Process Of Innovation PDF

Process Of Innovation Unit 2 Planning To Innovate or not to innovate Factors that favor innovation Greater control of the process and the outcomes Greater understanding of the technology produces and how to apply it Greater ability to potentially develop the next generation of techn...

Process Of Innovation Unit 2 Planning To Innovate or not to innovate Factors that favor innovation Greater control of the process and the outcomes Greater understanding of the technology produces and how to apply it Greater ability to potentially develop the next generation of technology Greater profit potential as a first mover The first three benefits emerge as a result of the creative process associated with innovation. An understanding of how the product or process was developed, and what actions worked and what did not work in the development process Being a first mover often gives a competitive advantage, such as customer loyalty and brand recognition. These can be tough for competitors to match  In some settings, it can be more beneficial to be a follower in an industry  The first mover can spend many resources educating the market about the product  The follower can learn from the mistakes of the first mover.  Typically, if not a first mover, a fast follower, will perform best in an industry Factors that discourage innovation The time required for an internal development strategy is greater. There is a greater risk of failure to develop the right produce at the right time. Keeping a pipeline of new products and/or processes is difficult at best. There is always the danger that another firm will enter the market first. Product Innovation  Product Innovations are the center of their R&D efforts  The types of innovation efforts found in the R&D process include:  Basic Research : pure research and development. Involves the creation of new knowledge. Eg : Particle Research  Applied Research : new product development. It utilizes the new knowledge developed by the basic research to create new products. Eg : Semiconductor industry, radiation therapy  Systems Integration : product improvement. Aimed at supporting existing business improvements in established products or opening new markets with existing products Process Innovation The purpose of a process innovation is to increase the efficiencies or the effectiveness of an organization Changes in processes require the organization and individuals to adapt Process innovations help to improve the output-to-input ratio of the firm. The most common actions that address process innovation are new product development, restructuring, reengineering. Innovation Planning process The first is for the firm to recognize some fundamental dimensions of internal innovation : 1. The firm must acknowledge that the goal of internal innovation is for the firm to outperform its competition. Innovation is not a goal but a part of total strategy. 2. Internal innovation is a process that involves many individuals, capabilities, and resources. 3. The way resources are managed and allocated determines the types of innovation actions the org. is capable of undertaking. Five specific activities are part of innovation planning : Setting Vision Mission Goals and Objectives Strategies Tactics Determine the vision Typically, key leaders in the organization and the board of directors accomplish this process. A vision summarizes where a business wants to go and includes an understanding of how technology supports the firm’s vision. The vision helps the firm focus its efforts more clearly on what the innovation plan wishes to accomplish. Vision of FedEx : “When a package positively, absolutely has to be there overnight.” The development of the ability to deliver packages overnight was a radical process innovation when it occurred. Vision of BSNL : “To become the largest service provider in Asia” Vision of Walt Disney : “Make people happy” Set the mission  Once there is a clear vision of what the organization is and the role of technology,  The brief statement fewer than than sixty words, builds on the firm’s vision to specify what it does and how.  The mission is typically developed with far greater involvement of the firm’s employees  The mission statement helps the firm stay focused on what it is attempting to accomplish and how.  The ‘how’ leads to the firm’s approach to innovation typically being included or reflected in the firm’s mission statement. ‘At IBM, we strive to lead in the creation, development and manufacture of the industry’s most advanced information and technologies, including computer systems, software, networking systems, storage devices and microelectronics’ A mission statement provides the written purpose to fulfill the strategic intent expressed in the vision. Mission of BSNL To provide world class State-of-art technology telecom services to its customers on demand at competitive prices. To Provide world class telecom infrastructure in its area of operation and to contribute to the growth of the country's economy. Café Coffee day Vision : To be present in every space where coffee can be an integral ingredient Mission : To provide authentic, affordable coffee to our customers Establish goals and objectives After the mission statement, the firm establishes its goals and objectives. They set how a firm will carry out its mission. The goals and objectives specify what innovations the firm wishes to accomplish over the short and long period. Following are some examples of innovation goals  Increase the product pipeline from x to y, to grow the top line by 5%  Annually achieve 25% additional margin from new customer-driven services.  Increase the top line every three years by 25%.  Double the top line and bottom line every three years.  Achieve 25% of the top line from new services created within the past 24 months.  