategy): what managers say they do VS. Theory in use (leadership): what managers do Improvement VS. renewal Which one is more important? Managing top management paradoxes Embrace the paradox. This is not what the leadership of Toolsmed is doing, because in our brain we don’t like inconsistency (If A is True than B is false). Most companies do this and do not embrace paradoxes. Example: Jeanus is a special god. He has two faces. He can look to the back and to the future. Gedownload door Roos Snels ([email protected])  lOMoARcPSD|7864644 Strategic entrepreneurship and organizational renewal ‘Philips Lighting going crazy transition’ (1) “If you want to change the future, that does not mean that you performed badly in the past. The generation before us has done the right things. However, that does not take away the fact that with the arrival of LED we were facing a major challenge. In order to be able to lead the changes, we had to accomplish two difficult tasks”. -> essence of embracing a paradox “The first task was to abandon the old-fashioned light-bulbs and to close our manufacturing plants. That formed the most difficult part because you need to keep your teams motivated and to continue serving your customers. But we have become more profitable and have remained absolute market-leader. The second task was, and that may sound somewhat schizofrenic, to be the first with LED innovation. But, with 60% of our turnover from LED now, we have made that turn and we are growing again. And I am very proud of that!“ There are more companies that they have done it successfully, these are exceptions. Because what happens at Toolsmed is happening most of the time. Example: Amazon -> he started at a book store and knowing that webstore creating would be cannibalize the book part of Amazon. He is offering technology that you become a competitor of Amazon at the same time. Example of failing: Blockbuster. In 2004 there was a small competitor, Netflix. The were shipping video via mail to customers. The approach Blockbuster for digital delivery for content. Blockbuster laughed hard about it and is now bankrupt. Example: ING -> when you focus to much at the future and not at the present. Forgot the core business. What happened a large scandal of fraud. In summary of all the examples. To embrace Jenus you look at the core business. Is this going to the plan. And at the same time look at the question, what if a new start up entering and same product or service but for 20% of the cost. Avoiding the trap of espoused theory and theory in use is embracing jeanus (strategy issue). Leadership To manage the paradox you have to make a distinction between two types of team roles: - Advocate = supporting a particular agenda / viewpoint - Integrator = connecting between disparate parts 1)Leadercentric teams - Advocate = team members allocated to different agendas, views, roles (switch role) Gedownload door Roos Snels ([email protected])  lOMoARcPSD|7864644 Strategic entrepreneurship and organizational renewal - Integrator = sr. leader (e.g. CEO), ‘embracing the paradox’ (possibly assisted by co- leader, to alleviate cognitive burden) - High quality Leader / Member Interaction - Limited Member / Member Interaction  Risk of conflict will go down and Quality of decision will go down 2)Teamcentric teams - Advocate / Integrator = each team member (every on is two roles at the same time). Your still advocate of a different agenda. - High degree of Member / Member Interaction  Risk of conflict will go up and quality of decision will go up What is very critical are a number of key conditions: high interpersonal skills, psychological safety (you should be punished for disagreeing), common fate reward systems (idea we are financially we are in this together). If one of this conditions is failed conflict is very likely. Does this imply that only a teamcentric team only way to manage paradoxes? Is one better than the other? In theory yes, but in practices no. It also depends very much who is the leader. Sometimes there is an natural selection of a leadercentric team. If you have a leader that is natural leader then a leadercentric team is more effective. Guest Lecture 1 The Practice of Creating a Culture of Innovation Leadership-Innovation-Culture Strategy? What is strategy? STRATEGY = CHANGE How to keep up? Large corporations are extremely busy with keep up the world - We live in a “VUCA” world: Volatile, Uncertain, Complex, Ambiguous -> leadership is sailing in the mist, but you need to set the course. This VUCA world is getting more VUCA everyday (large companies know this) - Exponential vs. lineair change -> people in large corporations have a hard time in exponential growth - Constant vs. incidental change - Change keeps accelerating, 10x! Law of more = acceleration of technology Gedownload door Roos Snels ([email protected])  lOMoARcPSD|7864644 Strategic entrepreneurship and organizational renewal - Bigger and more disruptive -> technology are taking a lot of functionality out of the people arena. Now we have robots and algorithms. Strategy is sailing in heavy fog! To change there is a lot of disruption. Why is (change) so hard? 1. Do we all benefit? -> why would people be happy with change if they don’t know what it will bring for them. In a large organization every unit etc. need to know what the change is going to bring. 