Description
Certain changes are products of shifting technologies. One established technology is replaced by something new. We've seen this before. Steam engines were replaced by internal combustion engines and electricity, electricity grew into electronics, landlines are being replaced by mobile telephones, and newspapers and paper books are increasingly being supplied as digital files for tablets and e-book readers.
Management Principles for Continuous
Innovation
2
This section is about global changes—why they are bigger, come more often, and
are becoming more dif?cult to predict. It’s also about what companies have done,
and are doing, in order to take advantage of the opportunities and avoid the threats
embedded in these ever accelerating changes.
Certain changes are products of shifting technologies. One established technol-
ogy is replaced by something new. We’ve seen this before. Steam engines were
replaced by internal combustion engines and electricity, electricity grew into
electronics, landlines are being replaced by mobile telephones, and newspapers
and paper books are increasingly being supplied as digital ?les for tablets and
e-book readers. These changes also affect how people live their lives. Even when
they are staying home with their sick child, they are now expected to be accessible
by phone and to answer your e-mail. Some experience this as a source of stress,
while others ?nd greater freedom. Most of us experience both these feelings as a
result of the changes that follow in the wake of innovations.
When something new appears, whether a technological solution or a change in
social norms, things generally start manageably. As the innovation gains adherents,
development accelerates, and ?nally, when the change has become widespread, the
rate of change tapers off. Subsequently, a new innovation appears, and the process
begins again. We often depict this process as an S-curve. The transition between
one technological curve and another is an indication of innovation. I call this a
phase transition. When a phase transition occurs, it creates opportunities for
companies that are able to innovate. For those who are not able to manage this,
the phase transition signals the start of a process of decline.
Researchers who have studied such processes
1
explain that the more people or
companies quickly adopt the innovation, the steeper the S-curve becomes. In
addition, the greater the diversity in age, cultural af?liation, and other qualities
1
The pioneers are located at the Santa Fe Institute in the United States, as well as in France, the
UK, Belgium, and Chile, where quali?ed research is being carried out related to research that
concerns complex adaptive systems.
A. Steiber, The Google Model, Management for Professionals,
DOI 10.1007/978-3-319-04208-4_2, #Springer International Publishing Switzerland 2014
11
among those who adopt the innovation, the more powerful the change is and the
sooner the next phase transition will occur. Today’s mobile phones with their touch
screens, Wi-Fi connectivity, and capacity to stream music have little in common
with the rather clumsy mobile phones ?rst launched a few decades ago. Mobile
telephony is an example of a technology that has changed people’s lives in a
multitude of ways in so many places around the globe.
The pace of external changes is accelerating as ever-larger groups of people and
companies adopt advances in ever-shorter spans of time and as the diversity among
those adopting these advances grows. This means that the S-curves become steeper,
and the life cycles of technical solutions and new products become shorter. As a
result of this shift, larger numbers of companies are required to handle continuous
innovation, an ability that also demands speed and scalability.
2.1 Continuous Innovation
Innovation is a broader concept than R&D. Innovations affect every part of a
company. ‘The Organisation for Economic Co-operation and Development’
(OECD) describes four types of innovations
2
: product innovations, process
innovations, marketing innovations, and organizational innovations.
A company is innovative when it possesses the ability to change its business or
management model, as well as to develop and implement new products that respond
to expressed and unexpressed customer needs. A customer can be a company or an
individual. But employees, owners, suppliers, and the public sector can also be
stakeholders that may well determine a company’s success or failure. A company
that is continuously innovative can manage to constantly change its business and
management models and to develop new products. Companies that never fail may
be refusing to take risks, and this can be a sign of limited innovation capabilities. On
the other hand, the ability to learn from one’s mistakes can be a sign of good
Innovation Capabilities.
Continuous innovation requires a holistic approach to leadership and organiza-
tion. It entails creating the basis for an innovative climate and innovative interac-
tion between people. If we wish to increase the Innovation Capabilities of a
company or other organization, we need to increase our understanding of how
each part of the innovation process can be coordinated within the framework of a
company system for continuous innovation.
As the pace of external change accelerates, the need for continuous innovation
grows.
2
The OECD’s de?nition of innovation is “the implementation of a new or signi?cantly improved
product (good or service), or process, a new marketing method, or a new organizational method in
business practices, workplace organization or external relations” (Oslo Manual by the
OECD 1997).
12 2 Management Principles for Continuous Innovation
2.2 System Effects: We Don’t Know Exactly What’s Happening
Most of us have at some point been sitting with colleagues discussing a problem
that none of the participants seems able to solve. Then someone comes up with an
idea. It might not be a particularly good one, but it stimulates someone else to come
up with a different idea that may still not be good enough. Finally, the group arrives
at a satisfactory solution. No one is able to explain where the ?nal idea came from,
but we know now that our creative abilities are at work. The innovation is a system
effect—the product of complex interplay between individuals and other
components in a system, whether that system is a company, a region, or an entire
country. When talking about a company, the term company system can be appro-
priate. As we cannot predict exactly how various components of a system will
interact, we develop a company system through trial and error. We must be aware
that things may not get things right the ?rst time, and instead we must try various
solutions and learn from these experiences in order to better succeed at our next
attempt.
When the properties of the whole are greater than the sum of the properties of its
parts, system effects appear. We discover these later, but we cannot predict with
accuracy just what these effects will be.
We usually distinguish between linear thinking (cause and effect) and systems
thinking. Continuous innovation is based on systems thinking.
The spread of a technological or management innovation is affected by four
primary factors
3
: the innovation and its characteristics—, the communication
channels used, the time involved, and the social system. The social system consists
of individuals and organizational units that relate to each other in an effort to realize
a common objective. History, norms, and opinion leaders in the social system are
important to the process of circulating an innovation.
2.3 The Company Model of the Future: A Paradox
When a theory says one thing, and common sense based on one’s own experiences
says something else, the result is a paradox.
In order to maintain, and preferably improve, pro?tability, companies must
decrease costs or create new income. Productivity is a measure of what we get
from current resources.
4
Budgetary discipline, cost control, and constant vigilance
to discover and eliminate unnecessary costs are core activities in the daily produc-
tion of goods and services. At the same time, if we are to continue to compete in the
future, we need to develop new products and services that provide new income.
3
Rogers (2003).
4
The de?nition is from Drivkrafter fo¨r produktivtet och v€ alsta? nd. A government report by the
Productivity delegation, SOU 1991:82.
2.3 The Company Model of the Future: A Paradox 13
Experience and common sense indicate that it can be very dif?cult to combine
these two objectives—ef?cient production, on one hand, and the continuous crea-
tion of new value streams through innovations, on the other, in the same business. In
other words, it’s hard to be a penny pincher regarding costs and at the same time
conduct future-centric experiments that devour resources with no guarantee that the
results will create new value. Reality, however, teaches us something different.
Innovative companies, such as 3M, Apple, W. L. Gore, Google, and many others
have accomplished this apparently dif?cult, if not impossible, task. These
companies have succeeded in joining various forms of logic that many see as
incompatible, such as large-scale operations and ?exibility, effective control and
individual freedom, a focus on today’s business and a commitment to the future. By
their ability to combine these ostensibly incompatible forms of logic, these
companies have created the conditions necessary for both productivity and
innovation.
Nevertheless, when the experience of executives leads them to one conclusion
and external examples indicate something different, most executives prefer to rely
on their own experience. “Forced to choose between getting what we want and
maintaining second order constancy, we may choose not to get what we want,”
Chris Argyris
5
concluded many years ago.
Research about continuous innovation seeks answers to the question not only
how one innovates continuously but also how this can be done parallel to
conducting and improving the daily operations (production) in a manner that will
promote quality and be cost effective.
2.4 Innovation Research
An interesting insight in management and innovation research is that a company’s
ability to innovate is explained more by how that company is managed and
organized than by its technological skill.
6
I therefore ?rst highlight the importance
of management innovations to Innovation Capabilities and continue by describing
the six management principles that support and provide the necessary conditions for
continuous innovation.
5
“When our theories-in-use prove ineffective in maintaining the constancy of our governing
variables we may ?nd it necessary to change our theories-in-use. But we try to avoid such change
because we wish to keep our theories-in-use constant. Forced to choose between getting what we
want and maintaining second order constancy we may choose not to get what we want.” (Argyris
1976).
6
Tushman and O’Reilly (2007).
14 2 Management Principles for Continuous Innovation
2.4.1 Management Innovations and Innovation Capabilities
Regardless of how good a company is at developing new products and applications,
these can hardly yield any results without an environment that promotes
innovations. Thus we can see that management innovations, like technological
expertise, are important in generating innovations. Henry Ford’s assembly line
was a management innovation and provided the stimulus for a number of techno-
logical innovations. A half-century later, the semiconductor industry not only
revolutionized technological development but also led to management innovations
in both the private and the public sectors.
Thus, management innovations and technological innovations work in tandem in
a dynamic manner, affecting each other and leading to greater effects by mutual
in?uence than they would if only one of these was affecting the other.
Researchers have also found that the nature of a company’s organization
in?uences not only its Innovation Capabilities but also its propensity to adopt
innovations from external sources.
7
We can thus see why management innovations
are important for both a company’s Innovation Capabilities and its long-term
sustainable success.
2.4.2 The Company System’s Importance to Innovation
Capabilities
A system is a collection of components with certain properties and with certain
connections among the components, as well as among the characteristics of those
components.
8
A company system has organizational components, and these affect
one another and structure the characteristics of the system.
Organizational components include issues such as whether decision-making
authority is centralized or decentralized, whether the norms allow mistakes or
demand that everything be “right the ?rst time,” whether the atmosphere is formal
or informal, whether information ?ows freely and is accessible to everyone whose
work requires it or is reserved for the few, whether supervisors give orders or coach,
whether cooperation between individuals and units is encouraged, and whether
internal competition is the order of the day. All these characteristics of an organi-
zation constitute the company system.
There is not much research regarding the company system’s importance for
Innovation Capabilities. The innovation research that does exist focuses mainly on
the process or project level or on individual components, such as company culture
and leadership,
9
which have been studied separately. As a result, knowledge of one
component of the system is often isolated from knowledge of other components.
7
Kimberley and Evanisko (1981), pp. 689–713; Damanpour (1987), pp. 675–688.
8
Professor Eric Rhenman, a pioneer in systems thinking, ?rst presented this de?nition.
9
O’Connor (2008), pp. 313–330.
2.4 Innovation Research 15
Each of these studies aims to increase understanding, within a de?ned area, of the
signi?cance of various characteristics within a given organization component. It
can therefore be dif?cult to summarize the importance of the innovative abilities of
all these components, working together and reinforcing each other to produce
positive or negative system effects. There is thus a challenge inherent in analyzing
company systems in their entirety. The system is more important for innovation
than the sum of its individual parts is. The holistic approach does justice to the
organic nature of Innovation Capabilities. In Part II, we will see how Google’s
organizational components work together dynamically to utilize and develop inno-
vative ability.
At this point, I present a summary of the management principles seen as
characterizing successful companies in rapidly changing industries. Although
these six management principles are described separately, when they are made to
work together, they give rise to an ability to deliver long-term and sustainable
quality and productivity in daily production, and they promote continuous
innovation strength.
2.5 Six Management Principles
The following are the six management principles that various clusters of
researchers have identi?ed as crucial in explaining the ability of successful
companies to engage in continuous innovation:
• Dynamic capabilities. The company’s ability to integrate, develop, and recon-
?gure internal and external competencies in order to meet rapidly changing
surroundings.
• A continuously changing organization. If you delay taking action until problems
arise, you will act too late. Instead of waiting and springing into action after
needs become pressing, a company should ensure that its organization is
permeated with a proactive approach to change.