Improve customer acquisition ratio by 15% every year for the next three years.  Achieve a customer satisfaction index (CSAT) (or some other best practices method such as net promoter score (NPS) score of 6.0 out of 7.0 (85% or better).  Achieve 25% net profit from 3 new businesses and 25 new current product enhancements in the next five years. Set strategy Once the organization sets goals and objectives, it needs a strategy to achieve these goals and objectives Levels of strategy: Corporate level Business level Operational level Corporate level : Coordinate entire organization Exploit new technologies Assess external factors Maximize returns Determines which technologies and units to emphasize Business level strategy : Coordination of innovation in individual business unit Manage product and technical innovations Ensure cost effectiveness of that unit Operational level strategy Manage change at operational level Provide training Assist marketing Control costs Supply technical support Set tactics and actions It is through operational actions, often called tactical activities, that strategic plans come to life These are specific operational activities the firm will undertake to achieve its goals and objectives. Technology Stages and Planning The natural progression of the technology along its life cycle require adjustments in planning during each stage. The division between the end of one stage and the beginning of another is not always clear. However, the manager should be aware of such stages and have planning process consistent with the life cycle of technology and major product(s). Start-Up  At start-up, the firm is seeking an opportunity that will give it some kind of sustainable competitive advantage or help maintain competitive position.  External groups are very important to identify opportunities and understand how to take advantage  Focus on R&D activities and new product development  Basic and Applied research needed Growth  Consolidation in the industry begins as either the start ups fail or are purchased by other firms  At this stage, the firm consolidates the innovation it has generated as the industry standard as some product designs become dominant.  The org. still interacts with the external environment to establish that its technology is the best  At the same time, the firm focuses internally to ensure that its structures and processes are consistent with its growth The firm’s emphasis in innovation planning shifts to product improvement or adjustment during this stage. This phase of technology requires that the firm improve its product and its production. Maturity As the technology or product moves into the maturity stage, the organizational emphasis moves even more to an efficiency focus. Thus process innovation planning becomes even more important The flow of organizational communication is focused more internally in maturity than in an early-stage industry like broadband. Decline At the end of a technology’s life cycle, the focus becomes avoiding losses Focus is systems integration and process efficiency. Firm is looking for synergies to support continuation of the technology Internal structures and processes become even more important. Finance and sales represent the power sources of the firm. Factors that aid innovation planning Creativity Organization Wide Issues Political Issues Creativity List of tools and techniques that support creative thinking Adventuring Experimentation Scenario Thinking Encouraging employees to try new ideas Accepting mistakes  Confronting Encourage deliberate debates among employees Devil’s advocate What if analysis Portfolio of skills Focus on building new skills in employees Encourage cross-functional team activities Organization wide issues Organization wide issues bring together individual cognitive efforts of several people in the firm. The organizational processes are multidimensional and include: communication, reward systems, and organizational assumptions Communication Good communication makes individuals in the planning process aware of needs and opportunities Ensures the organization is working towards a common goal. Sharing of knowledge can be both formal and informal Periodically, the org. needs to evaluate the flow of information to be sure that communication is getting the right information to the right people at the right time to make timely plans and take timely Reward Systems Plan reward systems for individuals and groups that develop that sustain the internal innovation process The manager must be aware of the role of rewards and not create an internal innovation strategy that the reward structure does not support Organizational Assumptions Assumptions used in the planning process need to be monitored periodically to ensure the base assumptions are still true. Political processes  Innovation implies change  Change is often seen as threatening to the social infrastructure of the organization.  Innovation can lead to power changes in the power structures and thus the politics in the firm.  Political actions can also be used to benefit the organization.  A leader can use power and politics to move the organization in a new direction. Myths about Innovation Myth Reality Ideas are the engine for There are lots of brilliant ideas innovation that you have never heard of A good process generates all Leadership, culture, and the innovations needed process form a three-legged stool Through innovation, we can Develop the discipline to grow grow our way to prosperity ideas A good evaluation method will Objectively analyze eliminate bad ideas opportunities-grow when you are ready Don’t blind yourself to the human dimension when evaluating ideas. Implementation Key Implementation Issues  Organization needs to address four critical issues necessary for implementing an innovation strategy.  