Lecture 5 - Innovation & Knowledge Management (HT21) PDF

Innovation & Knowledge Management 7.5hp (HT-21) LECTURE #5 Agenda  What is exploration & exploitation  What is knowledge and knowledge transfer Seminar #3 (What is open & user innovations) 1. In what way do organizations need open & user innovations? If using these approaches, wha...

Innovation & Knowledge Management 7.5hp (HT-21) LECTURE #5 Agenda  What is exploration & exploitation  What is knowledge and knowledge transfer Seminar #3 (What is open & user innovations) 1. In what way do organizations need open & user innovations? If using these approaches, what are the biggest challenges with it for a big or a startup company? And are these challenges different if focusing on incremental or radical innovations? 2. Is there a clear cut line between open & user innovation or are they interconnected? Does one include/exclude the other? In what context is open or user innovation best used? What could be distinct examples of each of these innovations?  Seminar #3 (What is open & user innovations 1. Relating back to last week's theme of capabilities, should a company always have a user approach, or can it have a negative impact on a firm’s capabilities? Are certain firm capabilities crucial in order to successfully appropriate open/user innovations? Or does open/use innovation require that all capabilities are now at the user? 2. Since each companies are different, can there be a framework for innovation that applies to all, or are these theories (open, user, incremental, radical, etc.) a “waste of time” and all that matters are study cases and viewing each company’s needs separately? Moreover, how does innovation relate to marketing? Exploration & Exploitation https://youtu.be/0MUkgDIQdcM Exploitation  Exploitation is to continuously improve on what we already have.  In order to exploit the organization need to refine their capabilities.  It includes things captured by terms such as refinements, extension of existing product line, quality improvements, production efficiency, choice and selection, implementation, execution  Innovations based on exploitation = incremental, performance- improving innovations.  It is cost efficient and often economically fruitful, in the short run. Exploration  Exploration: it is to act as an explorer, experimentation with new alternatives to create new things.  In order to explore the organization need to create or learn new capabilities.  It includes things captured by terms such as variation, risk taking, experimentation, play, flexibility and discovery  Innovations based on exploration = radical, disruptive innovations  It is costly and often unfruitful, but it is the only way to finish first. https://youtu.be/HCBR8R0wC3c Exploration & Exploitation  The yin & yang of innovation  The main task of managing innovations for an organization is to balancing short-term profitability (exploitation) with long-term sustainability (exploration).  Firms need both sets of innovative activities for long term survival.  Their execution demands very different activities, capabilities, processes, and search-evaluation criteria.  Firms (too) often focus on exploitation and fail…  The way we manage something is based on the way we think about it (local search bias) Firms need to master two distinct challenges at the same time Established business New Business (exploitation) (exploration) Strengthening and Creating new businesses extending the core business Exploration & Exploitation  How much should we invest in the next version of an existing car and how much should we invest in next generation of self-driving battery driven cars.  The next generation is much more risky then the next version.  But, next generation can provide much better opportunities for long term survival of our company.  Volvo (care by Volvo) might transform to a service or computer company (business model innovation). Ambidexterity  Balancing between exploration and exploitation  Definition: The test of a first rate intelligence is the ability to hold two opposed ideas in mind at the same time, and still retain the ability to function (Fitzgerald)  In the context of innovation: “the firm has the capability to simultaneously achieve alignment and adaptability at a business level”. Hence, at the same time do exploration and exploitation. Balancing mode Contextual Organizational Temporal Domain ambidexterity separation separation separation Locus of balance Individual and Org. level Org. level Org. level group level Mech. of balance No buffers between Separate units, Sequential shifts Explor in one exploration/ coordinated by between domain, exploit in exploitation hierarchy explor/exploit over another time simultaneously Management role Provides supportive Proactive Proactive Proactive infrastructure management management management is not essential essential necessary condition Challenges Contradictions Coordinating across Transitions between Identifying within units units + contradictions explor/exploit + applicable domains inertia + decide on domain Some typical shares of different innovation types of a large FMCG  New-to-the-world (10%): innovations that create a whole new market.  New-to-the-firm (20%): innovations that take a firm into a category new to them.  Additions to existing product lines (26%): innovations that extends the product line in a current market  Improvements and revisions (26%): innovations that make current products better  Repositioning (7%): products that are retargeted for a new use or retargeting to new users (target markets)  Cost reductions (11%): innovations that provide users similar performance but at a lower cost. Mastering exploration is important: it is the key driver for profit The more we move to the blue ocean/white space (=engage in exploration) the more we have to build and manage assumptions Incremental innovation Adjacency Blue ocean/white space Assumptions Knowledge Assumptions vs Knowledge  Managers hate building decisions on assumptions!  We want to make decisions on knowledge, especially hard data.  The more we move into the blue ocean/white space we have to make decisions on assumptions.  