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Copyright @ September, 2011 on BlogSpot by Tambudzai Ndoro, Non-Executive Director of Global Business Assignments Inc,

What is Innovation?

What is Innovation?  ‘…innovation as the invention and implementation of a management practice, process, structure, or technique that is new to the state of the art and is intended to further organizational goals.’ – Birkshaw, Hammel & Mol (2001.)

‘Innovation is a specific function of entrepreneurship, whether in an existing business, a public service institution, or a new venture started by a lone individual in the family kitchen.  It is the means by which the entrepreneur either creates new wealth-producing resources with enhanced potential for creating wealth.’ – Peter Drucker (1985).

‘innovation—often defined as something that is new from the perspective of the party under consideration’- Jonathan D. Linton (2009.)

‘A fundamental innovation is an enabler for many other minor innovations and these minor innovations either improve upon the fundamental innovation or the innovations are a derivative of the fundamental innovation’ - Kondratieff (1984).

As highlighted above, innovation means many things from various disciplinarians, of which most if not all share the central theme that innovation is a process that renews something that exists and/or is commonly an introduction of something new,(Birkinshaw, Hamel, Gary & Mol, Michael J. 2008, Drucker (2002)).

Figure 1: Depiction of effect of electronics -Phase IV.

Therefore, to provide a structure to the study of innovation, the paper will identify two key main areas of innovation: technology innovation and social innovation, (Linton 2009).  By using the unit and level analysis approach, (Linton 2009), both  areas can be further divided as follows: technology innovation à product innovation, an approach introduced to automobile industry by Japanese firms, (Linton 2009); service innovation introduced by the telecommunication industry, (Mansell 1994) and supply-chain innovation in manufacturing processes, (Linton 2009).  Social innovation can be broken-down into the following sub-areas à marketing innovation brought about by demonstration packages, for example, ‘demo’ software, trial periods  of use within the Retail sector, (Miles 1994); management innovation that looks at the aspect of organizational change, (Birkinshaw, Hamel, Gary & Mol, Michael J. 2008), and operations innovation, (Graves 1994).  Though, Linton, (Linton 2009) uses different terms to describe innovation and examples of their usage, the summary, will be limited to discussing technology innovation from the perspective of product, services and process’ innovation; and social innovation from the perspective of the industry.  Thus, the automobile industry case study will be used as an example and illustration, (Graves 1994) from the perspective of - social innovation,(Linton 2009)  and as a new product design implemented - technology innovation, (Linton 2009). 

When studying innovation it is important to clearly define the perspective to which we analyze what innovation is and the positive impact it has/will have on society, (Linton 2009).  For example, the development of infrastructure such as telecommunications would have been difficult to build and implement without the development of research scientists, (Mansell 1994).  Therefore, Linton proposes a graph, (Linton 2009), to describe the social impact that innovation has, see Figure 1 above.   In a nutshell, the graph aims to explain that depending on which quadrant the innovative solution falls under, innovation can be both positive and negative if viewed from different lenses, (Linton 2009), in addition, the degree to which the innovation is adopted and the degree to which it yields ROI, (Martin 1981) and social returns, (Linton 2009) affects its level of positioning on the graph.  Therefore, it becomes critical to highlight the importance of the organizational structure, as it has a strong correlation, on the implementation success, Burns & Stalker (1961); (Morgan 2006).  Having said that, let’s consider innovation with the automobile industry as an example and illustration of innovation in a globalizing industry, (Graves 1994). 

When we look at automobiles as a product or the automobile industry, (Linton 2009),  innovation has discontinued i.e., transformed the industry in 3 distinct phases, (Graves 1994); refer to Table 1: Industrial transformation below, phase I – standardization of product, mass production systems; phase II – product differentiation, emphasis on product technology; and phase III – lean production, JIT high quality and management groups as a new system of production in organizations, (Graves 1994); however, we also now see a phase IV – of the introduction of electronic components and fuel efficiency regulations – social innovation, (Linton 2009) over the last decade.    This form of continuous innovation is driven by the external environment – customers and markets, (Graves 1994).  When we look at this timeline the adoption, (Kotler, Armstrong 2001)of these innovations, from the perspective of the automotive firms in the countries that have adopted the innovations, it has been reported that the overall effect of  the industry has been an increase in product quality and a decline in overall production costs, (Linton 2009).  However, it’s important to highlight that there have been challenges in phase III and IV in the industry as European producers work to close the productivity and quality gap with the Japanese JIT/lean production system; whilst Japanese producers appear to be driving the industry further forward through radical technological innovation, and further management innovation, (Graves 1994).  Phase IV innovation can been seen as building on current skills – the innovation has contributed both positively and negatively in technology innovation, (Linton 2009) as this change has resulted in shifts in the supply-chain as it both encourages opportunities in electronics production who were in the business already and radical change to members in the supply-chain who did not have the electronics background.  However, there is a positive social innovation associated with this change as the change shifts customer preferences in the form of performance, style, fuel efficiency, government policies on safety and environmental emissions, (Graves 1994).  This is highlighted in Figure 1: Depiction of effect of Phase IV, (Linton 2009). 