• A people-centric approach. One fundamental principle found in companies with
continuous Innovation Capabilities is that they are people-centric, focusing on
the individual and liberating his or her innovative power. This principle is based
on a belief that people want to be creative
10
and that a company must provide
them with a setting in which they can express their creativity.
• An ambidextrous organization. Continuous innovation must combine two dif-
ferent forms of organizational logic within the same organization. These are
daily production, which works best with a conventional planning-and-control
approach, and innovation, which requires greater freedom, ?exibility, and a
more open attitude toward experimentation. An ambidextrous organization
must successfully handle and utilize the energy inherent in the contrast between
these two forms of logic.
10
Høyrup (2008).
16 2 Management Principles for Continuous Innovation
• An open organization that networks with its surroundings. A company can be
more or less open to integration with its surroundings. If we describe a company
as a system, some companies are more closed systems with clear borders that
separate them from the world beyond. Other companies have permeable limits
and have a constant and conscious exchange of information with their surround-
ings. Long-term survival requires that companies develop into more open net-
working systems.
• A systems approach to work differs from the conventional linear way of working
in two major ways. First, we begin with a holistic view of the system. The system
has a number of components that mutually affect one another. This mutual and
dynamic in?uence contributes to the entire system’s developing new
characteristics that can be dif?cult to predict. Second, those using the systems
approach are aware that these new characteristics can be positive, negative or a
combination of the two. This creates a demand for additional measures, such as
decreasing the fallout from unexpected negative system effects.
These six management principles can be viewed as fundamental principles or
orthodoxies on which a company’s management model for continuous innovation
should be based. I now describe the background of these six management principles
in greater detail.
2.5.1 Dynamic Capabilities
Companies must develop in order to survive. Penrose’s
11
growth theory, ?rst
expounded in 1959, became the basis of what is called “resource-based theory.” It
explains that a company’s competitive advantages are based on its access to a number
of speci?c resources or “core competencies” (Prahalad and Hamel, 1990). It was later
discovered that these core competencies could obstruct the company’s long-term
ability to compete when external changes accelerate and the value of the core
competencies depreciates. Thus, there is a risk that what was previously a driving
force for growth and development may later become an impediment to innovation.
12
Ensuring that a company’s value-creating resources retain their value requires
the business to be insulated from external change. A few decades ago, monopolies,
licenses, advantages of scale, and government regulations prevented competitors
from entering a given market.
13
Many of these obstacles are now gone, and it is
therefore more dif?cult for companies to retain long-term competitiveness with the
same portfolio of core competencies. A more dynamic model is needed.
11
Penrose (1959).
12
Leonard-Barton (1992), pp. 111–125.
13
Professor Niall Ferguson at Harvard explains that Sweden’s growth, which has been more
favorable than economic trends in southern Europe, is the result of Sweden’s adopting deregula-
tion—of former monopolies, for example—faster and more effectively than other countries have
done. DN 130702.
2.5 Six Management Principles 17
Companies that succeed on the global market react early, engage in rapid and
?exible product development, and manage to recon?gure internal and external
resources. Researchers such as Teece
14
have called this source of competitive
advantages “dynamic capabilities.” Together, these are de?ned as a company’s
ability to integrate, develop, and recon?gure internal and external competencies in
order to meet rapidly changing surroundings; in other words, dynamic capability is
the capacity to constantly review external factors and quickly adapt the company to
meet new challenges. Dynamic refers to external changes. ‘Capabilities’ is an
umbrella term for competence, strength, speed, and other properties that together
create the ability to utilize the opportunities that are present in every change. In this
case, capabilities relate to management’s ability to integrate, develop, and reallo-
cate internal and external expertise and resources in an effort to adapt to a changing
environment, and its ability to create new values in that environment. Dynamic
capabilities orient a company in the direction of ongoing integration, reorganiza-
tion, and a modernization of resources and expertise, so that it is able to respond to
challenges in its surroundings and maintain or adapt existing competitive
advantages and develop new ones. Dynamic capabilities are a characteristic of a
company’s various processes, a conditioned and stable pattern in collective
actions.
15
Companies differ with regard to dynamic capability in that they expressly
or implicitly emphasize to different degrees the strategic importance of changes in
the future. Companies that focus on change and whose management has accepted
the premise that the company will be changing continuously will most likely
achieve greater pro?tability than companies whose managements have a more
conservative attitude toward the future. Change-centric companies more effectively
adapt themselves and use new knowledge they have acquired.
The dynamic capabilities of companies can be expected to differ between
companies operating in environments with differing magnitudes and frequencies
of change. Depending on the changeability of a market, dynamic capabilities may
shift from being detailed and analytical with stable processes and predictable results
to being simple and experimental with uncertain processes and unpredictable
results.
16
Dynamic capabilities are based on three skills
17
:
• Sensing and shaping opportunities and threats
• Seizing opportunities
• Maintaining competitiveness by combining, protecting, and where necessary,
reallocating company resources
Dynamic capabilities should permeate the entire organization. This principle ties
together the skill of the management at utilizing opportunities, handling threats and
combining and recon?guring company and shared resources with other special
assets. It provides opportunities to meet new customer needs and maintains and
14
Teece et al. (1997), pp. 509–533.
15
Zollo and Winter (2002), pp. 339–351.
16
Brown and Eisenhardt (1997), pp. 1–34.
17
Teece (2007), pp. 1319–1350.
18 2 Management Principles for Continuous Innovation
enhances the company’s ability to develop. In doing so, it also creates long-term
value for customers, employees, and investors. Maintaining dynamic capabilities
requires the management team to practice entrepreneurship
18
; Management needs
to perceive problems and trends, direct and redirect resources, and change organi-
zational structure and systems so the management team can develop and utilize
technological opportunities based on customer needs.
Summary A company and its management model must be based on the principle of
dynamic capabilities in order to ensure continuous innovation and long-term
development. Dynamic capabilities comprise the company’s ability to integrate,
develop, and recon?gure internal and external competencies in order to meet
rapidly changing surroundings. Dynamic capabilities are affected by the
management’s orientation and way of acting. There is a conditioned and stable
pattern in collective actions. By being aware of the importance of dynamic
capabilities, a company can build them into the processes it designs. The more
rapidly the company’s industry is changing, the more important dynamic
capabilities become.
2.5.2 A Continuously Changing Organization
Companies that operate in rapidly changing environments need to continuously and
proactively change their organization.
19
It is not enough to change things when the
need arises, as in the case of sudden reorganizations. The business must constantly
be involved in a continuous and proactive process of change. Put more simply, the
company must always be prepared.
2.5.2.1 On the Border Between Order and Chaos
Companies must not become locked into too much orderliness but at the same time
should not become too chaotic. Change happens in the borderlands between order
and chaos.
20
This concept includes the complex, uncontrollable but nevertheless
adjustable condition we call self-organization, which arises where there is a certain
structure that is not so in?exible as to impede change. If everyone knows what the
objective is but the itinerary allows for ?exibility, individuals, working alone and in
18
Entrepreneurship can be de?ned as the ability to identify opportunities and create resources to
take advantage of these opportunities. Entrepreneurship causes something to change direction.
New perspectives are discovered and developed. An entrepreneur creates new business operations
and organizes the market in a new way. According to the neoclassical theory of Joseph
Schumpeter, an entrepreneur causes creative destruction on the market by disturbing the balance
between supply and demand. The result is the appearance of a chaotic market, and the entrepreneur
becomes a person who creates demand on a market.
19
Brown and Eisenhardt (1997), pp. 1–34.
20
Ibid.
2.5 Six Management Principles 19
groups, can decide how to act in light of what happens. This involves self-
organizing. In a centrally governed organization in which the management has
directed in detail how people should act, problems arise if reality fails to unfold
according to the data on which the management decisions were based.
One crucial decision for management is thus distinguishing between what needs
to be ?rmly laid down and what should be left open for employees to decide in light
of the prevailing factors. The border between order and chaos provides two
opportunities.
21
First, freedom to improvise within the company. The management team and the
employees utilize clear objectives, priorities, and guidelines for the organization.
They ?nd new solutions while consistently delivering excellent products at the right
time and within budgetary constraints. This planned improvisation is based on three
conditions:
• A learning culture in which supervisors and employees can adapt operations
when conditions change
• A semistructured organization in which deliveries, times, and prioritizations are
monitored
• Ef?cient communication of information that is easily accessible to everyone
who needs it at the time they need it
Second, taking advantage of synergy effects by striving for cooperation with
other units in the company.
2.5.2.2 Time-Axis Thinking
In a continuously changing organization, one must consider different time horizons
simultaneously: history, the present, and the future.
22
Being conscious of the entire
time axis without locking themselves into one of the time horizons is an important
feature of continuously changing organizations. Time-axis thinking has two
perspectives:
• A retrospective examination of previous experiences (experience recycling) in
order to ?nd experiences that can be of value for the future
• Experimentation to ?nd various ways of obtaining knowledge and facilitating
?exibility at a reasonable cost. Identifying many alternative solutions and
facilitating learning are important.
2.5.2.3 Choosing What to Adapt to in Real Time
Many events are sudden. Being a continuously changing organization means
consciously choosing which events to adapt to
23
and deciding how to adapt. Is
this an opportunity we should take advantage of, a threat that must be dealt with, or
simply an event we can allow to pass without taking any action? Not every event is
relevant to every company. Which ones should we take notice of, and how should
21
Ibid.
22
Ibid.
23
Ibid.
20 2 Management Principles for Continuous Innovation
we relate to them? Choosing what to adapt to entails linking changes to operations
so we accept them and continue to develop without unnecessary disturbances.
2.5.2.4 Three Different Leadership Roles
In a continuously changing organization, there are at least three different leadership
roles.
24
The ?rst of these relates to the business unit. The strategy for this unit must
be an ability to handle innovation and production at the same time. The second role
concerns synchronization on the middle level, where it is necessary to continuously
reallocate among different deals and projects in order to take advantage of new
business opportunities. The third role, at the level of top management, is to compile,
decide, and communicate objectives and prioritizations for the company.
Finally, two requirements must be satis?ed in order for visions and strategies to
work as unifying guiding lights for the entire company:
• The overarching objectives must be described so that every person can under-
stand that various parts of the common picture (vision,
25
mission, and strategies)
support each other.
• These objectives should be communicated to all employees so that they can use
them as a basis for their own independent decisions. A person who has such an
ability to communicate is able both to see contexts and patterns and to formulate
these so that the picture becomes understandable, meaningful, and manageable
for every employee.
26
Summary Being a continuously changing company requires both internal ?exibil-
ity and the ability to take into consideration different time perspectives simulta-
neously. The need to be continuously changing is affected by the speed and
magnitude of external changes. Consequently, the company needs to develop a
culture that is always prepared for changes and a semistructured organization that
can maintain a balance in the borderlands between order and chaos; set and
maintain objectives and prioritizations, as well as guidelines that employees can
24
Ibid.
25
There are examples of companies that have needed to implement a major change within a short
time. In such a case, the mission can be expressed as a strategic intention. This strategic intention
is meant to serve as a shared focal point for rallying the company’s strength. When Komatsu
entered into competition with Caterpillar, a company many times larger, the strategic intention was
expressed in the phrase Encircle Caterpillar; Canon’s successful raid against Xerox, the giant in
the industry, was focused with the help of the slogan Beat Xerox. When Robert Townsend took the
helm of Avis, a company that had experienced 13 consecutive years of loss, the strategic intention
was Let’s get back in the black. Pro?tability returned after 6 months. See further Hamel and
Prahalad (1994).
26
In extensive research regarding negative stress at work, is has been found that the same
conditions that lead to injuries in many individuals leave others unaffected or even make them
stronger. The difference between the two groups is the stronger individual’s sense of coherence in
stressful situations. This ability makes the situation comprehensible, meaningful, and manageable.
