Innovation: The Engine of Continuous Renewal

MOR 559 – Strategic Renewal University of Southern California
Innovation
The Engine of Continuous

Renewal
Lecture 6
©2000, Michael A. Mische

Lecture 6:
DESCRIPTION & OVERVIEW
The objective of this class session is to explore the impact and role of innovation on organizational performance and as a source of
strategic renewal and high-performance. Innovation is a fascinating and challenging subject that is often under-appreciated in
traditional strategic planning methods. Likewise the process and management of innovation also represents a key challenge for the
management of organizations and strategists alike.
This session will discuss numerous important topics related to innovation as a strategic pillar, and explore pertinent questions such as:
• What is the definition of innovation?
• Why are some organizations great at innovation and others find the process to be a constant struggle?
• How do great performing companies innovate?
• What is the role and influence of leadership on innovation?
• What types of personal qualities and characteristics are required to support innovation?
• What is the importance of organizational learning in innovation?
• What is the influence of environment on innovation?
KEY LEARNING CONCEPTS

For this lecture our learning objectives include developing an understanding of innovation and its role in strategic renewal and high-
performance and how to position organizations for greater innovation. As a result of this session, you should have a deeper
understanding and a fundamental working knowledge of:
• What innovation is and its influence on organizational performance.
• The relationship between innovation and the cultural dynamics of the organizational.
• The sources and types of innovation that can affect organizational performance and strategic positioning.
• The basic models and processes used to stimulate and manage innovation in the organization.
• The life cycle of innovation and theory of a dominant design.
• How high-performance organizations go about the process of innovating.
Tips and Hints: At the conclusion of the lecture, take a few minutes and think about how innovation changed the basic operating
dynamics of “old economy” companies such as Sears, General Motors and Kellogg’s. Try to relate what we discussed in the lecture to
our study of strategic change earlier in the semester; can you see patterns.
Innovation
Lecture 6:
CLASS SCHEDULE & AGENDA READINGS

Mische: Strategic Renewal, Chapter 6
I. 6:00 – 6:15 Course Related Q&A Schlender: “Sony on the Brink,” Fortune, June 12, 1996
Student Concerns Schlender: “Sony Plays to Win,” Fortune, May 1, 2000
General Discussions Grant: “Can Fisher Focus Kodak?” Fortune, January 1997
Greenwald: “Kodak’s Bad Moment,” Time, September 29,
II. 6:15 – 6:30 Review of previous 1997
material Grant: “Missed Moments,” Fortune, October 27, 1997
Preview of current Chakravarty and Gordon: “Vindication,” Forbes, September
week’s material 7, 1998
Grant: “Why Kodak Still Isn’t Fixed,” Fortune, May 11, 1998
III. 6:30 – 7:30 Lecture Polaroid Corp.: Digital Imaging Technology in 1997 (HBS) –
9-798-013
IV. 7:30 – 7:45 Break Deutsch: “Polaroid Girds for the New Era in Instant
Photography,” The New York Times, March 27, 2000
V. 7:45 – 9:00 Lecture & Material/ Markoff: “Chips Promise Digital Images at Lower Costs,” The
Topic Discussion New York Times, April 24, 2000
VI. 8:45 – 9:30 Case Examples & CASES

Discussions
Sony (article-built case)
VII. 9:30 – 10:00 Professor Available for The Digital Imaging & Photography Industries:
Q&A, Discussion, etc. Kodak (article-built case)
Polaroid (HBS & article-built case)
Innovation
Lecture 6:
CONCEPT DISCUSSION & QUESTIONS
1. Consider various examples of discontinuous and incremental innovations and discuss their
impact on their industries and market dynamics? In what ways and to what extent did/do
these events drive change and new competitive rules? What is the longevity in terms of
strategic implications of each type of innovation?
2. Discuss the criticality of concepts such as collaboration, external partnerships, coopetition, etc.,
to innovation and product development efforts. How do these support or relate to high
performance and strategic renewal?
3. Discuss the relationship between innovation and the remaining pillars of strategic renewal.
Specifically, to what extent is innovation enabled or affected by IT, knowledge and leadership?
4. Assess the value of innovation, its risks, potential for marketspace dominance and competitive
leadership relative to each of the six strategic choices for competing? How do companies
manage/leverage innovation for high performance (discuss some real life examples)?
5. What are the various sources of innovation? What actions must leaders take to continuous
ensure presence and nourishment of such sources?
6. What are the traditional impediments to innovation efforts? How can organizations eliminate
such “holdups”?
CASE DISCUSSION & QUESTIONS