Table 1: Industrial Discontinuous & Continuous innovation in Automotive Industry History[1]

Discontinuous Innovation,(Graves 1994)	Date	Production or product innovation	Geographic area of rapid market growth	National & Regional industry responsible for shaping
I	1902 – 1920s	Standardized product, mass production systems	US	US
II	1950s – 1960s	Product differentiation	Europe	Europe
III	Late 1960s	Lean production JIT and SPC[2]	Japan	Japan
Continuous Innovation,(Linton 2009)
IV	2000s	Electronic components and fuel efficiency regulations (CAFE´).	Japan	Japan

In conclusion, it is important to have a perspective when discussing innovation.  In addition, identifying the unit and level of analysis, is essential when looking at innovation, as it provides a specific framework from which to identify, analyze and implement.

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[1] Source: Graves, A. 1994, "Innovation in a Globalizing Industry: The Case of Automobiles" in The handbook of Industrial Innovation, eds. M. Dodgson & R. Rothwell, First Ed; edn, Edward Elgar Publishing Limited, England, pp. pp.213 - 228

[2] JIT – Just-in-Time; SPC – Statistical Process Control

Copyright @ 1 March 2011.  Re-posted on 27 October 2011, BlogSpot by Tambudzai Ndoro, Non-Executive Director of Global Business Assignments Inc,

The Inherent Difficulties with Implementing and Managing Change & Innovation that are derived from an article of Institutional Change in the Automobile Industry

A Review of "Institutional Change in the Automotive Industry" article by Van den Hoed & Vergragt, ISSN: 0966-9671-21092691


The theoretical arguments in the paper, of why Battery-Electric (BEVs) were not adopted, limit the analysis from a market perspective – normative institutions (van den Hoed, Vergragt 2006).  The paper understates the relevance of the U.S. Energy Act of 1992, that required alternative fuel vehicle use in some private/governments fleets, (Energy Policy Act of 1992 (EPAct 1992)).  This was under the leadership of former U.S. president George H.W. Bush.  The same leadership who ordered military operations in Panama & the first Gulf war, (The White House Retrieved, 2008).  U.S. military involvement in Kuwait, had much to do with the country’s oil reserves increasingly depleting, see Figure 1: U.S. Proven Oil Reserves

Figure 1: U.S. Proven Oil Reserves

Therefore, it is not surprising that when leadership changed in 1993, with Bill Clinton, in 1994, DaimlerChrysler decision to show fuel-cell demonstration vehicles and publicly declaring their commitment in this technology, had much to do with the regulative institutions ((van den Hoed, Vergragt 2006), put in place in Bush’s previous administration, as the result of the War creating spillover effect, (Stephen Martin, 2001) in fuel-cell R & D.  Whilst, the limitations of the BEV product-design are inherent, this also reinforces that in instances of this magnitude, large organizations are agents of change, (Schumpeter, 1943), irrespective of the normative institutions at the time.  Since then, 2005 and 2007 energy acts have been passed whose main agenda has been, to provide tax incentives for conservation and use of alternative fuels; and encouragement of biofuel development, (Energy Independence and Security Act of 2007).  See Figure 2: Depiction of automotive products and their ability to exploit innovation based on institutional changes.