People who lack a sense of coherence and therefore fall victim to negative stress can develop this
ability with the help of educational measures. See further Antonovsky (2005).
2.5 Six Management Principles 21
use instead of ?xed rules and instructions; and experiment and improvise with
on-time deliveries and real-time communication.
In addition, the organization needs leadership with differing abilities: to design
local strategies and lead for both productivity and innovation in day-to-day leader-
ship, to conduct strategic synchronization and reallocation on the middle level, and
to synthesize and reallocate, make, and articulate overarching decisions.
2.5.3 A People-Centric Approach
A fundamental principle of companies with continuous Innovation Capabilities is
the belief in releasing the inherent innovative powers of its employees,
27
which in
turn is based on the belief that individuals want to be creative.
28
Innovations are
born of passion and are driven by an individual’s inner motivation. For this reason,
it is important to allow employees to do what they have a passion for doing and or
even ?nd fellow employees with the same passion, as well as to understand what
motivates the individual employee. The company should be organized as a river
system with unencumbered movement.
29
This will ?ow faster than one ?lled with
obstacles and diluted into tributaries. Companies like this create simple and well-
focused structures and routines only where these are necessary or meaningful. They
want to give people the freedom to make their own decisions and avoid placing
obstacles in their way. Innovative organizations have enough ef?cient structure to
avoid chaos and provide enough freedom and ?exibility to support innovation and
continuous change.
The management plays a major role in employees’ enthusiasm for innovation.
30
Innovations can arise anywhere in a company but cannot survive without the
encouragement and support of management.
31
A company with the capacity for
continuous innovation has a management that emphasizes the importance of
innovation and continuous change and that encourages positive energy among its
employees through creative stimulation with challenging visions and missions. For
most people, awareness that one’s work is contributing to a higher or noble purpose
and is in some way making the world a better place is a source of personal
stimulation and increased commitment. Gary Hamel
32
stresses the importance of
a company’s assuming a clear responsibility for society and the environment, as this
helps create an opportunity for a more sustainable business model. Such a model, in
27
The research in this section is primarily based on management and organization research, as well
as on research regarding innovation culture.
28
Høyrup (2008).
29
Tidd and Bessant (2009), p. 135.
30
Dallenbach et al. (2002).
31
Leifer et al. (2000).
32
Hamel (2009).
22 2 Management Principles for Continuous Innovation
turn, creates a more noble purpose for the company and thus involves the
employees to a greater degree.
Innovative companies often have a strong, shared vision
33
that is vitalizing,
attractive, realistic, and credible so that every employee is motivated and can use
the vision as a guide in daily work. In an innovative company, we also ?nd that
management uses soft forms of control, such as values, guidelines, and peer
assessments. Certain researchers assert that modern society is facing a paradigm
shift regarding control
34
and must move toward gentler forms of control
mechanisms. A company’s general strategy should include delegating authority to
those who are closest to a problem or an opportunity and who therefore often know
the most about how to solve the problem or take advantage of the opportunity. In
order for employees to make good decisions, they need access to relevant informa-
tion. This requires more extensive transparency in relevant areas and less secrecy
than previous models have offered.
35
There is a clear correlation between the way management exercises leadership
and treats the employees, on one hand, and the performance of the organization, on
the other. This correlation is a positive one and is self-reinforcing over time.
36
People are the most important asset in the current economy. Certain CEOs, such as
Richard Branson at Virgin, maintain that employees are more important than
customers, as satis?ed employees create satis?ed customers. Releasing the energy
that exists in every person requires leadership with special qualities. Inspiring and
supportive leadership encourages the development of high-performing, well-func-
tioning teams. The management team communicates visions and explains
prioritizations but leaves the choice of how to perform the work to the employees
themselves. Managers lead by reaching an agreement with each employee about the
goals that are to be achieved. Leaders of innovative groups
37
have shown them-
selves to be both creative and disciplined. They are able to accept uncertainty and
risk, and they handle failures constructively. They also exhibit passion and enthu-
siasm. These leaders are curious and willing to actively seek out new ideas both
within the company and from external sources. They also possess the courage to
stop projects that do not meet expectations, they attract innovators, and they are
good at building successful teams. They are modest and respectful, reward, involve,
emphasize teamwork, communicate, and motivate. In addition, they have broad-
based experience, as well as in-depth technological expertise in their areas.
Finally, companies with innovation cultures
38
emphasize trust and openness
within their organizations. They create challenges and actively involve the
33
The de?nition of vision as a vitalizing, attractive, realistic, and credible picture of the future of a
business is inspired by Nanus (1992).
34
Birkinshaw (2010), pp. 1–10.
35
Hamel (2009).
36
Tidd and Bessant (2009), p. 135.
37
Bel (2010).
38
Isaksen and Tidd (2006).
2.5 Six Management Principles 23
employees. They support and give latitude to new ideas, allow con?ict and debate
on factual issues, accept risk taking, and give employees great freedom in choosing
how to perform tasks. All these are characteristics that the company culture
encourages and reinforces.
Summary In order for a company to succeed with continuous innovation, those in
the organization should believe in and be able to free up the innovative power that is
found in each employee. This fundamental principle derives strength from all
components of the company system, such as culture, leadership, and organizational
structure.
2.5.4 Ambidextrous Organization
2.5.4.1 Balancing Production and Innovation
One major problem in many companies is that the business is not innovative
enough. However, if the tables were turned such that companies focused on
innovations while prominent manufacturers were allowed to lose their skill in
manufacturing, we would have moved from the frying pan into the ?re, ?guratively
speaking. Companies need to both conduct and improve their daily operations while
also engaging in continuous innovation efforts. Companies that survive long term
can manage both of these challenges.
An ambidextrous person is just as skillful with the left hand as with the right. In
English, an organization that can “do it all” is referred to as an ambidextrous
organization.
39
A company’s ability to create conditions favoring a long-term business success
is based on being good at both production and innovation. There are examples of
various models that can be used to manage this challenge.
Certain commentators are of the opinion that production and innovation must be
carried on in isolation from each other (i.e., the “mainstream” and the “newstream”
must be kept separated), while others feel that the mainstream and newstream must
be kept within the same organization.
Increasing numbers of business environments are developing toward greater
changeability and unpredictability. It therefore makes sense to investigate the
conditions under which production and innovation can coexist in an organization.
The accelerating pace of change means that speed is becoming ever more impor-
tant. Consequently, internal research labs will most likely be combined with
outsourcing innovations and involving all employees in innovations.
Leading innovation companies expect, support, and reward innovations, regard-
less of the source of the initiatives and ideas. These companies view innovations as
39
Tushman and O’Reilly (1997); Benner and Tushman (2003), pp. 238–256.
24 2 Management Principles for Continuous Innovation
a mechanism to both develop new knowledge and competitive advantages and to
stimulate continuous improvement in production.
Companies need innovative efforts to balance the conservative forces that
oppose continuous change. Consequently, management must conscientiously
work to support ambidextrous organizations. This will enable the company to
maintain ef?cient products and continuous improvement while also experimenting
and engaging in continuous change. This, however, will require ambidextrous
executives and managers who can deal with production and innovation simulta-
neously and develop the company culture to promote an ambidextrous
organization.
It has proved dif?cult to realize these intentions in practical terms, especially in
connection with technological shifts. There are various reasons why executives with
experience operating an ef?cient business according to the old rules feel it is dif?cult
to change their position. One such reason is the inertia that often accompanies
historical success and old “tried and true” habits. There are companies that have
previously “done everything right,” listening to their major customers and focusing
on their most important businesses and technology areas. These companies can ?nd
themselves in danger when the threat comes from new technology and increased
demand from groups of customers who were previously peripheral. In addition, they
face dif?culty predicting the market potential of something in its early stages. These
could be signs that a major phase transition is about to occur.
40
When a company or an entire industry encounters a major phase transition, one
must often begin from scratch in an effort to ?nd solutions to the major and crucial
problem of how to satisfy new needs. Beginning from scratch requires avoiding
building on the company’s known solutions and recruiting management staff who
represent a new way of thinking. It may well be that this can be done within the core
business or through a looser connection to mainstream operations. Sometimes one
must accept that the traditional market is on the way to extinction and that one may
need to “kill off one’s darlings.”
Several examples show that it is in fact possible, using an ambidextrous organi-
zation, to have both ef?cient production and continuous innovation: consider
Google, W. L. Gore, and 3M. There is also convincing evidence that ambidextrous
companies succeed very well. However, to manage this strategic bifurcation, the
management team and local managers must develop their ability to function within
40
A well-known major phase transition in Sweden was the transition from precision mechanics to
electronics in adding machines that affected the Facit company. Electronics could satisfy not only
existing needs but also many new customer needs, but Facit had neither mastered this new
technology nor understood the needs of its customers. Facit was the expert in precision mechanics,
so it had two choices. It could either try to ?nd new markets for precision mechanical products, or
it could develop expertise in electronics. The company hired a group of Swedish engineers who in
the early 1950s had placed themselves on the global cutting edge for electronic data processing on
the Swedish Board for Computing Machinery. They were very much focused on innovation, but
the management of Facit wanted them to manufacture more computing machines of the same type
as those they had already developed. These engineers were world-class innovators, but the
management at Facit wanted to make them production engineers. It simply did not work.
2.5 Six Management Principles 25
the system-thinking framework. The management and other executives must
clearly demonstrate what the ambidextrous concept means through a continuing
dialog with “both sides” internally.
41
The management thus plays an important role
in launching the ambidextrous approach throughout the company.
Summary In order to ensure a company’s long-term survival, the organization must
support both ongoing production and innovation-related activities as two parallel
missions within the same company. The accelerating pace of external changes
supports the advisability of conducting both missions in the same organization,
even though many can attest that this may not be easy.
2.5.5 An Open Organization That Networks with Its Surroundings
Researchers agree that companies need to have contacts and exchange of
experiences with external actors as a condition for continuous innovation. “Firms
that fail to exploit . . . external R&D may be at a severe competitive
disadvantage.”
42
A company can be open to a greater or lesser extent to exchanging information
and products and to engaging in cooperation with those in its surroundings. Systems
that are closed have de?nite borders and easily become victims of entropy. Closed
systems are worn down and ?nally disappear. When a company launches a series of
programs to cut costs, it may be a sign that the company is no longer able to supply
suf?cient new value to earn the income it needs. This means that the business is
being worn down through entropy. A company’s pro?t is the company’s income
minus its expenses. When pro?t declines, action must be taken. Focusing on
expenses and thereby cutting costs (primarily personnel) is often viewed as the
quickest means and is therefore commonly chosen. However, many companies
have quickly regained their pro?t level by mobilizing their personnel instead.
43
41
Interview July 2013, Geoff Hollingworth, AT&T Foundry.
42
Rosenburg and Steinmueller (1988), pp. 229–234.
43
One such example is the Sears department store company, with 300,000 employees. In the
course of 1 year, Sears succeeded in turning around the worst loss in the company’s 111-year
history to achieve the most pro?table result in the company’s 112-year history without laying off
any employees. Another example is Avis, where Robert Townsend in the 1960s turned a series of
13 years of losses into acceptable pro?tability within 6 months with the help of a “strategic
intention”: Let’s get back in the black. No one was allowed to write this intention down. Instead, it
was communicated by each supervisor to the employees, along with a question: How can you
contribute in your job? In the 1970s, SAAB’s aircraft division lowered its administrative costs in
the course of a few months using a similar working model. The group management demanded a
cost reduction through layoffs in a Swedish manufacturing company. The head of a unit asked to
be allowed to implement an improvement in pro?tability without any layoffs. He was given the
green light by management, and had 20 % more success than his colleagues who had laid off
26 2 Management Principles for Continuous Innovation
A closed company most often focuses on cutting costs, and some companies
have managed to survive on the market for many years using various types of
austerity measures. Gradually, however, all of this cost cutting will impair the
quality of the company’s products and services and eventually lead to the
company’s demise.