Leadership  Engagement  Extension  Alignment  The issues are interrelated and must be coordinated to help the organization achieve the types of innovation it wants  New product development requires more engagement and extension, and process innovation requires more leadership and alignment skills Leadership  In technology-focused firms, one of the key concerns is the leadership of the organization. There is typically a team of key leaders who guide the firm and play a pivotal role in its success.  This greater reliance on key leaders occurs because these firms compete in environments that are rapidly changing and evolving.  Pivotal leaders can be found at any level of the organization, as well as in any functional or product area.  The leaders of successful innovative companies ensure that there is cooperative behaviour among employees, a culture of collaboration, and cross functional initiatives  Two areas are of particular concern in seeking to ensure there is such collaboration. : Skill mix of the leadership team and Actions typically taken by the leaders Skill Mix  Innovation is accomplished most often by a team of individuals with different skills.  Occasionally, there is a single individual who plays all key roles in the firm, but more often, a team of individuals is present.  To illustrate, Microsoft is now one of the world s leading companies. It is impossible to think of the firm without thinking of Bill Gates, who clearly provided leadership in founding the firm. However, the founding team that created Microsoft involved more than just Bill Gates; it also involved many other individuals including Paul Allen, who played a critical role during the firm s development. Bill Gates is typically most associated with the external marketing efforts of the firm, and Allen was the internal technologist.  It is critical that leadership within the group ensures actions are completed. However, the leader needs to foster flexibility and freedom so others can be creative enough to make the innovation strategy successful.  Leadership can be in terms of formal and informal leadership i.e. does somebody’s power come from his or her official position in the firm or from other sources such as respect or knowledge  To illustrate, Seymour Cray was one of the founders of Control Data Corporation during the 1950s. He went on to establish Cray Computers in 1972. In 1976, he developed the Cray-1, a large, very powerful, high- performance computer. In 1980, he stepped aside as CEO, and in 1981, he relinquished his position as chairman of the board of directors of Cray Computers. These steps by Dr. Cray do not mean he left the firm. Instead, he removed himself from these administrative posts so that he could devote his talents and time to developing the next generation of supercomputers. This resulted in the Cray-2 introduced in 1985. Cray was widely acknowledged as a leader both in the firm and in the industry. Some of this leadership came from his formal role as a founder of a major computer firm. More important, his leadership also came from his knowledge and capabilities. The power from his knowledge and capabilities was such that later in his life Cray exerted leadership in the firm without holding any high-level, formal position in the firm Three leadership actions that successful innovation leaders pursue: Leaders are successful when they accomplish given tasks and goals. However, a leader does not achieve goals simply by giving verbal or written directives. Instead, leaders take actions to encourage the tasks needed to achieve the goals. Specifically, there are three leadership actions that successful innovation leaders pursue: 1. Create a supportive environment 2. Create mechanisms for innovation 3. Allocate resources  1. Create a supportive environment  When leaders encourage innovation in the organization, they must clearly indicate the firm s direction. These efforts should support the vision and mission of the firm.  The key leaders then support efforts that move the firm in that direction.  Their championing of the implementation effort for innovation must be more than words. This is important for all innovation, but it is critical for product innovation.  If support systems are to work as desired and aid the innovation process, there must be coordination and integration between the leader and the various units and actions of the organization.  It has been found that to coordinate and integrate these various systems, firms need to: 1. Avoid paralysis of analysis : There is a tendency by managers to generate an ever-increasing amount of analysis to justify their actions. This can result in over-analysis of a situation. Typically, perfect information or clear answers are not available. Instead, the manager should obtain a reasonable amount of information and make a decision. 2. Delegate effectively: Managers cannot micromanage each and every  2. Create mechanisms for innovation  The firm s leadership must have systems that are supportive of innovation. These systems range from standard operating procedures that affect everyday life in the firm to special programs that encourage and reward the exchange of ideas.  