Innovation in large versus small organisations

1. Innovation in large versus small organisations

2. Managing Innovation : 3 Propositions • Innovation tends to occur more easily in small organisations • However, most large organisations do not innovate with the same degree of ease • Those which do, manage it by aping the culture/processes of their smaller counterparts

3. Reasons For Small Organisations’ Capacity for Innovation • Founded by ‘obsessed’ individuals with ‘irrational’ expectations • Low initial costs • Little bureaucracy • Proximity to customer • Desire for recognition • Availability of capital (?)

4. Perceived (Vs. Real) Reasons • Failures go unrecorded • Multiple approaches

5. Reasons For Large Companies’ Lack of Innovation • NPD via NPV • Short time horizons • Institutionalised risk aversion • Tendency to conform • Excessive bureaucracy • Distance of top management

6. KFS For Innovative Large Organisations • Top management commitment • Challenging goals • Flat organisations • Market orientation • Multiple approaches • Tolerance of failure • Skunkworks • Multifunctional teams • Learning: individual and institutional

7. Top Management CommitmentHealthyUnhealthy • Sets strategic direction • Indicates broad goals • Sets challenging final goals • Allows freedom • Provides moral (and financial) support • Formulates product concept • Develops work plan • Sets minor hurdles • Interferes frequently • Disinterested except on “official” basis

8. Challenging Goals: Examples Company/Product Goal Comment/Result Canon AE-1 camera To develop a high quality automatic exposure camera that is - compact - lightweight - easy to use - priced 30% below other single lens cameras “It was a struggle because we had to deny our traditional way of thinking” But the team achieved: - 30-40% reduction in parts - modularised production Honda City car project To develop a car for the youth market: - fuel efficient - high quality at low price Instead of opting for a scaled down version of an existing car, they developed a new concept, i.e. “short and tall” not “long and low”

9. Innovation/Creativity

10. Honda’s Method Of Generating Creativity “It’s like putting the team members on the second floor, removing the ladder and telling them to jump or else. I believe creativity is born by pushing people against the wall and pressuring them almost to the extreme”

11. Flat Organisations - Project teams kept small (often 6-7 people) - Operating divisions and total technical units kept small (<400 people) “Since it takes a chain of yesses and only one no to kill a project, jeopardy multiplies as management layers increase” James Brian Quinn - Dartmore College

12. Market Orientation - Focus on customer - Interaction between technical and marketing departments Example: At Sony when technical people are hired, the company runs them through weeks of retail selling.

13. Multiple Approaches - Reduces development time - Improves probability of success BUT - Can create climate of “winners” and “losers” - Creates problems in reintegrating “losing” teams

14. Tolerance of Failure Company Quote Honda “A 1% success rate is supported by mistakes made 99% of the time” “I believe we learn more from mistakes than from successes. That’s not to say we should make mistakes easily. But if we do make mistakes, we ought to make them creatively” “Doing something, even if it fails, is better than doing nothing. A strike-out at Sony is OK, but you must not just stand there. You must swing at the best as best you can” 3M Sony

15. Tolerance of Failure : Example of GM • “An inventor is simply a person who doesn’t take his education too seriously. You see, from the time a person is 6 years old until he graduates from college, he has to take 3 or 4 exams a year. If he flunks once he’s out. • But an inventor is almost always failing. He tries and fails maybe a thousand times. If he succeeds once then he’s in. These two things are diametrically opposite. We often say that the biggest job we have is to teach a newly hired employee how to fail intelligently. We have to train him to experiment over and over and to keep on trying and failing until he learns what will work.” Charles Kettering of General Motors

16. Skunkworks Description Examples Small teams of engineers, technicians, designers put into one room without any bureaucracy or physical barriers Apple – development of Apple Mac IBM – development of PC Honda – development of several car models

17. Multifunctional Teams Axes of Differentiation Examples Function R+D, Manufacturing, Marketing, Sales Extrovert, Withdrawn, Philosophical “Scientific”, “Arty” Young and enthusiastic mixing with veterans Personalities Training Age

18. Encouragement of Individual Learning Organisation Example 3M Encourages engineers to devote 15% of their company time to pursuing their “dream” A separate new venture division established where entrepreneurs can take leave from their regular job to work on their ventures 3M Toyota Claims that its employees submit 2 million ideas annually (i.e. 35 suggestions/employee) and over 85% are implemented Kodak Monetary awards and recognition given to employees who submit the best ideas during the year UCL Allows 1 day/week to scientists to work on their own projects. Helps commercialise potentially successful new products

19. Institutionalised Learning Method Example “New experience” part of the team Honda City team, when at a dead end, was sent to Europe to “find ideas”. These were incorporated in their design and thus became part of company knowledge Returning to department from a multidisciplinary team Individuals return to departments, disseminating new-found knowledge from other disciplines Being moved onto a new project from a multidisciplinary team Individuals imbue the new projects with their new-found knowledge, leading to a virtuous circle Debriefing on project teams Formally capturing new methods and approaches (e.g. creating a database)

20. Downside of Institutionalised Learning Institutionalisation Formalisation of practices Reverence for “old” methods Creativity