Open systems have more permeable boundaries and move through a process
known as emergence.
44
A company must be an open system if it is to survive over
the long term. An open system searches beyond itself for innovations that can
increase revenues.
In open systems, managers and employees connect with the company’s sur-
roundings. When technological development speeds up and competition becomes
intense, the company needs to use these links even more to supplement its own
expertise. Under these conditions, it can be dif?cult for a company to keep up with
developments in all relevant areas. Networks and alliances with customers,
suppliers, start-ups, universities, and government agencies, and sometimes even
with competitors, can serve as crucial resources for a company’s innovations.
Jack Welch observed, “If the rate of change on the outside exceeds the rate of
change on the inside, the end is near.” Management and the board should decide
whether the company’s Innovation Capabilities is suf?cient and whether increased
openness to the outside world would increase that ability. How can the company
bene?t from new external technology and networks in an effort to further develop
its ability to change, to be proactive, and to innovate?
Openness and networking with regard to the External Surroundings was placed
on management agendas in 2003 with the introduction of the open innovation
concept presented by Henry Chesbrough.
45
According to Chesbrough, there are
several reasons why companies need to become more open. First, there are now
powerful ways to bypass conventional limitations and bene?t from ideas
originating outside the organization. Second, not all the smart people are in one
company; they are found spread out in many different companies and institutions.
Third, innovations that arise as a result of collaboration between various ?elds of
endeavor, disciplines, and organizations are becoming more common. Fourth, time
to market is becoming progressively shorter, as are product life cycles. As a result,
companies must shorten the time required for product development. Becoming
better and discovering and adopting ideas from outside sources and integrating
them into our company’s own development process helps us keep pace. Succeeding
at increasing openness requires that we question some conventional nostrums such
as: in order to bene?t from R&D we have to discover, develop, and deliver
everything ourselves. Instead we should think: external R&D can create a great
personnel. Many examples show that it is possible to signi?cantly improve pro?tability within a
short time by mobilizing all employees.
44
In a complex system, the whole’s characteristics are greater than the sum of the parts’
characteristics. This is known as emergence. Complex systems are emergent. In other words,
they have the ability to develop new characteristics to adapt to changes in their surroundings.
45
Chesbrough (2003).
2.5 Six Management Principles 27
deal of value but we need our own R&D in order to claim some portion of that
value.
Summary In order to maintain relative Innovation Capabilities, companies and
their organizations must become more open to the ?ow of ideas and innovations
from the outside world. One relevant question is whether a company is suf?ciently
open to outside ideas and innovations, and another is which channels can be used in
order to bene?t more quickly and effectively from innovations originating else-
where. By managing and balancing the need for openness, a company can likely not
only improve its potential to shorten the time to market but can also gain access to
talented people and learn about interesting technological development taking place
at the interface between different ?elds. This will give the company a better chance
of maintaining its relative Innovation Capabilities. A company maintains its rela-
tive Innovation Capabilities when it keeps pace with changes in its surroundings.
2.5.6 A Systems Approach
Certain researchers
46
assert that companies must move from a process perspective
to a systems perspective in order to understand how companies’ Innovation
Capabilities functions, and using that understanding as a basis, they must imple-
ment initiatives to further enhance it. A systems approach is thus one way to
achieve a greater understanding of what must be done in order to enhance
Innovation Capabilities. A system is a collection of components with certain
characteristics with connections among the components and among the
characteristics of those components.
47
A company and its management model can be viewed as a system with various
organizational components (see Fig. 2.1). Examples of components in a company
system are its vision and mission, the board of directors and management team,
local managers, company culture, employees, organizational structure and pro-
cesses, systems for performance evaluation, promotion and recognition and
rewards, systems for learning, and openness and networking with the outside
world, as well as brand and corporate communication.
In order to describe and understand the differences between the system of a
company with a productivity orientation and that of one with an innovation
orientation, consider the following ?ctional examples designed speci?cally to
clearly illustrate the difference between two systems with different overarching
orientations.
46
O’Connor (2008), pp. 313–330.
47
Professor Eric Rhenman, a pioneer in the systems approach, introduced the following de?nition:
A system is a collection of components with certain properties and with certain connections among
the components, as well as among the characteristics of those components.
28 2 Management Principles for Continuous Innovation
Both alternative systems include two features in the main orientation of the
operation: productivity and innovation. The productivity company must naturally
not neglect its improvement and innovation-related work, just as the innovation
company must continuously mind its pro?tability, which, after all, ?nances its
innovations. The difference between the two types of companies is mainly where
the focus lies and what the necessary de?ning conditions are.
48
I would not
maintain that all productivity companies are one way and all innovation companies
are another. This description is exaggerated in order to communicate an idea about
how the overarching orientation and the system surrounding it affect both the
behavior of the employees and the focus and pro?t or loss of the company. The
two types of companies are described below as they relate to the organizational
components of the company system (Fig. 2.1).
Leaders and
Leadership
Organizational structure
System for learning
Openness and
networking with the
outside world
System for performance
evaluation, promotion and
recognition
Communication and
brand
Innovation
OR/AND
Productivity
Board and Management
People
Vision/Mission
Company culture
Fig. 2.1 An organization visualized as a company system
48
Gestalt psychology works with the concepts gestalt and background. One classic example is a
white goblet against a black background. The goblet is the gestalt, or focus, of the picture. The
black area is the background. If one gazes at the picture, another image begins to present itself. The
viewer sees two faces in pro?le against a white background. Now the pro?les are the gestalt and
the white area is the background. One can see production and innovation in a similar manner. In
many companies, the production is the gestalt and the innovations are the background. Some
organizations need to change this and to see the innovations as the gestalt and the production as the
background that makes the innovations possible.
2.5 Six Management Principles 29
• The guiding star of the company system is the main orientation. For many years,
the productivity company’s orientation has been toward productivity. This has
often been formulated as a vision or mission that expresses itself as cutting costs
and ensuring quality. The productivity company’s orientation is replaced by
continuous innovation in the case of the innovation company.
• The board and management of the innovation company have a clear, long-term
vision for the company and consider different time horizons simultaneously:
history, the present, and the future. The board and management of the produc-
tivity company are primarily occupied with current business and meeting ?nan-
cial metrics.
• The company culture has features that are common to the entire company, as
well as features that differ among various units, because of the nature of the work
performed. The understanding of how to create and build a strong organizational
culture is low in the productivity company. In the innovation company, members
of the management team and each local manager must be continuously aware of
how he or she affects the culture, as that culture is now embedded in everything
the company does and has become an important instrument of control.
• Local managers. The managers who are responsible for the everyday work in the
productivity company focus on controlling and monitoring. In the innovation
company, they mostly coach the employees and support their independence,
their willingness and ability to cooperate, and their initiative and creativity for
improvement and continuous change.
• People. The productivity company views people as a resource but emphasizes a
kind of docility. Employees should do as they are told, comply with processes,
and minimize variation by following instructions. In the innovation company,
employees are the company’s most important resource. Management stimulates
individuals’ independence and their mutual collaboration in order to contribute
to the ful?llment of the company’s mission through their own initiatives.
• Organizational structure, allocation of responsibilities and authority, and the
way various units relate to each other. The productivity company looks to ?nd
a logically coherent model that can serve as a basis for orderly functioning. The
innovation company has a different emphasis and seeks to achieve a dynamic
balance that will provide support and a somewhat clear overview of how
different parts relate to each other and that will allow a great deal of freedom
for employees to make their own decisions and take initiative through ?exibility
and self-organizing.
• System for performance evaluation, promotion and recognition, and rewards. In
the productivity company, Human Resources is a maintenance function for
human capital, which is viewed as a resource. In the innovation company,
managers bear the responsibility of supporting and developing employees. HR
is a strategic and proactive function with responsibility for workforce planning,
leadership development, personal development of employees, and overall orga-
nizational development. The emphasis on key performance indicators differs
between the productivity company, where the emphasis is on delivery times and
30 2 Management Principles for Continuous Innovation
costs, and the innovation company, which emphasizes speed and innovative
ability.
• A system for learning. The war cry “It has to be right the ?rst time” belongs in
the productivity company but not in the innovation company. In the ?rst case,
mistakes must be avoided, and when they do occur, it’s tempting to try to hide
them. The productivity company strives to avoid risks. The innovation company,
like Inspector Clouseau of Pink Panther fame, never repeats a mistake but is
always making new ones. Innovation companies willingly take calculated risks,
and if no success results, the company must be able to absorb the cost.
49
Experience recycling is important, and this is done systematically in innovation
companies. The productivity company highlights positive experiences and
attempts to hide negative ones. And as it is said, Experience is not what happens
to you but what you do with what happens to you. The innovation company uses
what happens to build up an active account of experience.
• Openness and networking with the outside world. A productivity company has
traditionally tried to achieve vertical integration in order to lower its costs. It has
also used outsourcing to achieve a more favorable cost structure. This is an
expression of what we can call cost management. The innovation company has
an ambition to at least keep pace with external changes. It is more focused on
revenue management through seeking out new ways to bene?t customers in a
quali?ed manner through new products and business models.
• Communication and brand. The brand is a symbol of the company, an archetype
that wakens expectations about not only a company’s products but also how the
company’s management and employee should act. A brand is a concept that is
much broader than a logotype. The communication system of the innovation
company is open to obtaining information and knowledge from outside the
company, but this company is also open and aware of what it communicates
about its own activities. These focus on innovations and surprises. The produc-
tivity company’s brand is meant to be the bearer of quality and dependability.
Summary In order to maintain and improve Innovation Capabilities, a CEO should
understand that continuous Innovation Capabilities is created from a complex
system of components that mutually affect one another. This system, in turn, is
affected by the overarching orientation the company chooses.
49
At Gore-Tex, work is done according to four guiding principles: freedom, fairness, commitment,
and the waterline, which acts as a restriction of the other three. Risk taking must not be allowed to
sink the ship. Gore-Tex does not believe in burning all the bridges. Instead, it carefully considers
whether the calculated risks it takes will result in success or will at least teach the company
something (Carney and Getz 2009).
2.5 Six Management Principles 31
2.6 Introduction to Part II: The Case of Google
Many companies, especially large ones, lose the ability to retain and enhance their
Innovation Capabilities. They have not yet understood that continuous innovations
result from a complex, adaptive, open, ambidextrous system in which the inherent
innovative energy among the employees must be released.
In the ?rst part of this book, I have presented six fundamental management
principles that I identi?ed while studying the results of other research about
successful companies in rapidly changing industries. These fundamental manage-
ment principles are dynamic capability, a continuously changing organization, a
people-centric approach, an ambidextrous organization, an open organization that
networks with its surroundings, and a systems approach. In addition, I have
presented a company and it’s management model visualized as a company system
consisting of ten interdependent organizational components. The system, and its
components, is in turn affected by the overarching orientation the company
chooses.
During its ?rst 15 years, Google succeeded in creating and maintaining a very
successful management model for continuous innovation. Innovations such as a
new search engine (Google Search), AdWords, Gmail, YouTube, Android, Google
+, and Google Glass all come from Google Inc. Some of these have radically
changed the logic of entire industries and, in the true spirit of Schumpeter, have
led to creative destruction.
50
In Part II, I describe Google on the basis of a nearly
1-year-long study in which I interviewed and observed roughly 30 Google
employees about what drives Google’s Innovation Capabilities today and into the
future.