Two such special programs may be restructuring and reengineering. Example: The oil product company CITGO the purchasing department was recently credited with helping the production department save hundreds of thousands of dollars annually. The firm had in place policies encouraging the different departments to observe and understand what the other departments in the firm were doing. Through efforts encouraged by this policy, the purchasing department noticed the number of returns of their packaged products had increased significantly. Because the returns occurred across many product lines, the production department had not noticed that the returns were related to one element improper labelling. Purchasing, working with the production department and labelling suppliers, was able to spearhead a process innovation that led to changes in how labelling was handled. Rather than having employees look up labels in a paper catalogue that identified which label to place on a product, an automated system was developed. Now, when an order is relayed electronically to the plant, a picture of the label and packaging with accompanying information is immediately available online. This has resulted in 3. Allocate resources  The last of the actions for leaders, if implementation of an innovative strategy is to succeed, is the allocation of ample resources for the activities that are desired.  There must be adequate money, people, and other resources to allow the speculation, trial, and error if the innovation strategy is to be successful.  Innovation, whether radical or continuous, involves a change in the status quo, it requires resources that allow for the inefficiencies of experimentation and risk taking. It also means that resources must be available for those who advocate a different path.  The leadership must realize that experimentation, risk taking, and difference of perceptions should not be viewed as frightening but rather as opportunities. Engagement  The central question in engagement is how to get the various entities in an organization moving in the same direction.  Culture is the pivotal element in determining the level of engagement within the organization.  Microsoft s industry reinvents itself every twelve to twenty-four months. To do this, Microsoft needs a culture where its products are not replaced by competitors ; instead, the firm makes its own products obsolete.  To illustrate, Microsoft originally sold MS-DOS operating systems for computers. It then created Windows, which replaced MS-DOS. Now, about every two years, it replaces its current Windows operating system with a new version. This level of adaptability only comes about because of a culture that stresses change and flexibility.  The leaders of an organization should create an internal environment that allows individuals to believe they are part of a system and organization that will allow innovation; that is, they are actively engaged in the firm.  Problems in Engagement  Inertia : If a product works, the tendency is for the firm and its management to continue without disruption. Internal politics in the organization support this tactic because power is established and political systems are understood. If systems are changed through innovative activities, such as restructuring, then those power and political relationships are disrupted. Thus, established forces in the firm will desire inertia but inertia will make strategic actions in support of innovation almost impossible to implement and sustain. Inertia can be overcome with movement toward an open, egalitarian process that encourages direct, candid, future-oriented discussions.  Fear : Even when the change is perceived as positive, fear can be part of the response. For individuals in the organization, it is a fear of loss loss of personal power, loss of respect, or loss of a job. Fear is best managed by success. Small successes build positive beliefs about organizational and individual abilities to manage the innovative process.  Complacency : Complacency is similar to inertia; however, inertia concerns organizational structure, and complacency impacts the organization s efforts to make broader changes. Such complacency Overcoming the Problems The process organizations use to overcome engagement difficulties is change management  Building a knowledge based culture: The leaders of the firm can encourage the organization to have a change-accepting culture through their own behaviours. The purpose of an innovative strategy is to create and effectively utilize new products and processes. To make this happen, a firm needs to have a culture that encourages the sharing of knowledge within the organization.  For example, Xerox wanted to build a database for technicians on how to repair products. At first, the technicians were reluctant to submit tips on how to make repairs because it was not what they normally did. In addition, some feared that if they shared their special knowledge, they would become unnecessary. Engineers were asked to enter some tips to encourage technicians to share. In some groups, rewards, including cash and T-shirts, for submitting tips were offered. Today, Xerox s "Eureka" system holds about 70,000 suggestions and saves the company millions of dollars a year in repair costs.12  Training and Development: Training is critical to ensure that the proper human resources are present in the organization when needed. However, training and development also have the benefit of helping employees grow as professionals and as individuals. Honing skills through training and development is an important key to getting individuals to believe in what the organization is doing and where it is going. If an organization is going to be innovative, then it must renew itself by focusing on new technologies, new processes, and new ways of doing things. The organization cannot do this with employees who have outdated skills.  Mentoring employees : Another important means to connect the employee to the firm is through mentoring, the direct one-on-one activity between employees in the organization or a system designed to allow two people to learn from each other. Typically, in this setting, one party takes on the principal role of sharing information and guidance with the other employee.  