4/30/2012
Outline of the Workshop
• Creativity versus efficiency
Using Management Controls to enable
Innovation
• Innovation – stages and challenges
• Management control systems
– Simons’ levers of control (belief, boundary, interactive,
diagnostic)
– Role of levers in managing innovation
Dr Emer Curtis and Dr Breda Sweeney
29 March 2012
• Defining and protecting creative space
• Role of constraints
– ‘Less is less’ or ‘less is more’
J. E. Cairnes School of Business & Economics
J. E. Cairnes School of Business & Economics
Balancing Creativity and Efficiency
paradigms for Innovation (Davila, 2010)
Management control systems
• Creativity
• Change in definition
– Focus on revenue
– External emphasis
– Use of budgets as loose
boundary
– Support for search efforts
– Stages of convergence and
divergence
– Bottom up role to facilitate
strategy formulation
– Manage risk
– Team emphasis
• Efficiency
– Focus on costs
– Internal emphasis
– Use of budgets to indicate
deviations
– Emphasis on
standardisation and
economies of scale
– Top down strategy
– Avoid failure
– from focus on efficient implementation of plans
– to how controls can stimulate organisational learning and
contribute to emerging strategy
• Various categorisations of controls
• Need to consider both
– type of systems
– how they are used
J. E. Cairnes School of Business & Economics
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4/30/2012
Innovation Process
Conversion
Convert ideas into
products/services
Launch support
Idea Selection Filter
Generation
Generate and
maintain the
flow of good
ideas
Question:
Diffusion
of products/
services to
the market
In your experience, where are the
weakest links in the innovation chain
in organisations where you have
worked?
Adapted from Hansen and Birkinshaw June 2007 HBR
J. E. Cairnes School of Business & Economics
J. E. Cairnes School of Business & Economics
Challenges at different stages of the
Innovation process
Challenges at different stages of the
Innovation process
• Ideas:
• Commercialisation:
– lack of ideas; explosion of ideas; cultural attitude to
ideas; balance of technological vs. market orientation
of ideas; balance of radical vs. incremental.
•
Filtering:
– Lack of clarity on criteria; cumbersome process;
insufficient filtering
– Design for manufacture; Technical support/training
for sales people and customers
• Dissemination:
– Lack of incentives for existing sales teams to sell
new products; new customers, commercial team
overwhelmed by volume of new products
• Conversion:
– too many projects; competition for resources
between projects; interruption/invasion of space.
J. E. Cairnes School of Business & Economics
J. E. Cairnes School of Business & Economics
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Simons’ levers of Control
Simons’ Framework for Management
Control Systems
J. E. Cairnes School of Business & Economics
Simons’ levers of control – belief and
boundary systems
Simons’ levers of control –
Diagnostic controls
•
•
Belief systems
– Set of organisational definitions that provide basic values, purpose and
direction
– Discussion needed to communicate and understand values
•
•
–
–
–
–
Boundary system
–
–
–
–
Sets limits around opportunities to be pursued
Guides vague aspirations into action
Communicate risks to be avoided
Business conduct and strategic boundaries
Beliefs and boundaries may be ineffective if inconsistent with
actions
J. E. Cairnes School of Business & Economics
Features
•
Monitor organisational outcomes and correct deviations
Designed to ensure predictable goal achievement
Management by exception
Concerned with implementation of strategy
Examples
– Quality management systems – number of rejects, customer
complaints
– Financial control systems such as monthly reporting, expense budgets,
standard cost accounting systems, balanced scorecards.
•
Powerful and potentially dangerous control due to level of autonomy
J. E. Cairnes School of Business & Economics
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Simons’ levers of control – interactive
controls
Interactive control systems
•
•
Features
•
•
•
•
•
Intensive management involvement
Concerned with emergent strategy
Focus on strategic uncertainties
Face to face challenges and debates
Information easy to understand
Examples given by Simons
– Profit planning systems
– Intelligence gathering systems
– Brand revenue management
– Project management systems
– Human resources systems
•
•
Maximise return on management
• Need to conserve attention for most critical areas
Usually 1-2 systems used interactively
J. E. Cairnes School of Business & Economics
•
Positive and negative outcomes found
•
Role of middle managers
– Balance needed between ‘minding the shop’ and engaging with top
management on emerging strategy
J. E. Cairnes School of Business & Economics
Simons’ levers of Control
Applying Simons’ Framework to
Innovation
J. E. Cairnes School of Business & Economics
J. E. Cairnes School of Business & Economics
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Belief systems for innovation
Belief systems for innovation
• Can be powerful control creating a culture of innovation.