The “knowledge-problem” for the typical firm is:  There are no set metrics or model for evaluating the role or performance of knowledge-creation and knowledge-dissemination (KPI’s)  This is the essence of innovation management. You need knowledge as a base but have to be able to deal with assumptions. What is Knowledge  Oftentimes in research, innovations are used to concretize knowledge.  Knowledge is the most critical resource of the firm. Provides competitive advantage (resource-based view & knowledge-based view).  How to define knowledge?  a) Data  a set of discrete, objective facts about events.  b) Information  data endowed with relevance and purpose. A “message” and “meaning”  c) Knowledge  broader, deeper and richer than the data & information. Illusive concept…  d) Alternative dimensions…  Degree?  Understanding of a-c is a basis Working definition of knowledge “a fluid mix of framed experience, values, contextual information, and expert insight that provides a framework for evaluating and incorporating new experiences and information. It originates and is applied in the minds of knowers. In organizations, it often becomes embedded not only in documents or repositories but also in organizational routines, process, practices, and norms.” (Davenport & Prusak, 1998, p. 5) What knowledge is needed for an innovation? Knowledge related to WHAT the Use knowledge technology should do; i.e. the applications that satisfies the users’ needs Knowledge related to understanding the Technology knowledge technology, i.e. understanding the opportunities and limitations. Both technical and organizational Who posses the knowledge? Users have naturally the best knowledge Use knowledge regarding their own needs and preferences. Experts in the companies who develops the Technology knowledge technology possess the best knowledge regarding its opportunities and limitations Lead users possess both knowledge and can also combine these  lead user innovations  Ordinary Users do ”only” possess knowledge regarding use experience and must thus co-operate with experts in order to produce innovations Knowledge transfer  “the process through which one unit (individual, group, division, department etc.) is affected by the experience of another“  Why is knowledge transfer so important?  Utilize advantages residing within the firm.  Explore and take advantage of external knowledge.  Exploit (unique) knowledge from different locations (competence, innovations, patents etc.).  Economies of scale. A B 4 stages in the transfer process  Initiation (G. Szulanski,1996)  All events that lead to the decision to transfer. A transfer begins when both a need and the knowledge to meet a need coexist between two actors.  Implementation  Starts when the decision is taken to proceed. Here knowledge flows between source and recipient. What is transferred is often adapted during the process to meet anticipated needs and prior transfer experiences.  Ramp-up  Starts when recipient begins using the knowledge. Identifying problems that arise. Ineffective use at first, then improved performance.  Integration  Starts after satisfactory results of phase three are achieved. The use becomes routinized. Facilitates future interaction. Knowledge loose novelty and become part of daily operations. Knowledge transfer problems  The source lacks credibility  The source or receiver lack motivation  The receiver do not understand (it’s use)  The receiver can’t keep the knowledge  The relation between the source and recipient  Not-Invented-Here  Cultural differences  Country/ Company culture  However, knowledge transfer may be a difficult process due to the “stickiness of information“ The tacit dimension of knowledge Use knowledge (of the source) is often a tacit knowledge “Tacit knowledge is the result of learning processes: it is not easy to articulate it and to make it explicit” (Antonelli, 2005, p.5). “in every act of knowing enters a tacit dimension” (Polanyi, 1958)  Knowing how and knowing that (experience).  Tacit dimension complicates things (difficult to price, transfer, replicate etc.). Thus, potentially more valuable. Sticky information  Sticky information is (tacit) knowledge that is difficult to transfer  “the stickiness of a given unit of knowledge or information is defined as the incremental expenditure required to transfer that unit from one place to another, in a form that can be accessed by the recipient. When this expenditure is low, information stickiness is low: when it is high, stickiness is high. By implication, sticky information is harder to move (E von Hippel, 1994)  Economic term, related to transaction cost. Sticky, why?  Many new needs are difficult to express explicitly (in words) and can thus not easily be transferred.  Information needed by developers may be tacit  can you tell how to ride a bike (new bikes are made by bikers)  what makes a new game attractive? (new games are made by players)  It is more efficient if the users utilize their need knowledge (use knowledge) to develop the innovation than to transfer the knowledge to an expert.  A lot of information is often needed by developers – “you didn’t tell me you were going to use the product that way..”  You and the company (receiver) speak different language Knowledge dimensions  Explicit knowledge: To analytically deal with measurement, economic value, effects etc.  For existing applications (uses) manufacturers understand the users’/customers’ needs and preferences; they are in possession of the need information (use knowledge).  Consequently: Little or no need for involving the users (gain tacit knowledge)  Tacit (Embedded and sticky) – Explicit (Independent, codified data)  Simple - Complex Knowledge – Capabilities  The ability to explore and exploit transferred knowledge is a critical component for an organization to gain (dynamic) capabilities.  The ability to recognize, evaluate, assimilate and utilize transferred knowledge for innovations is largely a function of the level of prior related knowledge (e.g., capabilities).  Cognitive learning (+)  Associative learning: establishing new connections between existing concepts and/or to new concepts  Path dependency (-)  Memory is self-reinforcing based on prior knowledge (local search bias)  Diversity of expertise (+)  Crossing paths creates new opportunities Summarize the lecture  What is exploration & exploitation?  Ambidexterity  Knowledge, explicit, tacit (sticky)  Knowledge transfer Questions?