Figure 2: Depiction of automotive products and their ability to exploit innovation based on institutional changes

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Subsequently, prior to these developments the U.S. had been sited has resisting endorsing the Kyoto Protocol, preferring to let the market drive CO2 reductions, (Regional Greenhouse Initiative 2006).  This highlights the inherent difficulty in managing change and innovation from a business, society and government perspective.  Therefore, the theoretical argument of social innovation coupled with technical innovation (Jonathan D. Linton, 2009), to enable innovative opportunities is heavily dependent on the flexibility of the organizational structure.  In this case study, the organization in question is actually the U.S. government-automobile industry partnership; the social perspective of innovation, (Jonathan D. Linton, 2009).   Now in 2009, we see the automobile transforming as the U.S. president Barack Obama has proposed an energy policy reform that focus’ on CO2 reduction with a cap and trade programme, (Carbon Finance – CDM, UNFCC)[1]. This form of continuous innovation has been driven by the external environment –markets, (Graves 1994), as previously desired by the pre-U.S. Government. 

In conclusion, this level of change and innovation requires transformation (visionary) leadership, James MacGregor Burns (1978).   It is not enough to just respond to a specific external directive (UNFCC), if the existing national (Hostede, 1961) social structure, technological capabilities and productions skills, do not enable it, (Jonathan D. Linton, 2009).

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[1] UNFCC – United Nations Framework Convention on Climate Change.

Copyright @ 4 March, 2011 for MBA Change and Innovation Management Case of Automobile Industry.  Adapted to BlogSpot by Tambudzai Ndoro, Non-Executive Director of Global Business Assignments Inc,

Change and Innovation Management: An example of How to Develop an Operational Innovative Change Management Plan

The Case of Company XYZ
Company XYZ in China  is experiencing increased threat from the local competitors, Company ABC and Company DEF.  Company XYZ specializes in the design, sales and marketing of clothes and accessories and the company’s capabilities and experience in handling an outsourced production in China are central to their ongoing success.  XYZ has three main brands in China who face competition from local companies:  YOU, ME and THEM.  A key aspect of XYZ's  strategy thus far has been the adaption to local conditions.  This organizational structure has entailed that XYZ employed a total of two designers Holmsteen & Jensen  in addition to a team of Chinese designers.  In order to be competitive, the clothing industry in China began to focus on own brand manufacturing (OBM), this meant that a growing number of Hong Kong companies such as Bossini International Holdings Ltd and the Giordano Group, choose to brand their own designs as OBM estimated profit margins of 50% higher than own design manufacturing (ODM); a process that meant the buyers could either use the designs of the Hong Kong companies as they were or modify them to fit their own particular needs.  So, how does Company XYZ design and implement the necessary organizational changes?  The first step is to identify the change management in XYZ; the second step is identify the type of innovation required for Company XYZ to design and implement the necessary organizational change; the third step is to identify the continuous improvements (CI) within the model of organizational change and performance and the fourth step will be to identify tools for managing innovation within the construct of the development framework.

A model of Organizational change and performance, (Burke, W. Warner & Litwin, George H. 1992).

To understand the history of the organization, a timeline has to be constructed.   Using the Burke-Litwin model of organizational change and performance, there are two main factors critical to Company XYZ performance: understanding the external environment and structure, (Burke, W. Warner & Litwin, George H. 1992).  The model highlights which organizational variable influences more directly with other variables.   It also shows the differences between transformational and transactional dynamics in organizational behavior and change.  The model represents the external environment box as the INPUT component, and the individual and organizational performance box the OUTPUT component, (Burke, W. Warner & Litwin, George H. 1992).  When the feedback arrows goes in both directions this indicates that  organizational performance affects the system's external environment via its products and services, and the organization's performance may be directly affected by its external environment (e.g. a change in government regulations or market trends). The remaining boxes in the model represent the throughput aspect of general systems theory, (Burke, W. Warner & Litwin, George H. 1992).  Looking at Company XYZ external environment there are two main factors to consider 1) the increasing number of local competitors in the market and 2) as highlighted earlier the industry shift from ODM to OBM choosing to brand their own designs as oppose to designing them.  When we look at the first point, this is as a result of second point.  Furthermore, when we look at the local competitors in Hong Kong, their market was in mainland China and so whilst their production was located in China, they managed all their operations from offices in Hong Kong and could therefore, not move as fast as Company XYZ.  Therefore, Company XYZ had a strategic competitive advantage over their local competitors in Hong Kong.  However, the local competitors from mainland China not only could reach their market faster but could also operate at lower price margin.  This means that Company XYZ has to look at innovating their current component of the value chain to mitigate the risks associated with diminishing profit margins in productions.  This leads us to the second point that Bestseller China had to look at moving from ODM strategy to OBM strategy.

