HANDS - OF - GOVERNANCE & INNOVATION MARKETS By Industrial PhD - student Robert Schønrock Nielsen, Codan Forsik

1. HANDS - OF - GOVERNANCE &INNOVATION MARKETS By Industrial PhD - student Robert Schønrock Nielsen, CodanForsikring & Aarhus School of Business, University of Aarhus, 25.05.2010

2. EXAMPLES OF WORLD CLASS INNOVATORS INNOVATORS 2

3. JOSEPH A. SCHUMPETER´S (1883-1950) DEFINITION ON INNOVATION • The introduction of a newgoods • The introduction of a new production • The opening of a new markets • The conquest of newsources of supply • The carrying out of a new organization 3

4. INNOVATION MARKETS • ONE WAY TO IGNITE AN INNOVATIVE CULTURE IS YOUR COMPANY… 4

5. INNOVATION MARKETS … IS BY ESTABLISH INNOVATION MARKETS (INTERNAL MARKET) FOR CATALYZING INNOVATIVE POWER WITHIN THE ORGANIZATION 5

6. WHAT IS HANDS - OF - GOVERNANCE? • GOVERNANCE BY RELYING MORE ON THE NATURAL ORDER BETWEEN HUMAN BEINGS THAN ON A PLANNED OR DESIGNED ORDER • LESS MANAGMENT MORE LEADERSHIP • GIVE FREEDOM AND EXPECT RESPONSIBILITY ON INDIVIDUAL AS WELL AS ON GROUP LEVEL 6

7. THE ROOTS OF HANDS - OF - GOVERNANCE • CLASSIC LIBERALISM, AUSTRIAN ECONOMIC, AND COMPLEXITY THEORY 7

8. ADAM SMITH´S (1723-1790) IDEAS OF ”THE INVISIBLE HAND” AND SELF- INTEREST “(…) he intends only his own gain, and he is in this, as in may other cases, led by an invisible hand to promote and end which was no part of his intention“ Adam Smith Wealth of Nation, Book lV. 8Smith, A.(1776) :An Inquiry into the Nature and Causes of the Wealth of Nations

9. ADAM SMITH (1723-1790) ON CENTRAL MANAGEMENT OF SOCIETY (CLASSIC LIBERALISM) “The man of system … seems to imagine that he can arrange the different members of a great society with as much ease as the hand arranges the different pieces upon a chessboard. He does not consider that the pieces upon the chessboard have no other principle of motion that which the hand impresses upon them; but that, in the great chessboard of human society, every single piece has a principle of motion of its own, altogether different from that which the legislation might choose to impress upon it” (Adam Smith in Hayek 1973:35). Hayek, F.A [1973] 2003: Law, Legislation and Liberty Volume 1 Rules and Order.

10. ADAM FERGUSON (1723-1816) AND F.A. HAYEK (1899-1992) ON THE DEVELOPMENT OF INSTITUTIONS WITHOUT HUMAN DESIGN “(…) stumble upon establishments, which are indeed the result of human action, but not the execution of any human design” (Ferguson 1767). “By tracing the combined effects of individual actions, we discover that many of the institutions on which human achievements rest have arisen and functioning without a designing and directing mind “(Hayek 1948:6-7). Ferguson, A. (1966 [1767]: 122): An Essay of the History of Civil Society, new ed. Edinburgh University Press. & Hayek, F. A. (1948): Individualism: True and false in Individual and economic order. University of Chigago Press.

11. DEFINITION OF SPONTANEOUS ORDER (AUSTRIAN ECONOMY) Spontaneous order in the interactions of the members of society is something to which everyone contributes, from everyone benefits, which everyone normally takes for granted, but which individuals rarely understand” (Witt 1997:52). 11 Witt, U. (1997):The Hayekian Puzzle: Spontaneous Order and the Business Cycle, Scottish Journal of Political Economy Vol . 44, 44-58

12. SILICON VALLEY – WORLD´S MOST INNOVATIVE HOTSPOT • No CEO of Silicon Valley • A self-organizingpowerhouse • Decentralized centres of competion and cooperation • Geographic innovation marked basedon a spontanenousinteractionbetweenideas, knowledge and venture capital 12Hamel, G. (2007): The Future of Management

13. GARY HAMEL ON THE ORGANIZING OF SILICON VALLEY • Yet there’s is no CEO in Silicon Valley Inc., and no investment committee making resource allocation decision. No central authority decides how much to invest in nanotechnology, biotech, or the mobile web (Hamel 2007:160). Hamel, G. (2007): The Future of Management