• Examples
– Motivates individuals to search for new ways to create value
– Recruitment of staff to fit with belief systems
– Formal culture change programme when change of top
management
– War stories to reinforce culture
– Attitudes to innovation
– Flexible ‘can do’ attitudes
• Values often emerge from personal values of founder
– written versus unwritten
– Attitudes to open communication both cross functional, topdown and bottom up
– Communication with external parties
– articulated versus enacted
J. E. Cairnes School of Business & Economics
Boundary systems for innovation
J. E. Cairnes School of Business & Economics
Question:
• Business strategy dictates innovation strategy
• Set out the acceptable playing field for innovation and
by converse: risks to be avoided
• Dictates
What is your experience of using belief and
boundary systems to foster Innovation?
– the balance of radical vs incremental innovation
– the relative balance of technological innovation vs customer oriented
innovation
– the nature of creativity which is encouraged
• Communication of strategy for innovation important
J. E. Cairnes School of Business & Economics
J. E. Cairnes School of Business & Economics
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Diagnostic controls for Innovation
Diagnostic controls for Innovation
• Input measures: Human resources (time), financial
resources, R&D spend as % sales.
• Outputs
• Process measures:
– Creative process (number & quality of ideas,
conversion rates to project and estimated value);
– Project execution (time to market, number of product
launches,cost, technology performance)
– Aggregate estimated value of all projects
– Mix of projects
– Number of patents, project completion metrics (on
time/on budget), number of new product launches,
market share, sales.
• Outcomes
– Project profitability, ROI.
• Individual performance evaluation system (real attitude
to innovation, risk taking and failure seen here)
J. E. Cairnes School of Business & Economics
Question:
J. E. Cairnes School of Business & Economics
Interactive control systems for Innovation
• What metrics have you seen used in managing
the Innovation process?
• How top management time and attention is devoted to
innovation
• Examples
– Product development meeting
– Project pipeline and filtering controls
• Two way information sharing, to allow debate about
strategic uncertainties and new strategy to emerge
• Important not to shoot the messenger
J. E. Cairnes School of Business & Economics
J. E. Cairnes School of Business & Economics
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Balance and dynamic tension between the
levers
Role of control systems in protecting
creative space
• Consistency between levers of control
• Common problem of ‘invasion’ of creative space
– levers used in concert to generate balance
– Engineers pulled from R&D project to address urgent
issues in production
– Importance of operational controls to embed belief and boundary
system
– Longer term radical projects interrupted to meet short
term key customer needs
• Historical dominance
• Suppression of controls
• Different levers can be used to protect creative space
• Problem much more prevalent for technological and
radical innovation
• Customer oriented NPD projects more protected.
J. E. Cairnes School of Business & Economics
Constraints in Creativity
• Time and financial constraints
• ‘Less is really less’ or ‘less is really more’?
• Inverted U shaped relationship suggested in literature
J. E. Cairnes School of Business & Economics
Optimal point on inverted U curve
•
Literature suggests constraints work better where
•
bounded creativity
•
engaging project objectives
•
team cohesion
•
team potency (can do attitude)
• Additional factors suggested by our research
J. E. Cairnes School of Business & Economics
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employee empowerment
•
belief system (motivates creativity and sense of pride)
•
constraints perceived as externally driven
•
evaluation system takes into account the difficulty of targets (tolerance of
failure)
J. E. Cairnes School of Business & Economics
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Summary
Final review and evaluation of workshop
• Alignment of innovation strategy with business strategy
• Value your feedback
• Balancing of a range of formal management control
systems relevant to managing innovation:
• Suggestions for how workshop could be improved
– Belief systems
– Boundary systems
• Level of interest in executive education short courses
– Diagnostic control systems
– Interactive management attention
J. E. Cairnes School of Business & Economics
Acknowledgements
J. E. Cairnes School of Business & Economics
Robert Simons
• We would like to gratefully acknowledge support of the Irish
Research Council for the Humanities and Social Sciences
who have granted funding for this workshop
• We would also like to gratefully acknowledge the support of
Chartered Accountants Ireland who funded our research
J. E. Cairnes School of Business & Economics
J. E. Cairnes School of Business & Economics
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