Next, looking at the current structure of Company XYZ, of one Danish designer for each brand with the team of Chinese designers and the management team: Holmsteen and Jensen.  Keeping in mind the Company XYZ Holdings key success was the European Style of the product designs, further explaining the composition of the design team.  This internal structure for Company XYZ Holding Company poses a significant threat to Company XYZ, the subsidiary's survivability and sustainability in the market.  As highlight in the external environment discussion earlier Company XYZ proposed structure would need to outsource the design process and focus on the brand process (OBM).  The OBM strategy will allow them to maintain their marketing strategy of “selling the European lifestyle.”  This means that XYZ has to a) have a clear framework for connecting their value proposition with the CUSTOMER not designer as per current structure b) ensure the continuity of the personal brand(s) of each employee to be aligned with XYZ brand of European lifestyle, and c) ensure continuity of employees to focus their behaviors to consistently deliver a brand customer experience. 

Type of Innovation required

By using the theoretical framework of unit and level of analysis approach, (Linton 2009), they are two key main areas of innovation that Company XYZ should be mindful of 1) technology innovation – from the perspective of product, service and process, (Linton 2009) and 2) social innovation from the perspective of organizational, group, individual and the industry, (Linton 2009).  From the technology innovation point of view Company XYZ would need to relook their product innovation of selling European lifestyle – Danish designer lenses; to the new lenses of service innovation - brand marketing perspective of selling European lifestyle.  This is in response to the shift in the industry market trend of OBM – social innovation.  This is further highlighted in the case-The Chinese Market that there is a growing group of fashion-conscious, young consumers living in the big cities, mean that Bestseller is selling to a brand-conscious consumer driven by the fashion industry.  This change from ODM to OBM may be deemed as radical innovation prompted by the external environment that Company XYZ finds themselves in. So, now that we have identified the type of innovation(s) required to move Company XYZ from ODM to OBM strategy, how can they implement this?  One of the many modes of implementing innovation in a company is the theoretical framework of Continuous Improvement, (CI).

Bestseller China and CI and Radical Innovation (RI)

There are stages in implementing CI in an organization .  According to the CI model there are 10 critical behavioral norms which must be present.  The CI model for managing change and innovation allows for a top down / bottom up; planned, strategy driven and “emergent” contributions to strategy development.  XYZ can integrate various levels of the value chain model using the PDCA cycle (problem identification/solution and implementation proposals.  From CI point of view this is how XYZ will be able to respond to adopt changes in their structure to meet the OBM strategy.  However, how can they better manage this innovation from an external point of view – radical innovation.  From the theoretical framework, RI is described as a product, process, or service with either unprecedented performance features or familiar features that offer potential for significant improvements in performance and cost.   We see this in case of OBM strategy from a study how companies like XYZ adopting this strategy can stand to gain profit margins of approximately 50% higher than the conventional ODM strategy.  As a result, this will creates a dramatic change in the way XYZ places importance of Danish designer’s designing the clothes to placing importance on services-brand marketing and management that will enable to transform XYZ existing markets and hopefully create new ones.  Using the RI model, O’Connor, 2006, XYZ, will be able to adopt a strategic outlook at how to manage this radical change in their organizational structure highlighted above.  However, what would the implementation action planning around the processes identified in this model.  By using the Star-gate model of innovation, Cooper 1986, XYZ can look forward to a more practical application for implementing the OBM innovation.

Managing innovation within the construct of the development framework.

Using the of key activities, decisions and transitions plans, (Applegate, Lynda M., Harreld, J. Bruce ).  Stages for each activity highlighted in the Stargaze Innovation model.

Conclusion

Company XYZ is advised to address the four steps highlighted in this proposal for the design and implementation of their organizational structure (OBM): 1)  identify the change management in the company; 2)  identify the type of innovation required for XYZ to design and implement the necessary organizational change; 3)  is to identify the continuous improvements (CI) within the model of organizational change and performance and 4) will be to identify tools for managing innovation within the construct of the development framework.  The CI, RI and Stargaze Model are critical to consider in relation to managing innovation in Company XYZ.  Without these management tools in place XYZ can easily risk losing their market share to local competitors who have adopted the market-driven innovation strategy of OBM.

Copyright @ 28 March, 2011 on MBA Change and Innovation Management Case Exam.  Adapted to BlogSpot by Tambudzai Ndoro, Non-Executive Director of Global Business Assignments Inc,