Current material available at http://www-rcf.usc.edu/~mische (September 2000)
Interactive class discussion
Innovation
Lecture 6:
LECTURE SUMMARY
The capability to innovate is critical to an organization’s survival and sustained competitiveness. High-
performers emphasize innovation and actively seek innovative people. Innovation is absolutely essential
to any business strategy, as it can completely alter traditional strategies and introduce new competitive
models.
Some of the signs of high-performance innovators include:
• Presence of creative people
• Established methods for identifying different types and sources of innovations
• Formal and informal methods to sponsor, manage and measure sources, levels and impacts of
innovation
• Leadership which constantly extols and challenges the organization to be innovative
• Extensive external collaboration initiatives
• Methods and means to commercialize innovation and translate it into growth, revenues and a
distinct competitive advantage
• Extensive knowledge sharing and development
• Appropriate technologies and methods to facilitate innovation and innovative thought processes
CLASS & INDIVIDUAL ASSIGNMENTS SUPPLEMENTAL MATERIAL

Current material available at http://www- Current material available at http://www-
rcf.usc.edu/~mische (September 2000) rcf.usc.edu/~mische (September 2000)
Innovation
Thoughts on Innovation – As A Critical Pillar of

Strategic Renewal…
“… if a company had only one competency… it must be

innovation. From a strategic perspective, the speed of
innovation, the effectiveness of innovation and the ability to
innovate are, perhaps, the only truly proprietary competitive
weapons that an organization has.”
Peter Drucker
Innovation
The Six Key Issues Surrounding Innovation…

In relation to strategy and sustained competitive advantage, there are
six critical questions/issues regarding innovation that great companies
must understand to achieve and successfully maintain high-
performance:
1. What is innovation?
2. What are the sources of innovation, and what are the
relationships and interactions among innovation, creativity and
knowledge?
3. What makes innovation critical to strategic renewal of any
organization?
4. What cultural traits and behaviors common to the high-
performance companies set them apart from those that lack the
ability to innovate?
5. What leadership practices and management techniques are
necessary to best position companies for innovation and
continuously encourage and nurture creativity?
6. What human characteristics are needed for creativity and
innovation?
Innovation
Defining Innovation…
… is a highly subjective area, as it is subject to individual interpretation and
opinion. Therefore, there are many different interpretations and conclusions
with regard to innovation:
“Innovation is implementation of
“… changes in something, the creativity. Creativity is simply the
introduction of new things.” production of novel, appropriate
ideas in any realm of human activity
(Scribner’s Dictionary) and is the first step of innovation.”
(Teresa M. Amabile)
“… something new”
“… combination of new things and
(Tom Davenport) markets.”
(Joseph Schumpeter)
“The process of creating something

new that has significant value to an
individual group, an organization, an
industry, or a society.”
(James Higgins)
Innovation
Defining Innovation…
High-Performance organizations define innovation with reference to
creativity and the generation of new opportunities, products and
performance… thus, their (H-P’s) working definition of innovation is:
“The creation of new and different value generating products, services,

processes, markets and designs.”
Key Implications
Innovation is “multidimensional” and approached as a

portfolio of simultaneous activities… it includes new:
 Products/services
 Organizational designs
 Process designs
 Product development
 Market development
 Cultural advancement
Innovation
Major Advantages of Innovation…
High Performers Use Innovation to:

 Gain competitive benefits
 Gain financial benefits
 Reinvent their organizations and environments
 Attract and retaining best talent
 Stimulate learning and knowledge transfer
 Provide personal latitude for growth and development
 Establish high levels of multicultural and cross-functional

integration and achieve a high degree of collaboration
Innovation
Innovation: The Facts and Implications

 Innovative companies experienced growth rates that
were twice as fast as those of non-innovative
companies, with an even more significant difference in
profit rates.
(Source: A 1993 study of 150 companies by Jeff Mauzy)
 Innovation/the ability to innovate allows an

organization to adapt to its environment, or to change
or create a new environment through new:
– Products & Services
– Processes
– Knowledge
– Organizational Structures
– Markets/Customers
Innovation
Two Types of Innovation…