Mentoring should not occur only in a downward direction with senior employees mentoring junior employees. Instead, it should also occur with junior employees mentoring senior employees. This is particularly true in a technology-focused firm because the newer employees may actually be more knowledgeable about a new technology and its application. Extension  Extension is the third key implementation issue and is concerned with firms having sufficient knowledge of product and market competencies so that new ideas lead to action through a filter of experience.  New product development, product improvements, and new market entry all depend on extension processes. Extension requires an organizational memory so that lessons learned in the past can be used in the future.  There are three key actions that can help generate extensions: 1. Knowledge sharing within the organization 2. Monitoring competencies 3. Looking for new opportunities Knowledge sharing within the organization:  The ability to create a culture where employees share knowledge within the firm is critical in the management of technology. An outcome of that knowledge-sharing culture is that it also aids in the extension of the firm s current products.  There are typically many small, continuous innovations that allow the organization to maintain or improve competitive positioning continuously. These smaller changes frequently occur because of shared lessons. A small success in one area then leads to other similar changes that ultimately can have a major impact on the organization.  Monitoring competencies  The organization must be aware of what competencies it possesses.  The principal means for a firm to gain a competitive advantage is through the skills and knowledge of its employees. The competencies of a firms employees cannot be easily duplicated by other businesses. This is in contrast to hard assets such as machinery because almost any firm that has the money can buy a similar asset.  To get a clear picture of what competencies are present in the organization, many firms perform a skills inventory to identify competencies that are present or needed. Such a skills inventory is simply a listing of the various training, understandings, and certifications each employee has. Looking for new opportunities  One innovation leads to a wide set of other opportunities for the same technology. New uses for existing products can lead to a whole new market or to unexpected innovations. Everett Rogers calls this sharing of information diffusion.  It is a special type of communication that is concerned with the spread of new ideas. The main elements of diffusion are: 1. An innovation or new idea 2. That is communicated through certain channels 3. Over time and in a timely manner 4. Among members of a social system (an organization is a social system)  Diffusion is based on the organization s willingness to act on opportunities as they become evident. Frequently, the opportunities emerge from the organization s boundary spanners. These are individuals who interact with and gather information from the external environment.  Prime examples of boundary spanning, or reaching outside the firm, are sales personnel interacting with customers or researchers at a professional association meeting.  This knowledge can provide valuable insight to changes in the competitive environment and to potential opportunities. Alignment  The firm should have a wide variety of systems to facilitate an innovation strategy. However, it is not sufficient simply to have the systems in place. Instead, there must be alignment among the various systems. Thus, alignment represents a fit among the systems within the firm as they support the firms strategy and a fit with the firms external environment.  Firms need to be creative. This creativity must be targeted and grounded in the financial reality of the firm. It is unrealistic for an organization to assume that it will have unlimited resources.  Eg: Microsoft has a culture that promotes creativity and innovation; however, there are systems in place to ensure creativity does not mean chaos. The firm uses a single, global financial reporting system. This system makes financial information easy to access by individuals and units that work in the finance function, but information is stored in a central data warehouse also. Thus, financial data are available to everyone in the organization. The system is set up so that most employees do not have to deal with the There are three key activities that are necessary for alignment:  Build Fit :Previously, it was stressed that the systems of the organization must fit together in support of the innovation strategy. However, not only must the systems align, but also the different internal groups must support each other. The internal groups are most important because they allow interaction and idea exchange and need to be aligned in support of each other. External constituencies are also important.  Tie Rewards and Incentives to the Achievement of Goals: If a corporation s goal is to be the innovation leader in new product development, then the systems of the organization should be set up to reward individuals and groups that help the firm achieve that goal. Innovation happens because employees know that the company expects it and rewards it. 3M depends on its employees abilities to create new products. The firm understands that not all of the products will be successful. However, it expects employees to continue trying new ideas.  