MOR 559 – Strategic Renewal
University of Southern California
Innovation
The Engine of Continuous
Renewal
Lecture 6
©2000, Michael A. Mische
MOR 559 – Strategic Renewal
University of Southern California
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 highperformance 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.
©2000, Michael A. Mische
Innovation
MOR 559 – Strategic Renewal
University of Southern California
Lecture 6:
CLASS SCHEDULE & AGENDA
READINGS
Mische: Strategic Renewal, Chapter 6
I.
6:00 – 6:15
Course Related Q&A
Student Concerns
General Discussions
II.
6:15 – 6:30
Review of previous
material
Preview of current
week’s material
III.
6:30 – 7:30
Lecture
IV.
7:30 – 7:45
Break
V.
7:45 – 9:00
Lecture & Material/
Topic Discussion
VI.
8:45 – 9:30
Case Examples &
Discussions
VII.
9:30 – 10:00
Professor Available for
Q&A, Discussion, etc.
©2000, Michael A. Mische
Schlender: “Sony on the Brink,” Fortune, June 12, 1996
Schlender: “Sony Plays to Win,” Fortune, May 1, 2000
Grant: “Can Fisher Focus Kodak?” Fortune, January 1997
Greenwald: “Kodak’s Bad Moment,” Time, September 29,
1997
Grant: “Missed Moments,” Fortune, October 27, 1997
Chakravarty and Gordon: “Vindication,” Forbes, September
7, 1998
Grant: “Why Kodak Still Isn’t Fixed,” Fortune, May 11, 1998
Polaroid Corp.: Digital Imaging Technology in 1997 (HBS) –
9-798-013
Deutsch: “Polaroid Girds for the New Era in Instant
Photography,” The New York Times, March 27, 2000
Markoff: “Chips Promise Digital Images at Lower Costs,” The
New York Times, April 24, 2000
CASES
Sony (article-built case)
The Digital Imaging & Photography Industries:
Kodak (article-built case)
Polaroid (HBS & article-built case)
Innovation
MOR 559 – Strategic Renewal
University of Southern California
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
©2000, Michael A. Mische
Innovation
MOR 559 – Strategic Renewal
University of Southern California
Lecture 6:
LECTURE SUMMARY
The capability to innovate is critical to an organization’s survival and sustained competitiveness. Highperformers 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
Current material available at http://wwwrcf.usc.edu/~mische (September 2000)
©2000, Michael A. Mische
SUPPLEMENTAL MATERIAL
Current material available at http://wwwrcf.usc.edu/~mische (September 2000)
Innovation
MOR 559 – Strategic Renewal
University of Southern California
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
©2000, Michael A. Mische
Innovation
MOR 559 – Strategic Renewal
University of Southern California
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 highperformance:
©2000, Michael A. Mische
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 highperformance 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
MOR 559 – Strategic Renewal
University of Southern California
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:
“… changes in something, the
introduction of new things.”
(Scribner’s Dictionary)
“Innovation is implementation of
creativity. Creativity is simply the
production of novel, appropriate
ideas in any realm of human activity
and is the first step of innovation.”
(Teresa M. Amabile)
“… something new”
“… combination of new things and
markets.”
(Tom Davenport)
(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)
©2000, Michael A. Mische
Innovation
MOR 559 – Strategic Renewal
University of Southern California
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
©2000, Michael A. Mische
Innovation
MOR 559 – Strategic Renewal
University of Southern California
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
©2000, Michael A. Mische
Innovation
MOR 559 – Strategic Renewal
University of Southern California
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
©2000, Michael A. Mische
Innovation
MOR 559 – Strategic Renewal
University of Southern California
Two Types of Innovation…
 Discontinuous Innovation…
 Advantage is built and renewed
through the more discontinuous
form of innovation – the creation of
entirely new families of products and
businesses
 Changes the basic structure and
dynamics of the entire industry and
economy
 Broad-based events leading to
significant breakthroughs in multiple
dimensions/areas
 Often episodic and revolutionary
 Most disruptive and threatening to
established competitors
 Potential to neutralize and destroy
traditional sources of competitive
advantages
 Stimulated by a number of factors,
incl. IT, gov’t regulations, M&A
activity, political and macroeconomic
trends…
 Examples: Internet, electric power,
etc.
©2000, Michael A. Mische
 Incremental Innovation…
 Leads to marginal changes and
variations in theme and process
 “… line extensions and
improvements are essential for
maintaining leadership, but only
after it has first been established
through the more discontinuous
form of innovation.”
Gary Lynn
 Easier and more comfortable
 But not a significant source of
sustainable competitive
advantage – gains are smaller and
more easily duplicated
 Less disruptive and threatening to
industry players
 Examples: microprocessor
improvements, software
upgrades, etc.
Innovation
MOR 559 – Strategic Renewal
University of Southern California
Common Themes for All Innovation…
Discover
y
Innovative
Processe
s
Value
Generating
Outcomes
Creative
Thinking
Technique
s
Tools
Individual
s
Type of
Process to
Innovation
INNOVATION:
Discontinuous & Incremental
©2000, Michael A. Mische
Innovation
MOR 559 – Strategic Renewal
University of Southern California
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:
©2000, Michael A. Mische
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 selfdirection.
4.
The effort contributes to the advancement of the organization.
5.
The outcomes demonstrate direct commercial and market value.
Innovation
MOR 559 – Strategic Renewal
University of Southern California
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
©2000, Michael A. Mische
Innovation
MOR 559 – Strategic Renewal
University of Southern California
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
©2000, Michael A. Mische
Innovation
MOR 559 – Strategic Renewal
University of Southern California
Impediments to Innovation, continued
Impediments
Culture