2. No (heart) connection -> why should I be connected if your not connected to it (because it is not in line with the purpose) 3. Too many projects started, but no results 4. Dictate or Discover? 5. No time? -> so much restructuring going on in business that there is no time. Illusion that there is no time 6. Wrong start, wrong timing -> let’s start a innovation project just before vacation. Look at the environment and decide when it is going to work 7. Resistance is not appreciated or is ignored STRATEGY = PERSPECTIVE how to change in today’s world? What is your perspective on leadership? - Shareholder value or stakeholder value? - Long term or Short term (or next Quarter)? - Purpose : people, planet, profit? - Leadership: level 5 leadership, serving leadership -> it depends on how the corporation will react on you as a leader - Business model: Top down, TEAL, holacracy STRATEGY = PROCESS sequence and timing How do you going to make this work? Directive? Top down, tight controls, templates, strategy experts, annual cycle Participative? Crowdsourcing, power of the collective, constant cycle, spiral of co creation Frequency? A 3 year plan is like riding a bike in traffic blindfolded Leadership perspective is critical in the way you handle innovation and change! Do you really belief that other people contribute of something that you don’t think of? Creating a culture of innovation Situation analysis -> What is the demand of your stakeholders, what is the demand of your customers. We looked at competitors. Look at the industries dynamics. What is happening in the environment? Then look at the organization - This you must do frequently because of the fast changing world Strategic choices -> make choices based on the situation analysis Gedownload door Roos Snels ([email protected])  lOMoARcPSD|7864644 Strategic entrepreneurship and organizational renewal Measures & rewards etc. -> easy things to change in order to make the strategic choices work Culture and people side (soft side) -> these are the real hard stuff to work an Implement & experiment -> If you went to all this stuff you need to check as a leader if it is working (experiment). If it is working you will go for it. They end up with a total different plan after the finishing the cycle! You need to continuously doing this circle to keep a purpose as a company. Example: Q8 evolueert van brandstrofverkoper naar mobiliteitspartner. They will make sure that they will integrated a full network on the gas station. For example the charge points for electric cars. They now buy electric, but they know every thing about gas. So how to implement this in the culture or the business model based on fuel. They also need to connect to parking partners if they want to be a mobility partner. But in conclusion it is a total different business. The thing is they have realized that the business in changing (maybe a bit late) Example: The culture does not fit in what you read at the internet. PostNL, it is all about the people. If you start with a culture you needs to match with every item in a company. Also the really small things, like a coffee lady. PostNL only cares about the numbers, so not about the people in the end. If you are standing I front of you employees and going to tell that they need to change. The brain is going in the easiest way. If they hear change, they will have a vision with it. The communication is really important in implementing change. Application in practice: activating the collective intelligence 1. Measuring engagement & mapping culture: If you really know what motivates people than you can build the culture on this. So with this technology you get real information about what motivates people based on specific elements. If you lack the elements that score high you do not get motivational people in your company. 2. Reflective dialogue: listen to the voice of the organization -> if you have a difficult question why don’t you ask it to your people? In large organization this is difficult, but technology helps in makes this possible. In this way you can decide with strategy you should choose. 