HANDS - OF - GOVERNANCE &
INNOVATION MARKETS
By Industrial PhD - student Robert Schønrock Nielsen, Codan Forsikring &
Aarhus School of Business, University of Aarhus, 25.05.2010
EXAMPLES OF WORLD CLASS INNOVATORS
INNOVATORS
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JOSEPH A. SCHUMPETER´S (1883-1950) DEFINITION ON INNOVATION
•The introduction of a new goods
•The introduction of a new production
•The opening of a new markets
•The conquest of new sources of supply
•The carrying out of a new organization
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INNOVATION MARKETS
• ONE WAY TO IGNITE AN INNOVATIVE CULTURE IS YOUR COMPANY…
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INNOVATION MARKETS
… IS BY ESTABLISH INNOVATION MARKETS (INTERNAL MARKET) FOR
CATALYZING INNOVATIVE POWER WITHIN THE ORGANIZATION
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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
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THE ROOTS OF HANDS - OF - GOVERNANCE
• CLASSIC LIBERALISM, AUSTRIAN ECONOMIC, AND COMPLEXITY THEORY
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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.
8 Smith,
A.(1776) :An Inquiry into the Nature and Causes of the Wealth of Nations
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.
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
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
SILICON VALLEY – WORLD´S MOST INNOVATIVE HOTSPOT
•No CEO of Silicon
Valley
• A self-organizing
powerhouse
• Decentralized centres
of competion and
cooperation
•Geographic innovation
marked based on a
spontanenous
interaction between
ideas, knowledge and
venture capital
12 Hamel,
G. (2007): The Future of Management
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
CONNECTION BETWEEN SILICON VALLEY & ORGANIZATIONS
• BRINGING SILICON VALLEY INSIDE YOUR COMPANY (GARY HAMEL)
• INNOVATION MARKET – IDEAS, KNOWLEDGE, CAPITAL (GARY HAMEL)
• INNOVATION MARKET = INTERNAL MARKET
14 Hamel
, G. The Future of Management 2009 & Hamel, G. (1999): Bringing Silicon Valley Inside,
Harvard Business Review
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).
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CASE 2: INNOVATION MARKETS IN BANK OF AMERICA
•Created a innovation market within the
bank´s existing branches, whereby it used its
locations to launch varios experiments
witwout redesigning its branches ( open
innovation)
•The Innovation & Development group (I&D)
test new ideas in Atlanta and roll out if
successful.
•The entrepreneurial drive for innovation
supported by a strong internal market forces
have
overcome
many
organizational
barrieres.
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CASE 3: INNOVATION MARKETS AND INNOVATION REWARDS WITHIN
HP & SIEMENS
•Use Global Knowledge Sharing
Network ( e.g. Urgent Request, Share
Points, Web 2.0) to foster and capture
ideas linked to strong incentive
program (Innovation Rewards).
Pridiction Markets to capture and
screen ideas using the
organizational wisdom of crowds.
When top managment prioritize
projects it use the collective
knowledge of leaders and coworkers.
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STOCK EXCHANGE OF BRIGHT IDEAS
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ORGANIZATIONAL DYNAMICS OF INTERNAL MARKET WITHIN
COMPANIES
• Reduce complexity in large organizations
• Leads to internal competetion between departments on deliver best results,
sometime minize social cohesion within the company
• Contributes to efficient allocation of resources
• Provide quick adjustment to environmental change
• Strongly motivate employees to realise subunit and individual goals
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,
ORGANIZING INNOVATION: INNOVATION MARKET, INNOVATION FUNDING &
INNOVATION REWARD
INNOVATION
MARKET
INNOVATION
FUNDING
INNOVATION
REWARD
INNOVATION MARKET - AN
INTERNAL MARKETPLACE
INSIDE ORGANIZATIONS TO
FOSTER IDEAS AND
CATALYSE INNOVATIVE
POWER
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
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INNOVATION MARKET
KEY CHARACTERISTICS
BENEFITS
An intra-organizational marketplace where
ideas, expertise and capital interact
spontaneously on market principles, for
the better of the company
Create an (in)formal network between
corporate entrepreneurs who see innovation
as a meaningfull activity
A in-house online market that combine
the benefits of free market allocation (the
invisible hand) with the management of
corporate leaders (the visible hand)
Improve entrepreneurship and a innovation
culture among leaders and co-workers
More decentralized desicion making and more
personal responsibility
Cross functional, cross – hiearchical and
open for external participants (open
innovation)
Transform silo structures by introducing
horisontal and spontaneous arrangements
within the organization
Decentralized
loosely
coopled
arrangement that mediate connections
between all deparments of the organization
Release the inherent energy and creativity of
the organization by induce more freedom and
less control among leaders and co-workers
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INNOVATION FUND
KEY CHARACTERISTICS
BENEFITS
An analytic support function that
support, advice and evaluate projects
related to innovation and development
Better view of return of investment (ROI)
regarding to innovation
Money box based on the circulation of
investments and profits regarding to
innovation
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Number of man-hours and economical
resources used on innovation per year
(investments and innovation rewards).
Create overview of ideas generated and
transformed to innovation.
Measure economic performance (ROI)
linked to of innovation initiatives
Number of sponsored business plans per
year.
Measure pay off
innovation market
Number of new innovations per year
(perhaps contribution in volume of new
sale).
catalyzed by the
INNOVATION REWARD
KEY CHARACTERISTICS
BENEFITS
A monetarian payback mechanism for
rewarding
innovative performance
among leaders and co-workers
Motivate and encourge leaders and coworkers to think
more in terms of
innovation and development
A reward system adaptable to excisting
performance systems
Creates a stronger economic incitaments
among leaders and co-workers to innovate
and launch new products.
A reward system linked to the market
performance (e.g. provision based
payment)
Transform profits per product to
rewards on the individual and/or group
level
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Help
attract
and
retain
corporate
entrepreneours and supportive specialist
The sum of innovation rewards makes it
easier to identify the price (costs) of
strategic as well as tactical innovation
projects.
SPONTANIZING – SPONTANEOUS ORDER AND ORGANIZING
• Spontanizing is organizing by the purpose of create more spontaneous order
within the organization
• Spontanizing is combination between spontaneous unintentionel interaction
(market) with intentional actions (ledership) in organizations
• Innovation market is an examble of spontanizing
• Spontanzing is liberalization of organization
24 Spontanzing
is an organizational principle developed in my PhD thesis Liberalization of organization. A
Thesis Regarding Innovation in Organization 2010 Forthcomning
LEADING ON THE EDGE OF CHAOS (COMPLEXITY THEORY)
Edge of
chaos
Ossification
Centralization
Decentralization
Spontanizing
(spontanenous order &
organization)
25 Stacey,
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)
Disintegration
ORGANIZATIONAL DYNAMIC EFFECT OF INNOVATION MARKET
Challenge silo
structures
Improved customer
focus
Enforces an
entrepreneurial climate
Transparent decision
process
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