FOSTERING THE PROCESS OF INNOVATION
MARCH 1997
OVERVIEW
DEFINING AND MANAGING INNOVATION
JAPANESE VERSUS WESTERN PRODUCT DEVELOPMENT
INTRAPRENEURSHIP AND ENCOURAGING THE CULTURE OF INNOVATION
CASE EXAMPLE: MOTOROLA
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The pyramid organizational structures most large companies have developed over the years are
considered to be effective in operating and protecting established businesses in order to ensure
stability, predictability and control. Although such organizational structures serve to minimize
risk, companies are finding that such structures create barriers to innovation; employees are
conditioned to believe that stability and control are the most important attributes of good
management, resulting in a corporate culture where spontaneity and new ideas are unlikely to
flourish.
As today's global economic environment becomes increasingly competitive, companies are placing
a greater emphasis upon expansion into new markets and more rapid product innovation
processes. Contemporary literature, reflecting this shift in emphasis toward greater innovation,
offers various perspectives and methods for companies wishing to further develop formal and
informal "processes" for innovation.
DEFINING AND MANAGING INNOVATION
Jean-Philippe Deschamps, vice president of Arthur D. Little's Technology and Innovation
Management practice in Europe, defines innovation as the process by which a company:
Builds insights about its customers
Identifies and evaluates unique market opportunities and prepares a plan to seize them
Develops a stream of winning products1
This process of innovation can generally be split into two parts:
Upstream process — the sensing and creating of opportunities
Downstream process — converting selected opportunities into successful products
Deschamps finds that while most companies have a formal process in place to manage the
downstream side of innovation, few companies are able to manage the process of sensing and
creating opportunities. Deschamps categorizes the upstream innovation process into the three
stages illustrated on the following page.
1Jean-Philippe Deschamps, "Managing Innovation: From Serendipity to Process," Prism, Second Quarter, 1995.
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Further, Tushman and O'Reilly, authors of Winning Through Innovation, find that organizations
that successfully sustain their competitive advantage in product innovation are those that operate
in multiple modes of innovation simultaneously; that is, managing for short-term efficiency by
emphasizing stability and control, while at the same time ensuring the promotion of long-term
innovation by taking risks and "learning by doing."2 The authors believe that success with
innovation comes less from knowing the right answer than having the ability to pursue multiple
courses of action simultaneously.3
2 Michael L. Tushman and Charles A. O'Reilly, Winning Through Innovation, Harvard Business School Press,
(1996): 175.
3idid., 175.
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Upstream Innovation:
Sensing and Creating Opportunities
Stage 1. Fertilization:
Envisioning Opportunities
Stage 2. Seeding:
Generating and Managing
Idea Flow
Stage 3. Incubation:
Managing Precursor
Projects
1. Identify the company's vision and values
2. Define the product by its raw materials or by its functionality
3. Identify the product's customers and markets
1. Allocate resources
2. Organize and manage idea collection for new business
opportunities
3. Manage idea screening, enrichment, evaluation and ranking
1. Fund priority projects selected at the end of seeding phase
2. Further validate ideas from technical, economic and
market perspectives
3. Officially incorporate the project into the company's overall
strategic plan
Tushman and O'Reilly identify three distinct modes of innovation — incremental, architectural and
discontinuous — that they believe companies must promote within their organizations in order to
excel in the innovation process. Characteristics of the three forms of innovation are presented
below.
Incremental innovation
Culture of continuous improvement
Incremental changes in the innovation process
Emphasis upon consistency and control and the elimination of variability in the innovation
process
Management team that rewards cost control and the volume of new products developed
Architectural innovation
Culture that encourages cross-functional and cross-business unit interaction during the
innovation process
Management team that rewards process integration across functions and business units
More flexibility as compared with incremental innovation processes
Discontinuous innovation
A culture promoting breakthrough innovation and "learning by doing"
Encouragement of experimentation and product variation
Acceptance of small, multiple failures in product development
Little emphasis upon cost control and the volume of products produced
Management team that rewards experimentation and breakthrough innovation
Tushman and O'Reilly identify companies that effectively manage these different modes of
innovation — incremental, architectural and discontinuous — as being "ambidextrous"
organizations. In order to create and effectively manage an ambidextrous organization, Tushman
and O'Reilly advise that companies emphasize the building of executive teams and leaders who
can simultaneously manage the strategies, structures, competencies, work processes and cultures
for today's short-term efficiency as well as for tomorrow's strategic innovation. The proposed
organizational structure for managing innovation at ambidextrous companies is outlined in the
graphic on the following page.