Strong commitment to past practices
Inability to “unlearn”
Lack of institutional priority
Lack of proper incentives
Inappropriate people
 Poor physical environment
Technology
Measurements
 Energized and eclectic workforce
 Institutional passions
 Creative and conducive physical
environment
 High learning and discovery
environment
 Active knowledge sharing
 Lack of appropriate technology
 Technology is unproven or too
difficult to use
 Technology can be too threatening to
establishment




 Inappropriate or non-existent
measurements
 Misplaced emphasis on measurements
 Emphasize learning and adaptation
 Use multi-factor measurements
 Too much reliance on financial
measurements
©2000, Michael A. Mische
Enablers
High utility technology
High ergonomics for technology
Accessibility to technology
Encourage experimentation
 Emphasize long-term results
Innovation
MOR 559 – Strategic Renewal
University of Southern California
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:
©2000, Michael A. Mische
I.
Fluid Phase
II.
Transitional Phase
III.
Specific Phase
Innovation
MOR 559 – Strategic Renewal
University of Southern California
Dynamics of Innovation, continued
Fluid Phase
Highly Turbulent
Transitional Phase
Specific Phase
Emergence of a dominant
design
Switching costs become
high; sometimes prohibitive
Speculative Outcomes
Entrance of more
established firms
Many competitors and
concepts – entrepreneurial
nature
Products become less
differentiated
Reduction in competing
designs
Reduction in the number of
competitors
Rapid rates of change
Greater emphasis on formal
organizational structures
Branding becomes
increasingly important
Greater market
specialization
Shift in emphasis from
design to process efficiency
Strategic renewal must be
emphasized to re-initiate
the fluid phase  to
sustain competitive
advantage
Very Uncertain
Markets revolve around
innovation
Switching costs are low
Dominant design is
developed, but has not
emerged
©2000, Michael A. Mische
Product variations geared
toward incremental
innovation
Innovation
MOR 559 – Strategic Renewal
University of Southern California
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.
©2000, Michael A. Mische
Strategically central to the needs and goals of the organization.
Innovation
MOR 559 – Strategic Renewal
University of Southern California
Leading Innovation, continued
In formal organizations, innovation usually requires process methods that
involve a combination of the following factors:
Leadership
Human
Performance
Innovation Models
& Processes
Creativity
Environment
©2000, Michael A. Mische
Innovation
MOR 559 – Strategic Renewal
University of Southern California
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