Organizational Structure: The structure of the organization is a key to allowing the exploration of new ideas and processes. When there are changes in strategy, changes in structure are necessary to adjust to the information-processing needs of the new strategy. The structure of any organization has two basic purposes: communication and coordination. Likewise, the strategy follows the structure because if the ability to communicate and coordinate the changes is not part of the organization, then innovative strategy cannot occur. The structure of the organization must be characterized by flexibility and openness if innovation is to take place. There are many types of organizational structure. Functional structures have engineers separated from accountants who are also separated from marketing personnel. Divisional structures are divided by geography, product line, customer base, or some similar designation. Most successful innovative companies have hybrid structures that are designed to specifically address the situation facing the firm Evaluation and control  Evaluation  One of the key reasons for evaluation and control is that the firm s environment will change over time. As the environment changes, the assumptions on which the goals were based, and ultimately the goals themselves, can become irrelevant. For example, when a competitor develops a new, better way of creating a product that results in either a less expensive or improved product, the firm cannot continue with the same goals and actions it established before the change in the competitive environment. If it does, the firm can find itself at a disadvantage in the marketplace, and this disadvantage can lead to failure.  It is tempting to believe that firms will adapt as their competitive environment changes. However, there are numerous industries, such as printing, steel, and automobile manufacturing, where new processes were introduced, and established competitors ignored the changes. Ignoring change can lead to a firm s decline. To illustrate how dramatic environmental changes can be, and how firms must respond, consider the over-the-counter drug industry. In the 1980s, an individual tampered with packages of Tylenol. This person bought several bottles of Tylenol, emptied the contents of several capsules from each bottle, and refilled those capsules with poison. The individual then returned the bottles to stores where unsuspecting consumers bought the tampered- This figure illustrates the most commonly used control method: cybernetic control. The term cybernetic control comes from the biological sciences and refers to the nervous system that serves as a means to provide feedback to the brain. This feedback allows the body to make changes in actions: if you touch a hot dish the pain tells the brain to withdraw the hand. Evaluation of a firm s actions is built around three key questions: 1. Where are we now in comparison with where we want to be?  2. What lies ahead that can affect us either positively or negatively?  3. Where will we end up if we continue on this path?  Where Are We Now?  The first step in the gap analysis is to determine if the innovation strategy is working; that is, where are we compared with where we want to be with this innovation process. This is an evaluation of how the firm is doing right now in moving from its current position to its future position. In the planning process, the organization establishes goals and objectives. These goals and objectives typically include both short-term and long-term time frames. The long-term goals and objectives may take years to attain. However, even for an objective that is five years away, there are immediate steps short-term goals and objectives that must occur to achieve the long-term goals. The firm should judge its current status against both its short-term goals and objectives and its progress toward long-term goals and objectives.  Several key evaluations that a technological firm should conduct to understand its current status 1. Strategic environment evaluation : Strategic direction of industry and major competitors 2. External environment evaluation : competitors, customers,  In conducting its evaluation of current status, the firm needs a richer examination than simply comparing its goals to outcomes. The manager should periodically examine if the goal is still valid. To illustrate, a biotechnology firm may set a financial goal of 5 percent growth per year. If the firm underestimated the growth in the market and the entire market is growing at 25 percent per year, meeting the goal of 5 percent growth per year may actually mean the firm is not performing well. Similarly, the business may have a plan to dominate a given product domain over the next five years. However, the given domain can easily disappear within the five years. Thus, dominating a disappearing domain may be a reflection of inability to respond. For example, if in its five-year strategic plan a firm had a goal to dominate the development of banner advertising on the Internet, its goals may need to be revisited. Banner advertising firms typically have lost money, and today, other types of advertising have emerged such as pop-up advertisements and interstitial advertisements that appear as the user moves from one story to another. Thus, a firm may be dominating an industry, but if that industry is no longer viable or is likely to face emergence of new products that consumers prefer, it does little good to continue with such goals. Evaluation must be more involved than simply checking to see if the goal and objectives of the firm are being met. What Lies Ahead?  The second step in the gap analysis is the evaluation of what lies ahead that can affect the firm either positively or negatively. This information is obtained by scanning the environment for changes.  Changes in the economy can affect sales, and if the economy slows down, consumers will put off the purchase of a newer products until they feel more financially secure.  Although an organization can be innovative and build a new product or develop a new process, the market will determine if the product or process will have a useful life.  