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Burgelman and Sayles, authors of Inside Corporate Innovation, examine the managerial initiatives
associated with innovation.4 They find that successful innovation processes require the "linking"
of, or communication between, technically competent R&D employees with marketing-oriented
managers. The former are attuned to the realities of the corporation's interests and look for new
technological breakthroughs with commercialization potential, and the latter are able to direct
scientists and engineers toward what appear to be exciting markets with assured high demand.
Therefore, the ideal innovation managers, according to Burgelman and Sayles, are those who:
Possess enough contact with their company's research process to understand and direct the
technological innovation process
Possess sufficient contact with the marketing and sales functions to think in terms of
market needs
Possess enough organizational experience to understand how new technological
breakthroughs can be aligned with the core competencies and strategies of the entire
company
J APANESE VERSUS WESTERN PRODUCT DEVELOPMENT
4Robert A. Burgelman and Leonard R. Sayles, Inside Corporate Innovation, The Free Press, 1986.
FOSTERING THE PROCESS OF INNOVATION PAGE 5
MARCH 1997
Incremental Innovation
Architectural Innovation
Discontinuous Innovation
- Culture of continuous
improvement
- Incremental changes
- Emphasis upon consistency
and control and the
elimination of variability
- Management team that
rewards volume of products
and cost control
- Culture encouraging cross-
functional and cross-business
unit interaction
- Managment team that rewards
process integration across
functions
- More flexibilty as compared with
incremental innovation processes
- Culture promoting
breakthrough innovation and
"learning by doing"
- Acceptance of small, multiple
failures in product development
- Little emphasis upon cost
control and the volume of
products produced
- Management team that rewards
experimentation
- Provides clear, simple vision
- Balances multiple architectures
- Balances heterogeneity and homogeneity
- Makes bets on shifting innovation streams
- Manages ambidextrously
Today/tomorrow
Large/small
Incremental/discontinuous
Executive Team
Ambidextrous Innovation Management
According to Nonaka and Johansson, authors of Relentless: The Japanese Style of Marketing,
the Japanese approach to product innovation deviates considerably from that of traditional
Western innovation techniques. Rather than relying upon a collection of individual inventors to
develop new ideas and patentable breakthroughs, the Japanese new-product research process
involves many people in more or less constant interaction.5 Nonaka and Johansson find that such
cross-functional Japanese teams have developed organizational processes for "creating
knowledge" that go beyond individual creativity. The table below contrasts Japanese and Western
product development processes as examined by Nonaka and Johansson.
J APANESE AND WESTERN PRODUCT DEVELOPMENT
Western Type Japanese Type
R&D Process
Product concept
The product concept is clearly
defined at early stages, and does
not change throughout the process
The product concept is ambiguous
at early stages
Developing the concept
The design target is fixed at an
early stage based upon the clearly
defined concept; the target is
pursued using division of labor
While the concept is improved as
demanded by the market, the final
product is developed through the
collaboration of various
departments
R&D Management
Pattern of team work1 Phased sequential approach Overlapping "sashimi" approach
Objective of team work Pursuit of the performance goalAdaptation to changing needs
Team organization
Functional organization or
functional organization with weak
project leaders
Matrix organization with strong
project leaders managing the
whole development process or
organization
Strength and Weaknesses
Strength
Efficient in terms of manpower;
reaches performance target
Short lead time (three to four
years); adaptation to current
needs; high production quality
Weakness Long lead time (seven to eight
years); high development costs
Inefficient use of manpower; may
miss performance target
1 A detailed comparison of the "phased sequential" and "overlapping" product development processes is
presented on the following page.
5Johny K. Johansson and Ikujiro Nonaka, Relentless: The Japanese Way of Marketing, HarperBusiness, 1996.S
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As illustrated below, marketers, designers and engineers work closely together in the Japanese
product development process. Processes that are sequential activities in the West — preliminary
screening, proposed design, cost assessment, demand estimation, prototype, test marketing — are
overlapping activities in Japan. Defined by Johansson and Nonaka as the sashimi process — so
described because it resembles the way Japanese cut raw fish for serving — the Japanese product
development process ensures that sequential activities are started before prior steps are finished.
This shortened process helps bring new technology to market more quickly.