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References 33http://www.springer.com/978-3-319-04207-7
doc_928364862.pdf
Certain changes are products of shifting technologies. One established technology is replaced by something new. We've seen this before. Steam engines were replaced by internal combustion engines and electricity, electricity grew into electronics, landlines are being replaced by mobile telephones, and newspapers and paper books are increasingly being supplied as digital files for tablets and e-book readers.
Management Principles for Continuous
Innovation
2
This section is about global changes—why they are bigger, come more often, and
are becoming more dif?cult to predict. It’s also about what companies have done,
and are doing, in order to take advantage of the opportunities and avoid the threats
embedded in these ever accelerating changes.
Certain changes are products of shifting technologies. One established technol-
ogy is replaced by something new. We’ve seen this before. Steam engines were
replaced by internal combustion engines and electricity, electricity grew into
electronics, landlines are being replaced by mobile telephones, and newspapers
and paper books are increasingly being supplied as digital ?les for tablets and
e-book readers. These changes also affect how people live their lives. Even when
they are staying home with their sick child, they are now expected to be accessible
by phone and to answer your e-mail. Some experience this as a source of stress,
while others ?nd greater freedom. Most of us experience both these feelings as a
result of the changes that follow in the wake of innovations.
When something new appears, whether a technological solution or a change in
social norms, things generally start manageably. As the innovation gains adherents,
development accelerates, and ?nally, when the change has become widespread, the
rate of change tapers off. Subsequently, a new innovation appears, and the process
begins again. We often depict this process as an S-curve. The transition between
one technological curve and another is an indication of innovation. I call this a
phase transition. When a phase transition occurs, it creates opportunities for
companies that are able to innovate. For those who are not able to manage this,
the phase transition signals the start of a process of decline.
Researchers who have studied such processes
1
explain that the more people or
companies quickly adopt the innovation, the steeper the S-curve becomes. In
addition, the greater the diversity in age, cultural af?liation, and other qualities
1
The pioneers are located at the Santa Fe Institute in the United States, as well as in France, the
UK, Belgium, and Chile, where quali?ed research is being carried out related to research that
concerns complex adaptive systems.
A. Steiber, The Google Model, Management for Professionals,
DOI 10.1007/978-3-319-04208-4_2, #Springer International Publishing Switzerland 2014
11
among those who adopt the innovation, the more powerful the change is and the
sooner the next phase transition will occur. Today’s mobile phones with their touch
screens, Wi-Fi connectivity, and capacity to stream music have little in common
with the rather clumsy mobile phones ?rst launched a few decades ago. Mobile
telephony is an example of a technology that has changed people’s lives in a
multitude of ways in so many places around the globe.
The pace of external changes is accelerating as ever-larger groups of people and
companies adopt advances in ever-shorter spans of time and as the diversity among
those adopting these advances grows. This means that the S-curves become steeper,
and the life cycles of technical solutions and new products become shorter. As a
result of this shift, larger numbers of companies are required to handle continuous
innovation, an ability that also demands speed and scalability.
2.1 Continuous Innovation
Innovation is a broader concept than R&D. Innovations affect every part of a
company. ‘The Organisation for Economic Co-operation and Development’
(OECD) describes four types of innovations
2
: product innovations, process
innovations, marketing innovations, and organizational innovations.
A company is innovative when it possesses the ability to change its business or
management model, as well as to develop and implement new products that respond
to expressed and unexpressed customer needs. A customer can be a company or an
individual. But employees, owners, suppliers, and the public sector can also be
stakeholders that may well determine a company’s success or failure. A company
that is continuously innovative can manage to constantly change its business and
management models and to develop new products. Companies that never fail may
be refusing to take risks, and this can be a sign of limited innovation capabilities. On
the other hand, the ability to learn from one’s mistakes can be a sign of good
Innovation Capabilities.
Continuous innovation requires a holistic approach to leadership and organiza-
tion. It entails creating the basis for an innovative climate and innovative interac-
tion between people. If we wish to increase the Innovation Capabilities of a
company or other organization, we need to increase our understanding of how
each part of the innovation process can be coordinated within the framework of a
company system for continuous innovation.
As the pace of external change accelerates, the need for continuous innovation
grows.
2
The OECD’s de?nition of innovation is “the implementation of a new or signi?cantly improved
product (good or service), or process, a new marketing method, or a new organizational method in
business practices, workplace organization or external relations” (Oslo Manual by the
OECD 1997).
12 2 Management Principles for Continuous Innovation
2.2 System Effects: We Don’t Know Exactly What’s Happening
Most of us have at some point been sitting with colleagues discussing a problem
that none of the participants seems able to solve. Then someone comes up with an
idea. It might not be a particularly good one, but it stimulates someone else to come
up with a different idea that may still not be good enough. Finally, the group arrives
at a satisfactory solution. No one is able to explain where the ?nal idea came from,
but we know now that our creative abilities are at work. The innovation is a system
effect—the product of complex interplay between individuals and other
components in a system, whether that system is a company, a region, or an entire
country. When talking about a company, the term company system can be appro-
priate. As we cannot predict exactly how various components of a system will
interact, we develop a company system through trial and error. We must be aware
that things may not get things right the ?rst time, and instead we must try various
solutions and learn from these experiences in order to better succeed at our next
attempt.
When the properties of the whole are greater than the sum of the properties of its
parts, system effects appear. We discover these later, but we cannot predict with
accuracy just what these effects will be.
We usually distinguish between linear thinking (cause and effect) and systems
thinking. Continuous innovation is based on systems thinking.
The spread of a technological or management innovation is affected by four
primary factors
3
: the innovation and its characteristics—, the communication
channels used, the time involved, and the social system. The social system consists
of individuals and organizational units that relate to each other in an effort to realize
a common objective. History, norms, and opinion leaders in the social system are
important to the process of circulating an innovation.
2.3 The Company Model of the Future: A Paradox
When a theory says one thing, and common sense based on one’s own experiences
says something else, the result is a paradox.
In order to maintain, and preferably improve, pro?tability, companies must
decrease costs or create new income. Productivity is a measure of what we get
from current resources.
4
Budgetary discipline, cost control, and constant vigilance
to discover and eliminate unnecessary costs are core activities in the daily produc-
tion of goods and services. At the same time, if we are to continue to compete in the
future, we need to develop new products and services that provide new income.
3
Rogers (2003).
4
The de?nition is from Drivkrafter fo¨r produktivtet och v€ alsta? nd. A government report by the
Productivity delegation, SOU 1991:82.
2.3 The Company Model of the Future: A Paradox 13
Experience and common sense indicate that it can be very dif?cult to combine
these two objectives—ef?cient production, on one hand, and the continuous crea-
tion of new value streams through innovations, on the other, in the same business. In
other words, it’s hard to be a penny pincher regarding costs and at the same time
conduct future-centric experiments that devour resources with no guarantee that the
results will create new value. Reality, however, teaches us something different.
Innovative companies, such as 3M, Apple, W. L. Gore, Google, and many others
have accomplished this apparently dif?cult, if not impossible, task. These
companies have succeeded in joining various forms of logic that many see as
incompatible, such as large-scale operations and ?exibility, effective control and
individual freedom, a focus on today’s business and a commitment to the future. By
their ability to combine these ostensibly incompatible forms of logic, these
companies have created the conditions necessary for both productivity and
innovation.
Nevertheless, when the experience of executives leads them to one conclusion
and external examples indicate something different, most executives prefer to rely
on their own experience. “Forced to choose between getting what we want and
maintaining second order constancy, we may choose not to get what we want,”
Chris Argyris
5
concluded many years ago.
Research about continuous innovation seeks answers to the question not only
how one innovates continuously but also how this can be done parallel to
conducting and improving the daily operations (production) in a manner that will
promote quality and be cost effective.
2.4 Innovation Research
An interesting insight in management and innovation research is that a company’s
ability to innovate is explained more by how that company is managed and
organized than by its technological skill.
6
I therefore ?rst highlight the importance
of management innovations to Innovation Capabilities and continue by describing
the six management principles that support and provide the necessary conditions for
continuous innovation.
5
“When our theories-in-use prove ineffective in maintaining the constancy of our governing
variables we may ?nd it necessary to change our theories-in-use. But we try to avoid such change
because we wish to keep our theories-in-use constant. Forced to choose between getting what we
want and maintaining second order constancy we may choose not to get what we want.” (Argyris
1976).
6
Tushman and O’Reilly (2007).
14 2 Management Principles for Continuous Innovation
2.4.1 Management Innovations and Innovation Capabilities
Regardless of how good a company is at developing new products and applications,
these can hardly yield any results without an environment that promotes
innovations. Thus we can see that management innovations, like technological
expertise, are important in generating innovations. Henry Ford’s assembly line
was a management innovation and provided the stimulus for a number of techno-
logical innovations. A half-century later, the semiconductor industry not only
revolutionized technological development but also led to management innovations
in both the private and the public sectors.
Thus, management innovations and technological innovations work in tandem in
a dynamic manner, affecting each other and leading to greater effects by mutual
in?uence than they would if only one of these was affecting the other.
Researchers have also found that the nature of a company’s organization
in?uences not only its Innovation Capabilities but also its propensity to adopt
innovations from external sources.
7
We can thus see why management innovations
are important for both a company’s Innovation Capabilities and its long-term
sustainable success.
2.4.2 The Company System’s Importance to Innovation
Capabilities
A system is a collection of components with certain properties and with certain
connections among the components, as well as among the characteristics of those
components.
8
A company system has organizational components, and these affect
one another and structure the characteristics of the system.
Organizational components include issues such as whether decision-making
authority is centralized or decentralized, whether the norms allow mistakes or
demand that everything be “right the ?rst time,” whether the atmosphere is formal
or informal, whether information ?ows freely and is accessible to everyone whose
work requires it or is reserved for the few, whether supervisors give orders or coach,
whether cooperation between individuals and units is encouraged, and whether
internal competition is the order of the day. All these characteristics of an organi-
zation constitute the company system.
There is not much research regarding the company system’s importance for
Innovation Capabilities. The innovation research that does exist focuses mainly on
the process or project level or on individual components, such as company culture
and leadership,
9
which have been studied separately. As a result, knowledge of one
component of the system is often isolated from knowledge of other components.
7
Kimberley and Evanisko (1981), pp. 689–713; Damanpour (1987), pp. 675–688.
8
Professor Eric Rhenman, a pioneer in systems thinking, ?rst presented this de?nition.
9
O’Connor (2008), pp. 313–330.
2.4 Innovation Research 15
Each of these studies aims to increase understanding, within a de?ned area, of the
signi?cance of various characteristics within a given organization component. It
can therefore be dif?cult to summarize the importance of the innovative abilities of
all these components, working together and reinforcing each other to produce
positive or negative system effects. There is thus a challenge inherent in analyzing
company systems in their entirety. The system is more important for innovation
than the sum of its individual parts is. The holistic approach does justice to the
organic nature of Innovation Capabilities. In Part II, we will see how Google’s
organizational components work together dynamically to utilize and develop inno-
vative ability.
At this point, I present a summary of the management principles seen as
characterizing successful companies in rapidly changing industries. Although
these six management principles are described separately, when they are made to
work together, they give rise to an ability to deliver long-term and sustainable
quality and productivity in daily production, and they promote continuous
innovation strength.
2.5 Six Management Principles
The following are the six management principles that various clusters of
researchers have identi?ed as crucial in explaining the ability of successful
companies to engage in continuous innovation:
• Dynamic capabilities. The company’s ability to integrate, develop, and recon-
?gure internal and external competencies in order to meet rapidly changing
surroundings.
• A continuously changing organization. If you delay taking action until problems
arise, you will act too late. Instead of waiting and springing into action after
needs become pressing, a company should ensure that its organization is
permeated with a proactive approach to change.