14. CONNECTION BETWEEN SILICON VALLEY & ORGANIZATIONS • BRINGING SILICON VALLEY INSIDE YOUR COMPANY (GARY HAMEL) • INNOVATION MARKET – IDEAS, KNOWLEDGE, CAPITAL (GARY HAMEL) • INNOVATION MARKET = INTERNAL MARKET 14Hamel , G. The Future of Management 2009 & Hamel, G. (1999): Bringing Silicon Valley Inside, Harvard Business Review

15. CASE1:INNOVATION MARKET AND INNOVATION REWARDS IN LLOYDS TSB • The company establish in 2008 an internal innovation market to collect, trade, rate, and categorises new ideas. • Participants in the online - innovation market publish ideas and identify the best through trading. • Bank staff are paid in an artifical currency “Bank Beanz” for their involvement on innovation market • Bank staff invest their Bank Beanz on the ideas they predict will perform most successfully on the internal stock market for innovation. • Believers in an certain product idea can get in low, and sell high like on a traditional market. • Bank Beanz can be exchanges for real money which have shown to be an exceptional motivator (Innovation rewards). 15

16. CASE 2: INNOVATION MARKETS IN BANK OF AMERICA • Created a innovation market within the bank´sexisting branches, whereby it usedits locations to launchvariosexperimentswitwoutredesigningits branches ( open innovation) • The Innovation & Developmentgroup (I&D) test new ideas in Atlanta and roll out ifsuccessful. • The entrepreneurial drive for innovation supported by a stronginternal market forces have overcomemanyorganizational barrieres. 16

17. CASE 3: INNOVATION MARKETS AND INNOVATION REWARDS WITHIN HP & SIEMENS • Use Global KnowledgeSharing Network ( e.g. UrgentRequest, Share Points, Web 2.0) to foster and captureideaslinked to strongincentive program (Innovation Rewards). Pridiction Markets to capture and screen ideasusing the organizationalwisdom of crowds.When top managmentprioritizeprojects it use the collectiveknowledge of leaders and co-workers. 17

18. STOCK EXCHANGE OF BRIGHT IDEAS 18

19. ORGANIZATIONAL DYNAMICS OF INTERNAL MARKET WITHIN COMPANIES • Reducecomplexity in large organizations • Leads to internalcompetetionbetweendepartmentson deliver bestresults, sometimeminize social cohesionwithin the company • Contributes to efficientallocation of resources • Providequickadjustment to environmentalchange • Stronglymotivateemployees to realisesubunit and individualgoals Egelhoff and Frese (2009): Understanding managers´preference to internal markets versus businses planning: A comparative study of German and US. Managers, Journal of Internal Management 15,

20. ORGANIZING INNOVATION: INNOVATION MARKET, INNOVATION FUNDING & INNOVATION REWARD INNOVATION MARKET INNOVATION MARKET - AN INTERNAL MARKETPLACE INSIDE ORGANIZATIONS TO FOSTER IDEAS AND CATALYSE INNOVATIVE POWER • INNOVATION FUNDING • INNOVATION REWARD INNOVATION FUND – A FUND THAT SUPPORT THE DEVELOPMENT OF INNOVATIONS AND AND ADMINISTRATE INNOVATION REWARDS INNOVATION REWARD - A PERFORMANCE-BASED REWARD THAT BENEFITS CORPORATE ENTREPRENOURS FOR SUCCESFULL INNOVATIONS 20

21. INNOVATION MARKET 21

22. INNOVATION FUND 22

23. INNOVATION REWARD 23

24. SPONTANIZING – SPONTANEOUS ORDER AND ORGANIZING • Spontanizing is organizing by the purpose of create more spontaneousorderwithin the organization • Spontanizing is combinationbetweenspontaneousunintentionelinteraction (market) with intentional actions (ledership) in organizations • Innovation market is an examble of spontanizing • Spontanzing is liberalization of organization 24Spontanzing is an organizational principle developed in my PhD thesis Liberalization of organization. A Thesis Regarding Innovation in Organization 2010 Forthcomning

25. LEADING ON THE EDGE OF CHAOS (COMPLEXITY THEORY) Edge of chaos Ossification Disintegration Spontanizing (spontanenousorder & organization) 25Stacey, R. (1993): Strategy as Order Emerging from Chaos + Nielsen, R.S. (2010): Liberalization of Organization. A Thesis Regarding Innovation in Organization 2010. Forthcomning (PhD Thesis)

26. ORGANIZATIONAL DYNAMIC EFFECT OF INNOVATION MARKET Challenge silo structures Innovation market Improved customer focus Enforces an entrepreneurial climate Transparent decision process 26