 Discontinuous Innovation…  Incremental Innovation…
 Advantage is built and renewed  Leads to marginal changes and
through the more discontinuous variations in theme and process
form of innovation – the creation of
entirely new families of products and  “… line extensions and
businesses improvements are essential for
maintaining leadership, but only
 Changes the basic structure and after it has first been established
dynamics of the entire industry and through the more discontinuous
economy form of innovation.”
 Broad-based events leading to Gary Lynn
significant breakthroughs in multiple
dimensions/areas  Easier and more comfortable
 Often episodic and revolutionary  But not a significant source of

sustainable competitive
 Most disruptive and threatening to advantage – gains are smaller and
established competitors more easily duplicated
 Potential to neutralize and destroy  Less disruptive and threatening to
traditional sources of competitive industry players
advantages
 Examples: microprocessor
 Stimulated by a number of factors, improvements, software
incl. IT, gov’t regulations, M&A upgrades, etc.
activity, political and macroeconomic
trends…
 Examples: Internet, electric power,
etc.
Innovation
Common Themes for All Innovation…
Discover Innovative Individual

Creative Technique
Processe Tools
y Thinking s s
s
Value Type of
Generating Process to
Outcomes Innovation
INNOVATION:
Discontinuous & Incremental
Innovation
Innovation… Some Basic “Knowns”
 Innovation is driven by multiple sources and a number of factors,

including the convergence of need, talent, technology, culture, process
and the perceived value.
 Innovation can result from individual or collaborative efforts.
 Innovation can be induced by external events, by internal elements such
as formal planning, leadership, mgmt. practices, learning, and/or it can
occur at random as a result of experimentation or discovery.
 Innovation must entail explicit monetary value in the commercial market
as well as intrinsic and explicit value within the organization  Five
“Filters” can be applied as tests for innovation:
1. Efforts result in new or different products, processes, structures and markets.
2. The process creates value, stimulates markets and challenges other players.
3. The drive to innovate reflects the recognition of self-determinism and self-
direction.
4. The effort contributes to the advancement of the organization.
5. The outcomes demonstrate direct commercial and market value.
Innovation
Sources of Innovation
There are three sources of innovation:
1. Autonomous
 External or internal
 Incremental or discontinuous
 Can occur in a number of forms and often comes from outside the
company/industry (e.g. Post-It, Glide dental floss, Microsoft, Apple
Computer…)
2. Systemic
 Indigenous to an organization
 Results from a planned and formally managed process with anticipated &
monitored outcomes
 Entail complex organizational interactions and alignments of among a
number of factors
3. Collaborative
 Occurs at a group or interorganizational level with a clear goal to engage
in innovation
 Supported by common interest and/or the need to share resources, risk,
talent, competencies…
 Can lead to both incremental and discontinuous results
Innovation
Impediments to Innovation
Many factors influence an organization’s ability to innovate. There are
three common impediments:
 Cultural & Organizational Learning Impediments
 Technology Impediments
 Measurement Impediments
Innovation
Impediments to Innovation, continued
Impediments Enablers
 Strong commitment to past practices  Energized and eclectic workforce

 Inability to “unlearn”  Institutional passions
 Lack of institutional priority  Creative and conducive physical
Culture environment
 Lack of proper incentives
 Inappropriate people  High learning and discovery
environment
 Poor physical environment
 Active knowledge sharing
 Lack of appropriate technology  High utility technology

 Technology is unproven or too  High ergonomics for technology
Technology difficult to use  Accessibility to technology
 Technology can be too threatening to  Encourage experimentation
establishment
 Inappropriate or non-existent  Emphasize learning and adaptation

measurements  Use multi-factor measurements
Measurements  Misplaced emphasis on measurements  Emphasize long-term results
 Too much reliance on financial
measurements
Innovation
Dynamics of Innovation
Although no single method or model can describe innovation and

the particular innovative processes, the general concept of
innovation can be captured and studied based on a life-cycle
approach. This approach helps to understand the basic behavior
and the large complex innovation structure.
Three phases best describe the classic innovation lifecycle:

I. Fluid Phase
II. Transitional Phase
III. Specific Phase
Innovation
Dynamics of Innovation, continued
Fluid Phase Transitional Phase Specific Phase
Highly Turbulent Emergence of a dominant Switching costs become

design high; sometimes prohibitive
Very Uncertain
Entrance of more Products become less
Speculative Outcomes established firms differentiated
Many competitors and
Reduction in competing Reduction in the number of
concepts – entrepreneurial
nature designs competitors
Rapid rates of change Greater emphasis on formal Branding becomes
organizational structures increasingly important
Markets revolve around
innovation Greater market Strategic renewal must be
specialization emphasized to re-initiate
Switching costs are low
Shift in emphasis from the fluid phase  to
Dominant design is design to process efficiency sustain competitive
developed, but has not advantage
emerged Product variations geared
toward incremental
innovation
Innovation
Leading Innovation…
Five Common Characteristics of Successful Innovators:
1. Innovation has been institutionalized as a way of life.
2. Leaderships foster innovation and build creative environments.
3. Hire, nurture and covet innovative people.
4. Recognize and reward creativity.
5. Are not tied to preconceived outcomes, nor attached to a
predetermined answer – they let answers and outcomes evolve.
Three Essential Conditions for High-Performance Innovation Strategy:

1. More emphasis on probing and learning as opposed to analysis.
2. Successive approximation – each time striving to come closer to a
winning combination of product and market.
3. Strategically central to the needs and goals of the organization.
Innovation
Leading Innovation, continued

In formal organizations, innovation usually requires process methods that
involve a combination of the following factors:
Leadership
Human Innovation Models

Creativity
Performance & Processes
Environment
Innovation
Leading Innovation: Human Performance

Innovative People Typically Share The Following Personal Qualities:
 Intrinsic motivation & conviction and passion for innovating

 Personal dominance and forcefulness of opinion & detached attitude in
interpersonal relations
 Expertise in the field
 Adept at change, risk-takers & high tolerance for ambiguity and
uncertainty
 High propensity for perseverance under uncertainty
Innovation
Characteristics of Innovators, cont:

 Drive to create more than improve
 Fresh perspectives on old problems
 Cope with several new ideas simultaneously
 Not methodical and systematic
 Not imposing strict order on matters within their control
 Dislike the protection of precise instructions
 Seek to bend or break the rules
 Risk doing things differently
 Can stand out in disagreement against a group
 Act without proper authority
Innovation
Innovative versus Adaptive Styles…
Innovative styles are likely

Adaptive styles work to ignore established
incrementally on frameworks, redefine and
problems using reframe the problem and
established rules and develop their own
frameworks. methods for creativity and
problem solving.
Innovation
Leading Innovation: Environmental Factors
Three major factors are critical in creating an environment

conducive to innovation:
1. Open, active and direct communications

2. Reward and recognition systems
3. Fair performance evaluation
Other determining factors include:

 Value placed on innovation by the organization
 Sense of pride with respect to performance and
accomplishments
 Emphasis on self-determinism and self-
directedness
 Importance and complexity of work
Innovation
Leading Innovation: Innovation Processes &

Models
 A correlation between learning, knowledge, the

discovery and new ideas and innovation clearly exists.
 There is no universal innovation model appropriate for

all organizations.
 The selection of an innovation model is dependent on a

number of factors, including:
 Financial and operational performance
 Market and industry expectations
 Organizational competencies and capabilities
Innovation

Models
In general, innovation models can be summarized into 3 basic
types:
1. LINEAR
2. CHAIN-LINKED
3. TOTAL PROCESS
Innovation

Models
1. Linear Model – The Classic Approach to Innovation
 Stresses sequential processes and activities  results in a lengthy
process
 Has four phases:
Developmen
Research Production Distribution & Service
t
 Key Qualities:
 Highly sequential activities and decision-making
 High level of separation and departmentalization – limits
interaction
 Many formal steps and approval points
 Requires lower cultural and individual changes
 Asynchronous and formal communications flow
 Slower decisions
 Low to minimal collaboration – compartmentalizes the process
into isolated fragments
 Low to minimal external party involvement – limits
participation of the market
 Subject to “re-start” when parameters change
 Attracts structured individuals with preference for certainty
Innovation

Models
2. Chain-Linked Model
 Inter-linked network between research, knowledge and formal
phases/stages for innovation
 More realistic with respect to actual innovation development
 Has five phases:
 Perceive potential market
 Invent or create
 Detailed design and testing
 Redesign and production
 Market and distribution
 Key Qualities:
 Beginning and ending linkage to market
 Potential significant cultural and individual changes
 Continuous feedback loops
 A network to internal and external knowledge and research sources
 Moderate to high collaboration
 External parties involved
 Dynamic and fast decision-making
 Multiple communications flow
 Minimal restarts Innovation

Models
3. Total Process
 A natural extension of the chain-linked approach – it is very robust
 Incorporates learning cycles into its basic architecture
 Requires high KM capabilities capturing both tacit and explicit knowledge
 Integrates five “phases” of innovation with general knowledge, R&D,
firm-specific knowledge and technology
 Key Qualities:
 Highly dynamic and fluid
 Initiates and ends with linkages to specific markets and constituents
 Provides for iterative learning and discovery among phases
 Integrates internal and external knowledge sources and KM through
organizational relationships
 Provides for the looping of unfiltered and spontaneous feedback and
information throughout the organization
 Considers the impact of emergent technology on innovation
 Integrates the effects of incremental and discontinuous innovation
into the overall innovation process management
 Encourages collaborative work efforts within and internal to the
organization; allows for outsourcing of parts or all of innovation
 Eliminates “re-starts” and “re-sequencing”
 Attracts highly creative and less structured individuals
Innovation
Product Development Process
Concept Proof of Concept Design
1A
Market
Assessment
Project
Business Proof of Design Frozen
Plan Concept Design
1B
Technical
Feasibility
Go Go
No No
Innovation
Product Development Process
Development & Testing Scale-Up Launch
Piloting
Mfg.
Final
Ready for Launch
Production
Market
Version
Verification Validation
Mktg.
1-year
Go follow-up
No
Innovation
Hints for Managing Innovation…