• A people-centric approach. One fundamental principle found in companies with
continuous Innovation Capabilities is that they are people-centric, focusing on
the individual and liberating his or her innovative power. This principle is based
on a belief that people want to be creative
10
and that a company must provide
them with a setting in which they can express their creativity.
• An ambidextrous organization. Continuous innovation must combine two dif-
ferent forms of organizational logic within the same organization. These are
daily production, which works best with a conventional planning-and-control
approach, and innovation, which requires greater freedom, ?exibility, and a
more open attitude toward experimentation. An ambidextrous organization
must successfully handle and utilize the energy inherent in the contrast between
these two forms of logic.
10
Høyrup (2008).
16 2 Management Principles for Continuous Innovation
• An open organization that networks with its surroundings. A company can be
more or less open to integration with its surroundings. If we describe a company
as a system, some companies are more closed systems with clear borders that
separate them from the world beyond. Other companies have permeable limits
and have a constant and conscious exchange of information with their surround-
ings. Long-term survival requires that companies develop into more open net-
working systems.
• A systems approach to work differs from the conventional linear way of working
in two major ways. First, we begin with a holistic view of the system. The system
has a number of components that mutually affect one another. This mutual and
dynamic in?uence contributes to the entire system’s developing new
characteristics that can be dif?cult to predict. Second, those using the systems
approach are aware that these new characteristics can be positive, negative or a
combination of the two. This creates a demand for additional measures, such as
decreasing the fallout from unexpected negative system effects.
These six management principles can be viewed as fundamental principles or
orthodoxies on which a company’s management model for continuous innovation
should be based. I now describe the background of these six management principles
in greater detail.
2.5.1 Dynamic Capabilities
Companies must develop in order to survive. Penrose’s
11
growth theory, ?rst
expounded in 1959, became the basis of what is called “resource-based theory.” It
explains that a company’s competitive advantages are based on its access to a number
of speci?c resources or “core competencies” (Prahalad and Hamel, 1990). It was later
discovered that these core competencies could obstruct the company’s long-term
ability to compete when external changes accelerate and the value of the core
competencies depreciates. Thus, there is a risk that what was previously a driving
force for growth and development may later become an impediment to innovation.
12
Ensuring that a company’s value-creating resources retain their value requires
the business to be insulated from external change. A few decades ago, monopolies,
licenses, advantages of scale, and government regulations prevented competitors
from entering a given market.
13
Many of these obstacles are now gone, and it is
therefore more dif?cult for companies to retain long-term competitiveness with the
same portfolio of core competencies. A more dynamic model is needed.
11
Penrose (1959).
12
Leonard-Barton (1992), pp. 111–125.
13
Professor Niall Ferguson at Harvard explains that Sweden’s growth, which has been more
favorable than economic trends in southern Europe, is the result of Sweden’s adopting deregula-
tion—of former monopolies, for example—faster and more effectively than other countries have
done. DN 130702.
2.5 Six Management Principles 17
Companies that succeed on the global market react early, engage in rapid and
?exible product development, and manage to recon?gure internal and external
resources. Researchers such as Teece
14
have called this source of competitive
advantages “dynamic capabilities.” Together, these are de?ned as a company’s
ability to integrate, develop, and recon?gure internal and external competencies in
order to meet rapidly changing surroundings; in other words, dynamic capability is
the capacity to constantly review external factors and quickly adapt the company to
meet new challenges. Dynamic refers to external changes. ‘Capabilities’ is an
umbrella term for competence, strength, speed, and other properties that together
create the ability to utilize the opportunities that are present in every change. In this
case, capabilities relate to management’s ability to integrate, develop, and reallo-
cate internal and external expertise and resources in an effort to adapt to a changing
environment, and its ability to create new values in that environment. Dynamic
capabilities orient a company in the direction of ongoing integration, reorganiza-
tion, and a modernization of resources and expertise, so that it is able to respond to
challenges in its surroundings and maintain or adapt existing competitive
advantages and develop new ones. Dynamic capabilities are a characteristic of a
company’s various processes, a conditioned and stable pattern in collective
actions.
15
Companies differ with regard to dynamic capability in that they expressly
or implicitly emphasize to different degrees the strategic importance of changes in
the future. Companies that focus on change and whose management has accepted
the premise that the company will be changing continuously will most likely
achieve greater pro?tability than companies whose managements have a more
conservative attitude toward the future. Change-centric companies more effectively
adapt themselves and use new knowledge they have acquired.
The dynamic capabilities of companies can be expected to differ between
companies operating in environments with differing magnitudes and frequencies
of change. Depending on the changeability of a market, dynamic capabilities may
shift from being detailed and analytical with stable processes and predictable results
to being simple and experimental with uncertain processes and unpredictable
results.
16
Dynamic capabilities are based on three skills
17
:
• Sensing and shaping opportunities and threats
• Seizing opportunities
• Maintaining competitiveness by combining, protecting, and where necessary,
reallocating company resources
Dynamic capabilities should permeate the entire organization. This principle ties
together the skill of the management at utilizing opportunities, handling threats and
combining and recon?guring company and shared resources with other special
assets. It provides opportunities to meet new customer needs and maintains and
14
Teece et al. (1997), pp. 509–533.
15
Zollo and Winter (2002), pp. 339–351.
16
Brown and Eisenhardt (1997), pp. 1–34.
17
Teece (2007), pp. 1319–1350.
18 2 Management Principles for Continuous Innovation
enhances the company’s ability to develop. In doing so, it also creates long-term
value for customers, employees, and investors. Maintaining dynamic capabilities
requires the management team to practice entrepreneurship
18
; Management needs
to perceive problems and trends, direct and redirect resources, and change organi-
zational structure and systems so the management team can develop and utilize
technological opportunities based on customer needs.
Summary A company and its management model must be based on the principle of
dynamic capabilities in order to ensure continuous innovation and long-term
development. Dynamic capabilities comprise the company’s ability to integrate,
develop, and recon?gure internal and external competencies in order to meet
rapidly changing surroundings. Dynamic capabilities are affected by the
management’s orientation and way of acting. There is a conditioned and stable
pattern in collective actions. By being aware of the importance of dynamic
capabilities, a company can build them into the processes it designs. The more
rapidly the company’s industry is changing, the more important dynamic
capabilities become.
2.5.2 A Continuously Changing Organization
Companies that operate in rapidly changing environments need to continuously and
proactively change their organization.
19
It is not enough to change things when the
need arises, as in the case of sudden reorganizations. The business must constantly
be involved in a continuous and proactive process of change. Put more simply, the
company must always be prepared.
2.5.2.1 On the Border Between Order and Chaos
Companies must not become locked into too much orderliness but at the same time
should not become too chaotic. Change happens in the borderlands between order
and chaos.
20
This concept includes the complex, uncontrollable but nevertheless
adjustable condition we call self-organization, which arises where there is a certain
structure that is not so in?exible as to impede change. If everyone knows what the
objective is but the itinerary allows for ?exibility, individuals, working alone and in
18
Entrepreneurship can be de?ned as the ability to identify opportunities and create resources to
take advantage of these opportunities. Entrepreneurship causes something to change direction.
New perspectives are discovered and developed. An entrepreneur creates new business operations
and organizes the market in a new way. According to the neoclassical theory of Joseph
Schumpeter, an entrepreneur causes creative destruction on the market by disturbing the balance
between supply and demand. The result is the appearance of a chaotic market, and the entrepreneur
becomes a person who creates demand on a market.
19
Brown and Eisenhardt (1997), pp. 1–34.
20
Ibid.
2.5 Six Management Principles 19
groups, can decide how to act in light of what happens. This involves self-
organizing. In a centrally governed organization in which the management has
directed in detail how people should act, problems arise if reality fails to unfold
according to the data on which the management decisions were based.
One crucial decision for management is thus distinguishing between what needs
to be ?rmly laid down and what should be left open for employees to decide in light
of the prevailing factors. The border between order and chaos provides two
opportunities.
21
First, freedom to improvise within the company. The management team and the
employees utilize clear objectives, priorities, and guidelines for the organization.
They ?nd new solutions while consistently delivering excellent products at the right
time and within budgetary constraints. This planned improvisation is based on three
conditions:
• A learning culture in which supervisors and employees can adapt operations
when conditions change
• A semistructured organization in which deliveries, times, and prioritizations are
monitored
• Ef?cient communication of information that is easily accessible to everyone
who needs it at the time they need it
Second, taking advantage of synergy effects by striving for cooperation with
other units in the company.
2.5.2.2 Time-Axis Thinking
In a continuously changing organization, one must consider different time horizons
simultaneously: history, the present, and the future.
22
Being conscious of the entire
time axis without locking themselves into one of the time horizons is an important
feature of continuously changing organizations. Time-axis thinking has two
perspectives:
• A retrospective examination of previous experiences (experience recycling) in
order to ?nd experiences that can be of value for the future
• Experimentation to ?nd various ways of obtaining knowledge and facilitating
?exibility at a reasonable cost. Identifying many alternative solutions and
facilitating learning are important.
2.5.2.3 Choosing What to Adapt to in Real Time
Many events are sudden. Being a continuously changing organization means
consciously choosing which events to adapt to
23
and deciding how to adapt. Is
this an opportunity we should take advantage of, a threat that must be dealt with, or
simply an event we can allow to pass without taking any action? Not every event is
relevant to every company. Which ones should we take notice of, and how should
21
Ibid.
22
Ibid.
23
Ibid.
20 2 Management Principles for Continuous Innovation
we relate to them? Choosing what to adapt to entails linking changes to operations
so we accept them and continue to develop without unnecessary disturbances.
2.5.2.4 Three Different Leadership Roles
In a continuously changing organization, there are at least three different leadership
roles.
24
The ?rst of these relates to the business unit. The strategy for this unit must
be an ability to handle innovation and production at the same time. The second role
concerns synchronization on the middle level, where it is necessary to continuously
reallocate among different deals and projects in order to take advantage of new
business opportunities. The third role, at the level of top management, is to compile,
decide, and communicate objectives and prioritizations for the company.
Finally, two requirements must be satis?ed in order for visions and strategies to
work as unifying guiding lights for the entire company:
• The overarching objectives must be described so that every person can under-
stand that various parts of the common picture (vision,
25
mission, and strategies)
support each other.
• These objectives should be communicated to all employees so that they can use
them as a basis for their own independent decisions. A person who has such an
ability to communicate is able both to see contexts and patterns and to formulate
these so that the picture becomes understandable, meaningful, and manageable
for every employee.
26
Summary Being a continuously changing company requires both internal ?exibil-
ity and the ability to take into consideration different time perspectives simulta-
neously. The need to be continuously changing is affected by the speed and
magnitude of external changes. Consequently, the company needs to develop a
culture that is always prepared for changes and a semistructured organization that
can maintain a balance in the borderlands between order and chaos; set and
maintain objectives and prioritizations, as well as guidelines that employees can
24
Ibid.
25
There are examples of companies that have needed to implement a major change within a short
time. In such a case, the mission can be expressed as a strategic intention. This strategic intention
is meant to serve as a shared focal point for rallying the company’s strength. When Komatsu
entered into competition with Caterpillar, a company many times larger, the strategic intention was
expressed in the phrase Encircle Caterpillar; Canon’s successful raid against Xerox, the giant in
the industry, was focused with the help of the slogan Beat Xerox. When Robert Townsend took the
helm of Avis, a company that had experienced 13 consecutive years of loss, the strategic intention
was Let’s get back in the black. Pro?tability returned after 6 months. See further Hamel and
Prahalad (1994).