©2000, Michael A. Mische
High propensity for perseverance under uncertainty
Innovation
MOR 559 – Strategic Renewal
University of Southern California
Leading Innovation: Human Performance
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
©2000, Michael A. Mische
Innovation
MOR 559 – Strategic Renewal
University of Southern California
Leading Innovation: Human Performance
Innovative versus Adaptive Styles…
Adaptive styles work
incrementally on
problems using
established rules and
frameworks.
©2000, Michael A. Mische
Innovative styles are likely
to ignore established
frameworks, redefine and
reframe the problem and
develop their own
methods for creativity and
problem solving.
Innovation
MOR 559 – Strategic Renewal
University of Southern California
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 selfdirectedness
 Importance and complexity of work
©2000, Michael A. Mische
Innovation
MOR 559 – Strategic Renewal
University of Southern California
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
©2000, Michael A. Mische
Innovation
MOR 559 – Strategic Renewal
University of Southern California
Leading Innovation: Innovation Processes &
Models
In general, innovation models can be summarized into 3 basic
types:
©2000, Michael A. Mische
1.
LINEAR
2.
CHAIN-LINKED
3.
TOTAL PROCESS
Innovation
MOR 559 – Strategic Renewal
University of Southern California
Leading Innovation: Innovation Processes &
Models
1.
Linear Model – The Classic Approach to Innovation

Stresses sequential processes and activities  results in a lengthy

Has four phases:
Developmen
t
Research

©2000, Michael A. Mische
process
Production
Distribution & Service
Key Qualities:

Highly sequential activities and decision-making

High level of separation and departmentalization – limits

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

Low to minimal external party involvement – limits

Subject to “re-start” when parameters change

Attracts structured individuals with preference for certainty
interaction
into isolated fragments
participation of the market
Innovation
MOR 559 – Strategic Renewal
University of Southern California
Leading Innovation: Innovation Processes &
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:

©2000, Michael A. Mische

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
MOR 559 – Strategic Renewal
University of Southern California
Leading Innovation: Innovation Processes &
Models
3.
©2000, Michael A. Mische
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
MOR 559 – Strategic Renewal
University of Southern California
Product Development Process
Concept
Project
Business
Plan
Design
Proof of Concept
1A
Market
Assessment
Proof of
Concept
Design
Frozen
Design
1B
Technical
Feasibility
Go
No
©2000, Michael A. Mische
Go
No
Innovation
MOR 559 – Strategic Renewal
University of Southern California
Product Development Process
Development & Testing
Mfg.
Piloting
Final
Production
Version
Verification
Launch
Scale-Up
Ready for
Market
Launch
Mktg.
Validation
Go
1-year
follow-up
No
©2000, Michael A. Mische
Innovation
MOR 559 – Strategic Renewal
University of Southern California
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:
8.

Interdependencies between questions

Occurrences and timing

Known constraints/solutions

Goals & objectives, etc.
Develop assumptions for each question and issue.

©2000, Michael A. Mische
Develop a set of 3-5 characteristics integral to the assumption.
Innovation
MOR 559 – Strategic Renewal
University of Southern California
Leading Innovation: Innovation Processes &
Models
Learning + K
Concepts/Facts
Discovery/
New Ideas
New/Updated
Product/Concepts
Integration + Assimilation
Evaluation + s
Product Development + Testing
Evaluation + s
Final Product +
Product Launch
©2000, Michael A. Mische
Innovation
MOR 559 – Strategic Renewal
University of Southern California
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
©2000, Michael A. Mische
Innovation