3. Ideation: crowdsourcing ideas & open innovation -> involve all employees (1 in 4 employees has a good idea and 20% can be realized). Transparency on progress and results. Make sure you capture ideas. Lecture 4 (Execution and Culture & people) People in ToolsMed, functional background: - Medical engineers - Scientists - There are not really open, acceptance of new stuff is really low, they avoid risks. Gedownload door Roos Snels ([email protected])  lOMoARcPSD|7864644 Strategic entrepreneurship and organizational renewal Value = what you think it is important (in life). So they value predictability. Are these bad or good values? It depends on the perspective you take. Because they also bring stability, efficiency, professionality If we look at the conditions at Toolsmed that all these conditions don’t match and as a consequence all these conditions don’t match with each other. So what will happen at the execution process? This happens in 9 out of 10 companies. If you try new things you borrow things from the past but also want to forgot the past. Radical -> more forgetting than borrowing Incremental -> more borrowing than forgetting What will be the effect on borrowing of the mismatch of the conditions? Will the innovation teams do more borrowing (incremental) or more forgetting (radical)? More incremental and the forgetting is going down. Effect on outcomes of this process: - Only incremental - Me-too stuff - Is this all there is? - We could have done that What happens then is innovation gets like a sort of forbidden word. They blame the execution process. Hostile conditions for innovation. This is not a Toolsmed problem, but a world wide problem. Example: Most executives (84%) agree that strategic entrepreneurship and innovation are critical for their businesses. Yet very few (6%) are satisfied with the outcome and very few know what exactly the problem is, and how to improve their innovation performance. Solution? Fix the conditions (alignment of conditions) Changes in SE-Execution Process at Toolsmed: - Longer incubation - More financial resources (€, $) - More handsoff approach by INBO? Pro’s? Con’s? - More input from outside in front-end phase - External collaboration throughout pipeline process Execution process All too often new business is managed in a ‘polar fashion’ a. Either exactly the same as a mature business - Leads to barriers that impede new business creation b. or, in splendid isolation (forget about the integration process) - Leads to alienation and US vs. THEM mentality Difficult to get the balance right…… The average life-span for innovation programs is 3 to 5 years. H1 Businesses (core business) Gedownload door Roos Snels ([email protected])  lOMoARcPSD|7864644 Strategic entrepreneurship and organizational renewal - Mature, well established -> Focus: Cost Control, profitability H2 Businesses (in between) - Rapidly growing, contributors of new revenues -> Focus: Revenue growth and market share gains H3 Businesses (future business, facing an innovation process) - Future options, few survive -> Focus: Market development, identifying potential customers confirming technical & economic feasibility - “Share of mind” One way to monitor the innovation (teams) is not by market share but by means of mind share. In the end the idea is that mind share turns into market share. What is mind share? That you become the talk of the town (gossip about your idea). The way you monitor H3 business is entirely different from the way you monitor H1 business. If you stage this tree types of business along these execution process this is the outcome (see picture): H3 Businesses -> operating in ambiguous environments. Seldomly possible to “get it right first time”. If you make a distinction between H1, H2 and H3. There is an very important implication. What does it mean for how you manage businesses? Evaluation: what are its implications? 1. Different business should be managed differently 2. Different management styles -> Exploitation versus exploration - H3: dealing with the unknowable - H1: predictable execution of the plan 3. Different performance metrics - H3: process-based milestones - H1: (financial) outcomes Implementing: separation vs. Integration  balancing act among 3 dimensions: 1. Temporal: short term vs. long term Short term -> essential for getting the business up and running - Tactical Milestones on building the business: forming the executive team, crafting an organization, meeting with customers, ‘press coverage’ and marketplace acceptance. This are the things you need to monitor Long term -> essential for staying power and profitability - Strategic Milestones on growing the business: Strategic clarity, revenue growth or profitability and ‘Share of Mind’ 2. Behavioural: freedom vs control Freedom -> Essential for ensuring the development of new practices that truly differ - free from the bureaucratic and budgetary control systems Gedownload door Roos Snels ([email protected])  lOMoARcPSD|7864644 Strategic entrepreneurship and organizational renewal - a ‘breed apart’: special rules and guidelines Control -> Keeping strategy coherent and implementation manageable: ultimately acceptable for organization - lengthy review meetings with innovation