26
In extensive research regarding negative stress at work, is has been found that the same
conditions that lead to injuries in many individuals leave others unaffected or even make them
stronger. The difference between the two groups is the stronger individual’s sense of coherence in
stressful situations. This ability makes the situation comprehensible, meaningful, and manageable.
People who lack a sense of coherence and therefore fall victim to negative stress can develop this
ability with the help of educational measures. See further Antonovsky (2005).
2.5 Six Management Principles 21
use instead of ?xed rules and instructions; and experiment and improvise with
on-time deliveries and real-time communication.
In addition, the organization needs leadership with differing abilities: to design
local strategies and lead for both productivity and innovation in day-to-day leader-
ship, to conduct strategic synchronization and reallocation on the middle level, and
to synthesize and reallocate, make, and articulate overarching decisions.
2.5.3 A People-Centric Approach
A fundamental principle of companies with continuous Innovation Capabilities is
the belief in releasing the inherent innovative powers of its employees,
27
which in
turn is based on the belief that individuals want to be creative.
28
Innovations are
born of passion and are driven by an individual’s inner motivation. For this reason,
it is important to allow employees to do what they have a passion for doing and or
even ?nd fellow employees with the same passion, as well as to understand what
motivates the individual employee. The company should be organized as a river
system with unencumbered movement.
29
This will ?ow faster than one ?lled with
obstacles and diluted into tributaries. Companies like this create simple and well-
focused structures and routines only where these are necessary or meaningful. They
want to give people the freedom to make their own decisions and avoid placing
obstacles in their way. Innovative organizations have enough ef?cient structure to
avoid chaos and provide enough freedom and ?exibility to support innovation and
continuous change.
The management plays a major role in employees’ enthusiasm for innovation.
30
Innovations can arise anywhere in a company but cannot survive without the
encouragement and support of management.
31
A company with the capacity for
continuous innovation has a management that emphasizes the importance of
innovation and continuous change and that encourages positive energy among its
employees through creative stimulation with challenging visions and missions. For
most people, awareness that one’s work is contributing to a higher or noble purpose
and is in some way making the world a better place is a source of personal
stimulation and increased commitment. Gary Hamel
32
stresses the importance of
a company’s assuming a clear responsibility for society and the environment, as this
helps create an opportunity for a more sustainable business model. Such a model, in
27
The research in this section is primarily based on management and organization research, as well
as on research regarding innovation culture.
28
Høyrup (2008).
29
Tidd and Bessant (2009), p. 135.
30
Dallenbach et al. (2002).
31
Leifer et al. (2000).
32
Hamel (2009).
22 2 Management Principles for Continuous Innovation
turn, creates a more noble purpose for the company and thus involves the
employees to a greater degree.
Innovative companies often have a strong, shared vision
33
that is vitalizing,
attractive, realistic, and credible so that every employee is motivated and can use
the vision as a guide in daily work. In an innovative company, we also ?nd that
management uses soft forms of control, such as values, guidelines, and peer
assessments. Certain researchers assert that modern society is facing a paradigm
shift regarding control
34
and must move toward gentler forms of control
mechanisms. A company’s general strategy should include delegating authority to
those who are closest to a problem or an opportunity and who therefore often know
the most about how to solve the problem or take advantage of the opportunity. In
order for employees to make good decisions, they need access to relevant informa-
tion. This requires more extensive transparency in relevant areas and less secrecy
than previous models have offered.
35
There is a clear correlation between the way management exercises leadership
and treats the employees, on one hand, and the performance of the organization, on
the other. This correlation is a positive one and is self-reinforcing over time.
36
People are the most important asset in the current economy. Certain CEOs, such as
Richard Branson at Virgin, maintain that employees are more important than
customers, as satis?ed employees create satis?ed customers. Releasing the energy
that exists in every person requires leadership with special qualities. Inspiring and
supportive leadership encourages the development of high-performing, well-func-
tioning teams. The management team communicates visions and explains
prioritizations but leaves the choice of how to perform the work to the employees
themselves. Managers lead by reaching an agreement with each employee about the
goals that are to be achieved. Leaders of innovative groups
37
have shown them-
selves to be both creative and disciplined. They are able to accept uncertainty and
risk, and they handle failures constructively. They also exhibit passion and enthu-
siasm. These leaders are curious and willing to actively seek out new ideas both
within the company and from external sources. They also possess the courage to
stop projects that do not meet expectations, they attract innovators, and they are
good at building successful teams. They are modest and respectful, reward, involve,
emphasize teamwork, communicate, and motivate. In addition, they have broad-
based experience, as well as in-depth technological expertise in their areas.
Finally, companies with innovation cultures
38
emphasize trust and openness
within their organizations. They create challenges and actively involve the
33
The de?nition of vision as a vitalizing, attractive, realistic, and credible picture of the future of a
business is inspired by Nanus (1992).
34
Birkinshaw (2010), pp. 1–10.
35
Hamel (2009).
36
Tidd and Bessant (2009), p. 135.
37
Bel (2010).
38
Isaksen and Tidd (2006).
2.5 Six Management Principles 23
employees. They support and give latitude to new ideas, allow con?ict and debate
on factual issues, accept risk taking, and give employees great freedom in choosing
how to perform tasks. All these are characteristics that the company culture
encourages and reinforces.
Summary In order for a company to succeed with continuous innovation, those in
the organization should believe in and be able to free up the innovative power that is
found in each employee. This fundamental principle derives strength from all
components of the company system, such as culture, leadership, and organizational
structure.
2.5.4 Ambidextrous Organization
2.5.4.1 Balancing Production and Innovation
One major problem in many companies is that the business is not innovative
enough. However, if the tables were turned such that companies focused on
innovations while prominent manufacturers were allowed to lose their skill in
manufacturing, we would have moved from the frying pan into the ?re, ?guratively
speaking. Companies need to both conduct and improve their daily operations while
also engaging in continuous innovation efforts. Companies that survive long term
can manage both of these challenges.
An ambidextrous person is just as skillful with the left hand as with the right. In
English, an organization that can “do it all” is referred to as an ambidextrous
organization.
39
A company’s ability to create conditions favoring a long-term business success
is based on being good at both production and innovation. There are examples of
various models that can be used to manage this challenge.
Certain commentators are of the opinion that production and innovation must be
carried on in isolation from each other (i.e., the “mainstream” and the “newstream”
must be kept separated), while others feel that the mainstream and newstream must
be kept within the same organization.
Increasing numbers of business environments are developing toward greater
changeability and unpredictability. It therefore makes sense to investigate the
conditions under which production and innovation can coexist in an organization.
The accelerating pace of change means that speed is becoming ever more impor-
tant. Consequently, internal research labs will most likely be combined with
outsourcing innovations and involving all employees in innovations.
Leading innovation companies expect, support, and reward innovations, regard-
less of the source of the initiatives and ideas. These companies view innovations as
39
Tushman and O’Reilly (1997); Benner and Tushman (2003), pp. 238–256.
24 2 Management Principles for Continuous Innovation
a mechanism to both develop new knowledge and competitive advantages and to
stimulate continuous improvement in production.
Companies need innovative efforts to balance the conservative forces that
oppose continuous change. Consequently, management must conscientiously
work to support ambidextrous organizations. This will enable the company to
maintain ef?cient products and continuous improvement while also experimenting
and engaging in continuous change. This, however, will require ambidextrous
executives and managers who can deal with production and innovation simulta-
neously and develop the company culture to promote an ambidextrous
organization.
It has proved dif?cult to realize these intentions in practical terms, especially in
connection with technological shifts. There are various reasons why executives with
experience operating an ef?cient business according to the old rules feel it is dif?cult
to change their position. One such reason is the inertia that often accompanies
historical success and old “tried and true” habits. There are companies that have
previously “done everything right,” listening to their major customers and focusing
on their most important businesses and technology areas. These companies can ?nd
themselves in danger when the threat comes from new technology and increased
demand from groups of customers who were previously peripheral. In addition, they
face dif?culty predicting the market potential of something in its early stages. These
could be signs that a major phase transition is about to occur.
40
When a company or an entire industry encounters a major phase transition, one
must often begin from scratch in an effort to ?nd solutions to the major and crucial
problem of how to satisfy new needs. Beginning from scratch requires avoiding
building on the company’s known solutions and recruiting management staff who
represent a new way of thinking. It may well be that this can be done within the core
business or through a looser connection to mainstream operations. Sometimes one
must accept that the traditional market is on the way to extinction and that one may
need to “kill off one’s darlings.”
Several examples show that it is in fact possible, using an ambidextrous organi-
zation, to have both ef?cient production and continuous innovation: consider
Google, W. L. Gore, and 3M. There is also convincing evidence that ambidextrous
companies succeed very well. However, to manage this strategic bifurcation, the
management team and local managers must develop their ability to function within
40
A well-known major phase transition in Sweden was the transition from precision mechanics to
electronics in adding machines that affected the Facit company. Electronics could satisfy not only
existing needs but also many new customer needs, but Facit had neither mastered this new
technology nor understood the needs of its customers. Facit was the expert in precision mechanics,
so it had two choices. It could either try to ?nd new markets for precision mechanical products, or
it could develop expertise in electronics. The company hired a group of Swedish engineers who in
the early 1950s had placed themselves on the global cutting edge for electronic data processing on
the Swedish Board for Computing Machinery. They were very much focused on innovation, but
the management of Facit wanted them to manufacture more computing machines of the same type
as those they had already developed. These engineers were world-class innovators, but the
management at Facit wanted to make them production engineers. It simply did not work.
2.5 Six Management Principles 25
the system-thinking framework. The management and other executives must
clearly demonstrate what the ambidextrous concept means through a continuing
dialog with “both sides” internally.
41
The management thus plays an important role
in launching the ambidextrous approach throughout the company.
Summary In order to ensure a company’s long-term survival, the organization must
support both ongoing production and innovation-related activities as two parallel
missions within the same company. The accelerating pace of external changes
supports the advisability of conducting both missions in the same organization,
even though many can attest that this may not be easy.
2.5.5 An Open Organization That Networks with Its Surroundings
Researchers agree that companies need to have contacts and exchange of
experiences with external actors as a condition for continuous innovation. “Firms
that fail to exploit . . . external R&D may be at a severe competitive
disadvantage.”
42
A company can be open to a greater or lesser extent to exchanging information
and products and to engaging in cooperation with those in its surroundings. Systems
that are closed have de?nite borders and easily become victims of entropy. Closed
systems are worn down and ?nally disappear. When a company launches a series of
programs to cut costs, it may be a sign that the company is no longer able to supply
suf?cient new value to earn the income it needs. This means that the business is
being worn down through entropy. A company’s pro?t is the company’s income
minus its expenses. When pro?t declines, action must be taken. Focusing on
expenses and thereby cutting costs (primarily personnel) is often viewed as the
quickest means and is therefore commonly chosen. However, many companies
have quickly regained their pro?t level by mobilizing their personnel instead.
43
41
Interview July 2013, Geoff Hollingworth, AT&T Foundry.
42
Rosenburg and Steinmueller (1988), pp. 229–234.
43
One such example is the Sears department store company, with 300,000 employees. In the
course of 1 year, Sears succeeded in turning around the worst loss in the company’s 111-year
history to achieve the most pro?table result in the company’s 112-year history without laying off
any employees. Another example is Avis, where Robert Townsend in the 1960s turned a series of
13 years of losses into acceptable pro?tability within 6 months with the help of a “strategic
intention”: Let’s get back in the black. No one was allowed to write this intention down. Instead, it
was communicated by each supervisor to the employees, along with a question: How can you
contribute in your job? In the 1970s, SAAB’s aircraft division lowered its administrative costs in
the course of a few months using a similar working model. The group management demanded a
cost reduction through layoffs in a Swedish manufacturing company. The head of a unit asked to
be allowed to implement an improvement in pro?tability without any layoffs. He was given the
green light by management, and had 20 % more success than his colleagues who had laid off
26 2 Management Principles for Continuous Innovation
A closed company most often focuses on cutting costs, and some companies
have managed to survive on the market for many years using various types of
austerity measures. Gradually, however, all of this cost cutting will impair the
quality of the company’s products and services and eventually lead to the
company’s demise.