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MARCH 1997
Phased versus Overlapping
Product Development
Western Product Development (Sequential Approach)
Japanese Product Development (Overlapping Approach)
Time
Idea
Generation
Preliminary
Screen
Specs
Proposal
Prototype
Lab Test
Engineering
Cost Analysis
Market
Test Sales
Analysis
INTRAPRENEURSHIP AND ENCOURAGING THE CULTURE OF INNOVATION
Austin Pryor, president of Greenwich, Connecticut-based Foresight Consultants, finds that a
formal product development process is rarely an innovating force in companies. Instead, Pryor
argues that new discoveries occur by accident. For example, designers might find new uses for
products intended for different markets. After 25 years of studying IBM, General Electric,
Polaroid and Xerox, Brian Quinn of the Amos Tuck Business School at Darmouth College found
that not a single major product innovation had originated from a company's formal planning
process. As such, Pryor suggests that companies should look to develop an innovative culture
where invention and the generation of ideas is encouraged. In fact, Pryor believes that companies
should develop a culture that nurtures intra-corporate entrepreneurs — or "intrapreneurs" — who
are more apt to come up with winning product ideas than would a formal product development
process.6
Pryor identifies the nine steps outlined below for companies looking to effectively manage
innovation through intrapreneurship.
KEYS TO DEVELOPING AN INTRAPRENEURIAL CORPORATE CULTURE
Obtain a strong commitment from management; senior managers must be convinced of the value of
intrapreneurship and demonstrate their enthusiasm for the program
Establish the specific parameters for the program, such as the goals, compensation and action plans that are
acceptable to the company
Find the latent intrapreneurs in the company and encourage them to come forward; rather than search for
ideas, seek out individuals with the commitment and determination to put ideas into practice
Develop among managers the skills needed to recognize, manage and nurture intrapreneurs — senior
managers with sufficient clout to "get things done" who will lend a sympathetic ear and help the company's
intrapreneurs deal with corporate bureaucracy and gain access to resources
Select a team of intrapreneurs; not only do teams of intrapreneurs reinforce and nurture one another, but a
portfolio approach to product development has the greatest chance of success
Help the intrapreneurs along by giving them the training and resources they require to bring their projects to
market; intrapreneurs are often inexperienced business people with little formal training
Allow intrapreneurs room to experiment, to fail, to recover and try again
Steer the intrapreneur away from internal and technical problems to focus upon the customer; early on,
intrapreneurs tend to see internal barriers as the most difficult part of their product innovation process
Establish support mechanisms to encourage long-term intrapreneurial activity throughout the company;
provide for mentors, sponsors, access to resources and training
6Austin Pryor, "Growing the Busienss with Intrapreneurs," Business Quarterly, March 22, 1993, 1+.
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CASE EXAMPLE : MOTOROLA 7
Joseph G. Morone describes the new product development process at Motorola as a process of
"learning by doing." Because Motorola develops new products for markets that often do not
exist, the company believes that the only way to know whether or not demand will arise in
response to a specific product is and develop that product. The key to learning by doing, Morone
found at Motorola, is to construct an organization that adapts to incremental changes in the
marketplace and accordingly adjusts the product development process.
Morone also found that Motorola's managers feel that quantitative financial return projections and
discounted cash flow-style analysis are inadequate for determining whether or not to develop new
products, especially when placed against the uncertainties of future markets and technologies.
Instead, Motorola maintains a product development process that is more qualitative in nature and
relies upon employees who understand the technology and the markets, and have considerable
years of experience in the company's product development process. For example, at the initial
stage of the product development process, Motorola tests each new product opportunity against a
sequence of screens or decision hurdles that include the following four questions:
Does the new product opportunity fit within the strategic focus of the business?
Does the business have a distinctive competence with respect to the opportunity?
Is the opportunity substantial—substantial enough to merit the risks and resources that
need to be devoted to it?
How can the business go about pursuing the opportunity in a way that it can afford?
Once a new product has been slated for development at Motorola, individual lines of business are
required to undergo the four-step process outlined below.
Develop a five- to ten-year product- and technology-planning horizon
At least once a year, meet with the business line chief executive officer, review
technological roadmaps and agree on the technology and product development objectives
for the following year
Balance the product and technology development objectives against budgetary constraints
Set and adjust standards of financial performance (e.g., standard rates of growth and
return on investment) on a business-by-business basis
7Joseph G. Morone, Winning in High-Tech Markets, Harvard Business School Press: 1993: 122.
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