team leaders - realistic, attainable plans 3Learning: forgetting vs borrowing Forgetting -> Forget some of what made the Mother successful (“Institutional memory”) - forget current customers/processes/business-models etc. - hire outsiders - report high enough in organization - new sets of beliefs on what leads to success Borrowing -> Borrow some of her assets, which may provide the greatest advantage over independent start-ups - create only links to assets crucial for new CA - ‘painless’ borrowing: high enough transfer prices - reward cooperative BU-mgrs for borrowing Changes in strategy & leadership: “Practice what they preach” -> Sponsorship of innovation teams & ventures by senior managers Protected resources -> “Strategy-in-use” converges with “espoused strategy” - ‘In good times and in bad times’ Demonstrate leadership -> Encourage experimentation, failure & learning (e.g. Unilever) + Recruiting people - Ownership / sponsorship Changes in Structure and systems: Reporting systems - Milestones (non-financial) - Strategic and Financial tracking Red / Yellow / Green scoring system on - clear strategy - executable model - market-place success More support & receptiveness by division -> Increase budget for graduation OR: longer incubation > Dedication to H2 experimentation Higher up in hierarchy: more decision power Integration of ventures: -> e.g. appraisal & remuneration for BU-mgrs HR Systems From ‘just’ a Job to a Career in Innovation ‘Serial intrapreneur’ (H2) Innovation-team composition -> dedicated teams - Leader - Strategy - Operations / Finance - Technologist – Compensation systems (?) -> No differentiation Gedownload door Roos Snels ([email protected])  lOMoARcPSD|7864644 Strategic entrepreneurship and organizational renewal Culture & people What kind of culture do we want? Risk accepting, open, more horizontal (more people can have input), Tree key dimensions: 1)Willingness to cannibalize existing products/services - We sacrifice sales existing products to improve sales new products - We do not oppose new products that take away sales existing ones - We actively pursue new markets at expense of existing investments 2) Future orientation - We put emphasis to customers of the future relative to current ones - Orientation is at future needs customers, less on current needs - We rapidly detect fundamental industry shifts 3)Tolerance for risk These dimensions are pro innovation. What do these dimensions represent? Barriers of innovation. Economic, cognitive and social/emotional. It is not a coincident. What kind of people you want? What is important for the execution process? First part is about willingness to fail and second part is about willingness to cannibalize. So accept both extremes. This brings us back to H1, H2 and H3 (see picture on previous page). What is the most important and difficult part of the process? The H2 part. You have to cross the big scary chasm in order to reach the mass market. If you have success in H2 you have strategic clarity how to cross the big scary chasm. But what is happening? There are always traps. First trap -> the skip H2, no time to loose (if companies smell the money of the new idea). Second trap -> they stay in H2 (do not even accelerate). Why would you stay in H2? It is comfortable, no pressure of core business. I can experiment and learn etc. = Escalation of commitment. These people should not decide to move or stay, people with distance should. Gedownload door Roos Snels ([email protected])  lOMoARcPSD|7864644 Strategic entrepreneurship and organizational renewal What you should do to avoid these traps is this cycle of 4 steps (=incubation). Social/emotional process -> try and fail. This is only going to work if there is psychological safety Cognitive -> learn and improve. You need the ambition to improve. There is some tension between these two subsystems in this circle. Thick data = qualitative data. Collect feedback by means of al kinds of tools Big data = collect by means of serving data on website etc. Big data is going to replace thick data. The more big data we have the less we need thick data, but we need a combination of the two. You need thick data to the understand the emotions and deeper motive (reasons why). But the disadvantage of tick data is it gives you in depth but not very breadth, you cannot generalize. This is for big data the other way around. The successful innovators will be the ones who are able to connect throughout a execution process the thick with the big data. Third trap -> catch 22. If it becomes a success they get the credits. If it fails they get the blame. The motivation of H2 will go down because of this catch. H1 are manager -> they don’t like risk H3 are the creators -> creative people and often a bit weird. H2: Key character traits - Appetite for risk-taking, Internal locus of control, Self-confidence and (very) High energy level ‘Hybrid personalities’ - Highly adaptive (‘agile’) & Focused (‘disciplined’) - Big Dreams & Hands-on actions (‘dirty hands’) Gedownload door Roos Snels ([email protected])  lOMoARcPSD|7864644 Strategic entrepreneurship and organizational renewal - Crave for Recognition & Handle Rejection Key skills - (very) Comfortable Managing Ambiguity -> Internal networks & External networks -> Socially (very) intelligent: ‘tolerated Maverick’ and Balance between ‘Cajoler’ - ‘Pick a fight’ - ‘Ambassador’ However, very short attention span, ADHD? There are not very loyal to the organization but to their mission. Fourth trap -> when you do not recognize the profile of H2 people. H2 profile is a profile it self and should only be in H2 stages. CONCLUSION: world class innovators = alignment of all conditions Lecture 5 (Teams) Why teams for innovation? The romantic myth of lonely genius who creates a fortune out of inventions made in his basement or garage still has a strong lobby. However, in reality, teams are generally fare more effective and outperform individuals (Shenhar, 2001): - Both in creating new ideas and bringing them to live - One person’s idea leads to several more ideas by others - One person’s complaint may be another’s solution - A big thing for one person may be a small thing for a team Four types of teams: 1) Functional team (technical, simple problems) -> functional disciplines sequential approach coordination via FM’s Pro’s: Task division and Specialization Cons: ‘’Over the wall’’ and Time-consuming Gedownload door Roos Snels ([email protected])  lOMoARcPSD|7864644 Strategic entrepreneurship and organizational renewal 2)Light weight team (incremental innovation) -> functional with light coordination trough PL Pro’s: Fast coordination and Project owner Cons: Lightweight PL and Conflicting loyalty 3)Heavy weight team (adjacent innovation) -> one task for core team members PL has power Pro’s: Commitment, consistency and autonomy Cons: Not in-depht, status differences and Invisible C’s 4) Autonomous team (tiger team, radical innovation) -> Team members decoupled from functional disciplines Pro’s: focus and Decision power Cons: Outside boundaries and difficult to manage Positioning with the DSM innovation portfolio Where should the types of teams should be placed in the product life cycle? Gedownload door Roos Snels ([email protected])  lOMoARcPSD|7864644 Strategic entrepreneurship and organizational renewal Tiger team is the team you create to create a new transition to a new product life cycle. That’s why you need separation, because this can cannibalize the former life cycle. Functional team for the current life cycle and a tiger team for the new life cycle. So two teams at the same time. What kind of organization do we have then? Paradoxical organization or ambidextrous organization - This is an innovation logic. All the arguments you use is to stimulate innovation! Economic logic -> Economic logic and innovation logic run in parallel. In the beginning of the life cycle you need to invest and hopefully increase revenues. But over time you focus more on cutting cost (because more focus on process innovation) - What is the most expensive team to operate? A tiger team is the most expensive and most risky Our innovation logic tells us this is the ideal road and the economic logic is the same. Because a heavy team is more expensive to operate than a light team and as it happens over the course of the life cycle cost get more important. Economic logic supports or reinforces the innovation logic. Can you call this really ambidextrous if tiger and functional are operating at the same time? No ambidexterity is not only separation but also integration of the separated units. Four dimension of organizational culture (Hofstede) 1) Dimension means VS. goal orientation 2) Dimension internally VS. externally drive Gedownload door Roos Snels ([email protected])  lOMoARcPSD|7864644 Strategic entrepreneurship and organizational renewal 3) Dimension easy going VS. strict work discipline 4) Dimension open VS. close system What kind of dimension would you choose for a tiger team? This is not black white we are dealing with trade-offs and paradoxes (discussion in lecture represents this) Research for dimensions of culture There is a balancing act between the need for creativity and the need for discipline. It is more about creativity then discipline. Empirical research at Philips and DSM (two tiger teams) RQ: What are the requirements for optimisation of an organization and its culture in order to maximize the creation and commercialisation of successful, radical innovation? - Empirical research at Philips and DSM (two tiger teams) Dimension 1: Strong goal orientation that amounts up about 80%. There are some constraints that we need have to pay in account at a sufficient minimum level (to some extent following guidelines etc.) - At the Philips the teams were more means oriented then they thought Dimension 2: Ideally medium strong external orientation (60%). If you are to externally drive you have the risk that you listen to well to your current customers. Why is this a risk? They might take you into the wrong directions for two reasons: 1) risk averse innovation 2) ‘’If I had ask my customers what they wanted, each and everyone would have ask for faster horses.’’ -> they don’t know what they really want, but they always want cheaper, better and faster. Gedownload door Roos Snels ([email protected])  lOMoARcPSD|7864644 Strategic entrepreneurship and organizational renewal - For the next life cycle you create the current customers can you ask question but are the new customers the same? Dimension 3: Easy going Dimension 4: Strong open system (90%). Summarize: Dimension 2 and 4 are related. How comes that we see the deviation especially in dimension 2 and dimension 4? So how can you be externally driven but you are still a bit to close, but it makes sense? - If you are to externally oriented you are too much focused on the current situation and on competitors. If makes sense for the short term. If you are entirely external driven you will get the left incremental innovation. For the right incremental innovation stuff you need to be externally oriented you need to focus on what is not there of what happened at other industries. For example: Henry Ford, the success was the moving assembly line. He was very open, but not very externally oriented. He stole it from the meet packaging industry. Henry ford was very open, so he borrowed the idea and implement it in the car industry. Look at the sides not only on your current customers or competitors (external oriented). Break troughs comes from unexpected places. Is external and open not the same? Is that a form of external orientation? The underlying assumption of dimension 2 and 4 is that the future will equals the past (linear). Dimension 4 the future will not equals the past (non-linear). So you have to be open in order to be able to predict the future. For both you need to look outside the company. Extreme openness = Seeing the future in ways that others don’t see it If you 100% open what could be the risk? Ending up in chaos. Everything is important and you don’t know what is the most important anymore. So you need to some extent selection. In the end these dimensions it’s about balancing the dimensions. It is about discovery and delivery. As a team leader you need get the balance stay in place. You can balance in two ways: 1) Hire the right people 2) If your not able to find the right people (tight labour markets) -> team process indicator (does this team have conflict, a big conflict). Let’s assume you create the balancing act and have the right people how do you know the balance is still in place? Via a process indicator (conflict). It tells you if they are committed, because if they fight they are committed. Don’t trust a team that never fight! Lecture 6 (integration of digital innovation) Background of the Volvo case is the disruption of digital innovation. Volvo already started in 2010 (early mover) it took them 5 years to commercialize it. Gedownload door Roos Snels ([email protected])  lOMoARcPSD|7864644 Strategic entrepreneurship and organizational renewal Organizational identity is a powerful force and often is taken for granted. You realize you have an identity once if becomes under threat. What is the organization, how does it see itself? Part of this identity is what role gives the organization itself. Most of the time you act in line with your identity. Once you do this that conflict you will feel uncomfortable. Once your identity is being threatened, it evokes an emotional response. Volvo: It sees itself as a shaper in terms of safety -> they found the security belt in car (no patent, because safety is important for the whole car industry). Once you do the separation, you have at a certain point think how to integrate! Conditions for integration of innovation: Ability to Integrate -> Coordination & Exchange of Knowledge Flows = Cognitive Integration (moste companies focusing on this) Willingness to Integrate -> Reduction of Agency Conflicts between Innovation teams and Organization = Economic & Social-Emotional integration Volvo Case: Vision -> connected car (continous evolution). It was a cognitive message. - Execution of the vision - They had a mismatch of the existing capabilities and the new capabilities that they needed -> competency gap. To adress this they adjusted structure. They started with the heavy weight team, with some degree of separation. The connectivity hub - In the end they were lacking the capabilities and they rely much more on external collaboration -> app development group (digital services with the cloud). Adjustment from a heavy weight team into a tiger team - IT department got an entire different role (were