To illustrate, most college students today have never owned an electric typewriter or a cassette player standard equipment for students only thirty years ago.  If companies do not look for future trends or competitor actions they find themselves improving products and processes that will soon be obsolete.  The types of measures that the future evaluation should consider in the innovative strategy can be classified into three broad categories. 1. Measures of specific outcomes that have been identified to produce competitive advantage in the future: Examples of these include the number of patents, number of new products developed, and new process technologies put into place. These measures indicate efficiency in innovative processes and effectiveness in creating and responding to environmental changes. 2. Measures of outcomes that impact future competitiveness: The primary ways to do this are through customer satisfaction surveys, measurements of quality in inputs and outputs, and change in the number of returns because they all indicate the potential for future repeat customers. 3. Measures of future strategic capabilities: This includes items such as reputation, and growth in revenue. These measures indicate the strategic capability of the firm is being enhanced or at least maintained. Where Will We End Up If We Continue on This Path?  The firm should ask periodically, Where are we likely to end up if we continue on this path and is it where we thought when we developed the plan?  Such an evaluation does not happen as often as the comparison between current performance and the stated goals and objectives of the firm.  The evaluation process periodically needs to look for different opportunities or paths that may have emerged recently or that previous evaluations did not reveal. The firm should not assume it is on the right path simply because it met the current goal.  A periodic introspection most often confirms the goals and plans of the firm; however, it can open new horizons that have not been considered (or even known) previously. Henry Mintzberg refers to this as an emergent strategy. To illustrate; Imagine a firm like Apple Computer. No one predicted that the firm s most promising and profitable product would be an iPod for music and not its computers that were so dominant within the firm for many years. The managers at Apple had the capability to recognize an unexpected success and take advantage of this emergent opportunity. The release of the firm s iPad reflects this same emergent strategy. Types of Control For firms undertaking an innovation strategy, the control mechanisms that are available can be classified into the following : Financial Strategic Cultural A firm will use a combination of these controls, although usually one will dominate. Financial Controls  Financial controls focus on gaps between the desired financial outcomes and those actually produced by the firm.  Therefore, the firm will have goals such as sales growth, profit, and expenses. Those goals can be short term (e.g., the financial performance of the firm this quarter) or long term (two or more years).  The goals are then compared to actual outcomes for the time period. If a gap is identified, the firm employs methods to improve those financial results directly. For example, if the firm is not meeting profit goals, it may decide to cut costs.  The quantitative nature of the financial measures makes it the easiest to evaluate and correct.  However, the use of financial controls alone is usually inadequate. Financial controls simply show whether that particular financial goal is met. It does not address why the goal was or was not met nor does it allow a rich examination of the firm s activities.  Strategic Controls  Typical strategic goals can include: to be the market leader for a given product, to be first to market with a new product, or to be viewed as the most innovative firm in the industry.  The measures of such domains are more qualitative and difficult to measure. However, for the long-term success of a business, strategic controls are critical.  For example, if financial controls, such as profit, are the only measure of success used, there is little incentive to spend money on research and development, which is an expense that has only long-term impact. However, R&D investment is critical to the long-term health of a technology based firm.  In using strategic controls, the firm looks for gaps in its strategic goals and outcomes and then addresses them through strategic adjustments. These adjustments Cultural Controls  Cultural controls refer to the ability to have individuals act in a manner desired within the firm due to the culture that exists in the firm.  For example, an innovative culture helps ensure that information is shared, risks are taken within the organization, and actions critical to the success of the innovation effort are implemented.  The strength of cultural controls comes from the relationships within the firm that encourage individuals to act in a certain way.  However, the firm must also stay focused on creating value while taking risks and being creative. Cultural controls help ensure that the reality of value creation in an environment that nurtures creativity remains a focus for the firm s actions. Cultural controls are typically the least quantifiable types of controls used.  Illustration of the use of 3 different goals  3M expects business units to generate at least 30% of their revenue from products created in the last four years : Financial Control  The strategic goal for the firm is to be the industry leader in adhesive technologies. : Strategic Control  3M wanted to be innovative and creative with a high percentage of its revenue coming from new products. Individuals at the firm believe in and encourage each other to meet this goal : Cultural Control