1. Establish clear goals & objectives, define the context, the rationale
and expected benefits.
2. Apply broad definitions to problems and then refine to specific focus
areas and “problem sets”; explore multiple dimension of, and
relationships among, problems; prioritize options and projects.
3. Develop questions and issues relative to each problem; define the
central theme, develop ancillary questions.
4. Use metaphoric techniques to develop questions and visualize issues.
5. Use keyword for association and to stimulate thought process.
6. Identify three generation of relationships.
7. Prioritize among questions and issues based on criteria such as:
 Interdependencies between questions
 Occurrences and timing
 Known constraints/solutions
 Goals & objectives, etc.
8. Develop assumptions for each question and issue.
 Develop a set of 3-5 characteristics integral to the assumption.
Innovation

Models
Learning + K
Discovery/ New/Updated
Concepts/Facts
New Ideas Product/Concepts
Integration + Assimilation
Evaluation + s
Product Development + Testing

Evaluation + s
Final Product +
Product Launch
Innovation
Thoughts on Innovation – The Strategic

Imperative…
“You need to make creativity the norm and the lack of creativity the
exception, as opposed to trying to take the company and say, ‘Well, we’re
going to be creative this week.’”
M. Douglas Ivester, CEO of Coca-Cola
Innovation

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MOR 559 – Strategic Renewal University of Southern California

The Engine of Continuous

©2000, Michael A. Mische

KEY LEARNING CONCEPTS

CLASS SCHEDULE & AGENDA READINGS

VI. 8:45 – 9:30 Case Examples & CASES

CASE DISCUSSION & QUESTIONS

CLASS & INDIVIDUAL ASSIGNMENTS SUPPLEMENTAL MATERIAL

Thoughts on Innovation – As A Critical Pillar of

“… if a company had only one competency… it must be

The Six Key Issues Surrounding Innovation…

“The process of creating something

“The creation of new and different value generating products, services,

Innovation is “multidimensional” and approached as a

Major Advantages of Innovation…

High Performers Use Innovation to:

 Gain financial benefits

 Reinvent their organizations and environments

 Attract and retaining best talent

 Stimulate learning and knowledge transfer

 Provide personal latitude for growth and development

 Establish high levels of multicultural and cross-functional

Innovation: The Facts and Implications

 Innovation/the ability to innovate allows an

Two Types of Innovation…

 Often episodic and revolutionary  But not a significant source of

Common Themes for All Innovation…

Discover Innovative Individual

Innovation… Some Basic “Knowns”

 Innovation is driven by multiple sources and a number of factors,

 Cultural & Organizational Learning Impediments

Impediments to Innovation, continued

 Strong commitment to past practices  Energized and eclectic workforce

 Lack of appropriate technology  High utility technology

 Inappropriate or non-existent  Emphasize learning and adaptation

Although no single method or model can describe innovation and

Three phases best describe the classic innovation lifecycle:

II. Transitional Phase

III. Specific Phase

Dynamics of Innovation, continued

Fluid Phase Transitional Phase Specific Phase

Highly Turbulent Emergence of a dominant Switching costs become

Three Essential Conditions for High-Performance Innovation Strategy:

Leading Innovation, continued

Human Innovation Models

Leading Innovation: Human Performance

 Intrinsic motivation & conviction and passion for innovating

Leading Innovation: Human Performance

Characteristics of Innovators, cont:

Leading Innovation: Human Performance

Innovative versus Adaptive Styles…

Innovative styles are likely

Leading Innovation: Environmental Factors

Three major factors are critical in creating an environment

1. Open, active and direct communications

Other determining factors include:

Leading Innovation: Innovation Processes &

 A correlation between learning, knowledge, the

 There is no universal innovation model appropriate for

 The selection of an innovation model is dependent on a

 Financial and operational performance

 Market and industry expectations

 Organizational competencies and capabilities

Leading Innovation: Innovation Processes &

Leading Innovation: Innovation Processes &

Leading Innovation: Innovation Processes &