internal, servicing volvo internal) and now are responsible for all cloud solutions (integration measure). Because the tiger teams stays linked to the IT department and was not going to much outside boundaries. - Approached spotify to get integration into the screen -> Spotify said we are not a supplier we are a partner. Volvo need to make new contracts. It turns from transaction to a relationship These are adjustments they took to ensure the integration of the digital innovations. Is this enough? Gedownload door Roos Snels ([email protected])  lOMoARcPSD|7864644 Strategic entrepreneurship and organizational renewal These are the conditions you all need to succeful integrate innovation Volvo: - Shared vision & innovation -> NO (only vision) - Ratation of people -> NO - Sponsors -> YES - Change control systems -> to some extend - X-functional interfaces –> YES What went wrong? -> they had a vision but they failed to embrace the strategic paradox. They failed to change the identity. The consequece (effect the role of a shaper) -> they ignored the culture and the people and it was not a shared decision (it was imposed) - Idea of the digital innovation enhanched the domain identity (car manufacturer). It seems to conflict or challenge their rol as a shaper of safety. What could they have done to adress this identity conflict? You make your identity at a higher level of abstraction, but still consistence with who you are. Example: Mercedes. We invented the car and now we are creating it’s future -> all people are getting included (nobody want to be part of the past). They used the past and make it positive (not useless). Identity shift, the elevate the identify at a higher level. Gedownload door Roos Snels ([email protected])  lOMoARcPSD|7864644 Strategic entrepreneurship and organizational renewal CONCLUSION: If you go to a large transition if you do not adress a organizational identity and see how it effects the identity it is not a transition or renewal. Once you have the sof part in place you may not even need the hard part of the conditions. The soft conditions is the hard part to change or to adjust. - SEOR -> It is extremely hard because it hits you in the face once you ignore it. Lecture 7 (Guest lecture) Micro foundations (individual level) of process of innovation and how different conditions have an impact. A radical innovation capability requires 3 organizational competencies:  example of Nokia (has a capability to RI, because they done it multiple times). Started as a paper manufacturer, innovated toward rubber, and eventually to cellphones, now they make the material for the logistics for telecommunications. It engages in discovery, incubation and acceleration Organizational level: - Discovery = activities of organization that create/elaborate RI opportunities. Organization had to realize to go from paper to telecommunications etc. How? Certain systems in place that individuals will help think about certain discoveries. Because of relationships with outside world, people notice that there are changes going on and that they have to do something to. How to make sure that the people in these relationships will tell you about opportunities? Trust is necessary for collaboration inside the org and outside. Employees should trust managers. Incentive system: for instance, giving autonomy to employees. - Incubation = when org is capable of maturing opportunities into business proposals, testing it in the market etc. Ex: Sony  involved in incubation for a long time in video cassette market and DVD. Sony had compact disks and they were first, but DVD was better. After a while they decided to produce a product combining both. Sony had to make sure that is was capable of having both standards. Continuously testing. You really can’t know what standards is going to win in the market, so you need to test. Sony also gained a lot of trust among employees, which was good. - Acceleration = as soon as standard is set, then you can stop experimenting in the market, but then you have to restructure entire org. Ex: Philips  famous because of lightbulb, but they became light service company. Also diversified in medical equipment and sold their light service company. So, they figured out where they stand for. Should bet on more horses, before acceleration. There is uncertainty. Managerial dynamic capabilities: Dynamic capabilities: abstract concepts. History of the concept: Gedownload door Roos Snels ([email protected])  lOMoARcPSD|7864644 Strategic entrepreneurship and organizational renewal You need tangible and intangible resources to be better than your competitors. If environment is constantly changing, then tangible and intangible resources won’t help you anymore. Then the dynamic capabilities came in = routine to help you update other routines. Ex: Uber  routine to hire people, but also have routine to update routines of employees. Very dynamic routines, because different everywhere. Help you to update employees you have and skills they have. Ex: Salesforce  constantly acquiring other companies. Acquiring them and uses their resources to update resources they have. Look at knowledge they have and try to update all their resources with that knowledge.  