Open systems have more permeable boundaries and move through a process
known as emergence.
44
A company must be an open system if it is to survive over
the long term. An open system searches beyond itself for innovations that can
increase revenues.
In open systems, managers and employees connect with the company’s sur-
roundings. When technological development speeds up and competition becomes
intense, the company needs to use these links even more to supplement its own
expertise. Under these conditions, it can be dif?cult for a company to keep up with
developments in all relevant areas. Networks and alliances with customers,
suppliers, start-ups, universities, and government agencies, and sometimes even
with competitors, can serve as crucial resources for a company’s innovations.
Jack Welch observed, “If the rate of change on the outside exceeds the rate of
change on the inside, the end is near.” Management and the board should decide
whether the company’s Innovation Capabilities is suf?cient and whether increased
openness to the outside world would increase that ability. How can the company
bene?t from new external technology and networks in an effort to further develop
its ability to change, to be proactive, and to innovate?
Openness and networking with regard to the External Surroundings was placed
on management agendas in 2003 with the introduction of the open innovation
concept presented by Henry Chesbrough.
45
According to Chesbrough, there are
several reasons why companies need to become more open. First, there are now
powerful ways to bypass conventional limitations and bene?t from ideas
originating outside the organization. Second, not all the smart people are in one
company; they are found spread out in many different companies and institutions.
Third, innovations that arise as a result of collaboration between various ?elds of
endeavor, disciplines, and organizations are becoming more common. Fourth, time
to market is becoming progressively shorter, as are product life cycles. As a result,
companies must shorten the time required for product development. Becoming
better and discovering and adopting ideas from outside sources and integrating
them into our company’s own development process helps us keep pace. Succeeding
at increasing openness requires that we question some conventional nostrums such
as: in order to bene?t from R&D we have to discover, develop, and deliver
everything ourselves. Instead we should think: external R&D can create a great
personnel. Many examples show that it is possible to signi?cantly improve pro?tability within a
short time by mobilizing all employees.
44
In a complex system, the whole’s characteristics are greater than the sum of the parts’
characteristics. This is known as emergence. Complex systems are emergent. In other words,
they have the ability to develop new characteristics to adapt to changes in their surroundings.
45
Chesbrough (2003).
2.5 Six Management Principles 27
deal of value but we need our own R&D in order to claim some portion of that
value.
Summary In order to maintain relative Innovation Capabilities, companies and
their organizations must become more open to the ?ow of ideas and innovations
from the outside world. One relevant question is whether a company is suf?ciently
open to outside ideas and innovations, and another is which channels can be used in
order to bene?t more quickly and effectively from innovations originating else-
where. By managing and balancing the need for openness, a company can likely not
only improve its potential to shorten the time to market but can also gain access to
talented people and learn about interesting technological development taking place
at the interface between different ?elds. This will give the company a better chance
of maintaining its relative Innovation Capabilities. A company maintains its rela-
tive Innovation Capabilities when it keeps pace with changes in its surroundings.
2.5.6 A Systems Approach
Certain researchers
46
assert that companies must move from a process perspective
to a systems perspective in order to understand how companies’ Innovation
Capabilities functions, and using that understanding as a basis, they must imple-
ment initiatives to further enhance it. A systems approach is thus one way to
achieve a greater understanding of what must be done in order to enhance
Innovation Capabilities. A system is a collection of components with certain
characteristics with connections among the components and among the
characteristics of those components.
47
A company and its management model can be viewed as a system with various
organizational components (see Fig. 2.1). Examples of components in a company
system are its vision and mission, the board of directors and management team,
local managers, company culture, employees, organizational structure and pro-
cesses, systems for performance evaluation, promotion and recognition and
rewards, systems for learning, and openness and networking with the outside
world, as well as brand and corporate communication.
In order to describe and understand the differences between the system of a
company with a productivity orientation and that of one with an innovation
orientation, consider the following ?ctional examples designed speci?cally to
clearly illustrate the difference between two systems with different overarching
orientations.
46
O’Connor (2008), pp. 313–330.
47
Professor Eric Rhenman, a pioneer in the systems approach, introduced the following de?nition:
A system is a collection of components with certain properties and with certain connections among
the components, as well as among the characteristics of those components.
28 2 Management Principles for Continuous Innovation
Both alternative systems include two features in the main orientation of the
operation: productivity and innovation. The productivity company must naturally
not neglect its improvement and innovation-related work, just as the innovation
company must continuously mind its pro?tability, which, after all, ?nances its
innovations. The difference between the two types of companies is mainly where
the focus lies and what the necessary de?ning conditions are.
48
I would not
maintain that all productivity companies are one way and all innovation companies
are another. This description is exaggerated in order to communicate an idea about
how the overarching orientation and the system surrounding it affect both the
behavior of the employees and the focus and pro?t or loss of the company. The
two types of companies are described below as they relate to the organizational
components of the company system (Fig. 2.1).
Leaders and
Leadership
Organizational structure
System for learning
Openness and
networking with the
outside world
System for performance
evaluation, promotion and
recognition
Communication and
brand
Innovation
OR/AND
Productivity
Board and Management
People
Vision/Mission
Company culture
Fig. 2.1 An organization visualized as a company system
48
Gestalt psychology works with the concepts gestalt and background. One classic example is a
white goblet against a black background. The goblet is the gestalt, or focus, of the picture. The
black area is the background. If one gazes at the picture, another image begins to present itself. The
viewer sees two faces in pro?le against a white background. Now the pro?les are the gestalt and
the white area is the background. One can see production and innovation in a similar manner. In
many companies, the production is the gestalt and the innovations are the background. Some
organizations need to change this and to see the innovations as the gestalt and the production as the
background that makes the innovations possible.
2.5 Six Management Principles 29
• The guiding star of the company system is the main orientation. For many years,
the productivity company’s orientation has been toward productivity. This has
often been formulated as a vision or mission that expresses itself as cutting costs
and ensuring quality. The productivity company’s orientation is replaced by
continuous innovation in the case of the innovation company.
• The board and management of the innovation company have a clear, long-term
vision for the company and consider different time horizons simultaneously:
history, the present, and the future. The board and management of the produc-
tivity company are primarily occupied with current business and meeting ?nan-
cial metrics.
• The company culture has features that are common to the entire company, as
well as features that differ among various units, because of the nature of the work
performed. The understanding of how to create and build a strong organizational
culture is low in the productivity company. In the innovation company, members
of the management team and each local manager must be continuously aware of
how he or she affects the culture, as that culture is now embedded in everything
the company does and has become an important instrument of control.
• Local managers. The managers who are responsible for the everyday work in the
productivity company focus on controlling and monitoring. In the innovation
company, they mostly coach the employees and support their independence,
their willingness and ability to cooperate, and their initiative and creativity for
improvement and continuous change.
• People. The productivity company views people as a resource but emphasizes a
kind of docility. Employees should do as they are told, comply with processes,
and minimize variation by following instructions. In the innovation company,
employees are the company’s most important resource. Management stimulates
individuals’ independence and their mutual collaboration in order to contribute
to the ful?llment of the company’s mission through their own initiatives.
• Organizational structure, allocation of responsibilities and authority, and the
way various units relate to each other. The productivity company looks to ?nd
a logically coherent model that can serve as a basis for orderly functioning. The
innovation company has a different emphasis and seeks to achieve a dynamic
balance that will provide support and a somewhat clear overview of how
different parts relate to each other and that will allow a great deal of freedom
for employees to make their own decisions and take initiative through ?exibility
and self-organizing.
• System for performance evaluation, promotion and recognition, and rewards. In
the productivity company, Human Resources is a maintenance function for
human capital, which is viewed as a resource. In the innovation company,
managers bear the responsibility of supporting and developing employees. HR
is a strategic and proactive function with responsibility for workforce planning,
leadership development, personal development of employees, and overall orga-
nizational development. The emphasis on key performance indicators differs
between the productivity company, where the emphasis is on delivery times and
30 2 Management Principles for Continuous Innovation
costs, and the innovation company, which emphasizes speed and innovative
ability.
• A system for learning. The war cry “It has to be right the ?rst time” belongs in
the productivity company but not in the innovation company. In the ?rst case,
mistakes must be avoided, and when they do occur, it’s tempting to try to hide
them. The productivity company strives to avoid risks. The innovation company,
like Inspector Clouseau of Pink Panther fame, never repeats a mistake but is
always making new ones. Innovation companies willingly take calculated risks,
and if no success results, the company must be able to absorb the cost.
49
Experience recycling is important, and this is done systematically in innovation
companies. The productivity company highlights positive experiences and
attempts to hide negative ones. And as it is said, Experience is not what happens
to you but what you do with what happens to you. The innovation company uses
what happens to build up an active account of experience.
• Openness and networking with the outside world. A productivity company has
traditionally tried to achieve vertical integration in order to lower its costs. It has
also used outsourcing to achieve a more favorable cost structure. This is an
expression of what we can call cost management. The innovation company has
an ambition to at least keep pace with external changes. It is more focused on
revenue management through seeking out new ways to bene?t customers in a
quali?ed manner through new products and business models.
• Communication and brand. The brand is a symbol of the company, an archetype
that wakens expectations about not only a company’s products but also how the
company’s management and employee should act. A brand is a concept that is
much broader than a logotype. The communication system of the innovation
company is open to obtaining information and knowledge from outside the
company, but this company is also open and aware of what it communicates
about its own activities. These focus on innovations and surprises. The produc-
tivity company’s brand is meant to be the bearer of quality and dependability.
Summary In order to maintain and improve Innovation Capabilities, a CEO should
understand that continuous Innovation Capabilities is created from a complex
system of components that mutually affect one another. This system, in turn, is
affected by the overarching orientation the company chooses.
49
At Gore-Tex, work is done according to four guiding principles: freedom, fairness, commitment,
and the waterline, which acts as a restriction of the other three. Risk taking must not be allowed to
sink the ship. Gore-Tex does not believe in burning all the bridges. Instead, it carefully considers
whether the calculated risks it takes will result in success or will at least teach the company
something (Carney and Getz 2009).
2.5 Six Management Principles 31
2.6 Introduction to Part II: The Case of Google
Many companies, especially large ones, lose the ability to retain and enhance their
Innovation Capabilities. They have not yet understood that continuous innovations
result from a complex, adaptive, open, ambidextrous system in which the inherent
innovative energy among the employees must be released.
In the ?rst part of this book, I have presented six fundamental management
principles that I identi?ed while studying the results of other research about
successful companies in rapidly changing industries. These fundamental manage-
ment principles are dynamic capability, a continuously changing organization, a
people-centric approach, an ambidextrous organization, an open organization that
networks with its surroundings, and a systems approach. In addition, I have
presented a company and it’s management model visualized as a company system
consisting of ten interdependent organizational components. The system, and its
components, is in turn affected by the overarching orientation the company
chooses.
During its ?rst 15 years, Google succeeded in creating and maintaining a very
successful management model for continuous innovation. Innovations such as a
new search engine (Google Search), AdWords, Gmail, YouTube, Android, Google
+, and Google Glass all come from Google Inc. Some of these have radically
changed the logic of entire industries and, in the true spirit of Schumpeter, have
led to creative destruction.
50
In Part II, I describe Google on the basis of a nearly
1-year-long study in which I interviewed and observed roughly 30 Google
employees about what drives Google’s Innovation Capabilities today and into the
future.
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