Sensing = learning and creating and sensing the environment. Usually, you’re also shaping = trying to find opportunity that doesn’t exist yet. Lot of uncertainty. Important at managerial level, ideas have to be heard by someone in power. Managers need this in discovery phase.  Seizing = investing in multiple competing technologies and business models. Ex: Nokia  they went to countries, such as India, to “connect” people to telecommunication. They invested in multiple competing technology and collaborated with organizations. Choices depended on the environment and were different at different places. Managerial capability necessary in incubation phase.  Reconfiguring = recombine assets and organizational structures as the enterprise grows. When Nokia was creating the touchscreen phone, they couldn’t turn it into accelerated businesses. Top managers were focused on external environment and were scared of new innovation. Instead of exploring, they were focused on only one thing. The middle managers were focused on internal environment and were scared of their superior. They didn’t trust each other. There were some problems, but they didn’t dare to tell their superiors. As a consequence, Nokia failed in mobile business and sold it. Trust and autonomy were missing. Stakeholder oriented: invest in relationships with stakeholders, rather than for instance, switching to the supplier who asks for lowest price. Profit oriented: improve financial performance, also if these practices result in lower stakeholder welfare. Mental activities: Teece (2007) talked about the micro foundations of dynamic capabilities. Hodgkinson said that creating mathematical models will not help. Imagine you want to invest in stock market. Someone invented mathematical model of how people should invest in stock market. He won a Nobel prize for that. What you also can do, is saying that you don’t know anything and divide all money equally among stocks. Who will win? The one who divides it all. Don’t use the mathematical model, because they predict based on collected data. You can use it as a description of past stock performance, but not as the future. Because the stock is very complicated. The stocks are changing, so a model of past stocks can’t predict anything. So, you will bet on all horses. So, you will let people try certain things and see what works. (When there is certainty, predicting according to models can help). In the sensing phase, there 2 mental activities: 1. Perception: recognizing certain pattern, organizing and interpreting information. 2. Attention: state of awareness of perceptual information. It influences perception. YouTube video: Selective Attention Test (Simons & Chabris, 1999): https://www.youtube.com/watch?v=vJG698U2Mvo - Framing: job-to-be-done, abstracting, problem decomposition - Abduction In the seizing phase: if someone has a bad perception of something, then they will not pay attention to it and not seize that opportunity. It should be framed in a different way to try to make sure. Gedownload door Roos Snels ([email protected])  lOMoARcPSD|7864644 Strategic entrepreneurship and organizational renewal 1. Problem-solving 2. Reasoning Example: imagine that we are preparing for the outbreak of an unusual disease, which is expected to kill 600 people. 2 alternative programs combat the disease have been proposed: - If program A is adopted, 200 people will be saved - If program A is adopted, 400 people will die - If program B is adopted, there is a one-third probability that 600 people will be saved and a two-thirds probability that no people will be saved. - If program B is adopted, there is a one-third probability that nobody will die and two-thirds probability that 600 people will die.  with positive framing, people will choose for the certain option. Framing it in negative way, people go for risky option. Innovation is uncertain, but you should frame it as positive as possible. You shouldn’t rely on deliberate reasoning or emotions only, they could complement each other. In reconfiguring phase: 1. Communication: at Nokia, communication between top managers and middle managers was wrong. Middle managers had to do what the top told them. 2. Social cognition You don’t know what kind of reconfiguration is the right one. But you can tell people what your goal is to other people and they can help you to come up with a solution. So be open and collaborative. If you implement these capabilities, you will make sure there is trust among employees which will make it easier to innovate. Lecture 8 Gedownload door Roos Snels ([email protected])