Chapter 4

Managing Innovation within Firms

Presented by:
Rasheed Nicart
Jyby Lozada
Ariel Canelas
Jereycho Gandionco
Learning Objectives
Organizations
& Innovation
 Organizations
& Innovation

The emphasized the need to view innovation

as a management process within the context
of the organization was shown to be the case
especially in a modern industrialized society
where innovation is increasingly viewed as an
organizational activity.
The Dilemma of
Innovation
Management
The Dilemma of Innovation Management

Within virtually all organisations there is a

fundamental tension between the need for stability
and the need for creativity. On the one hand,
companies require stability and static routines to
accomplish daily tasks efficiently and quickly. This
enables the organisation to compete today. On the
other hand, companies also need to develop new
ideas and new products to be competitive in the
future. Hence they need to nurture a creative
environment where ideas can be tested and
developed. This poses one of the most fundamental
problems for management today.
Figure 3.1 Managing the tension between the need for creativity and efficiency
How do firms try to reduce costs, slack to improve
competitiveness on the one hand, and then try to
provide slack for innovation on the other?
• Has to do with balancing activities or be an
Ambidextrous;
• The firm needs to ensure there is a constant pressure to
drive down costs and improve efficiency in its operations
• Needs to provide room for new product development &
improvements to be made.
• Separate production from R&D  lead improvements &
innovations that arise out of the operations
• The operations of the firm provide enormous scope for
innovation
Managing
Uncertainty
 Managing Uncertainty
• Product innovation is a complex process.
• Innovation involves numerous factors acting
separately but often influencing one another.
• Organizations have to respond to internal and
external events, some of with are beyond their
control.
• Managing uncertainty is a central feature of
managing the innovation process.
The Management of the innovation process:

• Developing the creative potential of the

organization.
- Fostering new ideas.
- Generating creativity.
Figure 3.2 Pearson’s uncertainty map
Source: A.W. Pearson (1991) ‘Managing innovation: an uncertainty reduction process’, in
Managing Innovation, J. Henry and D. Walker (eds), Sage/OU.
 Pearson’s uncertainty map
• Framework divides uncertainty into two
separate dimensions:
• Uncertainty about ends (what is the eventual
target of the activity or project); and
• Uncertainty about means (how to achieve this
target).
 Quadrant 1
• High degree of uncertainty about means and ends.
• The ultimate target is not clearly defined & how to
achieve this target is not clear.
• The activities often involve working with technology that
is not fully understood and where potential products or
markets have not been identified.
• Domain of RU laboratories, which usually are removed
from the financial and time pressures associated with
industry.
• E.g: Microsoft conducts the majority of its research in
Seattle,
• United States. Interestingly, it calls this centre a campus.
 Quadrant 2
• The end or target is clear. E.g: commercial opportunity may been
identified
• But, the means of fulfilling this has yet to be established.
• Initiate several different projects centred around different
technologies or different approaches to try to achieve the
desired product
• Additional approaches may be uncovered along the way there is
considerable uncertainty about precisely how the company will
achieve its target
• Is an ongoing activity within manufacturing companies
• E.g: Guinness ‘In-can system, clear about its target – trying to
make the taste of Guinness from a can taste the same as
draught Guinness.
 Quadrant 3
• There is uncertainty regarding ends
• Attempting to discover how the technology can be
used most effectively
• Many new materials fall into this area.
• E.g: being applied to a wide range of different possible
product areas.
• May prove to be ineffective, due to costs or
performance,
• But some new and improved products will emerge
from this effort
 Quadrant 4
• Covers innovative activities where there is most certainty.
• Activities may be dominated by improving existing
products or creating new products
• With so much certainty, similar activities are likely to
undertaken by the competition.  Speed of development
is often the key to success.
• New product designs that use minimal new technology but
improve
• E.g.: Samsung - ability to introduce new mobile phones
incorporating new designs rapidly into the market, thereby
maintaining its position as market leader
 Managing
Innovation
Projects
Figure 3.3 Matrix of complexity of architectural/component knowledge
Source: Architectural Innovation: The Reconfiguration of Existing Product Technologies and the Failure of
Established Firms, Administrative Science Quarterly, Vol. 35, No. 1 (Henderson, R. and Clark, K. 1990).
Reproduced with permission of Johnson at Cornell University.
 Technological knowledge divided two
dimensions:
• Knowledge of the components; and

• Knowledge of the linkage between them,

(architectural knowledge)
 Technology development could be:
1. Radical innovation, only if it revolutionizes both component &
architectural knowledge.

2. Incremental innovation, similarly, will build upon existing component

and architectural knowledge.

3. Modular innovations, will require new knowledge for one or more

components, but the architectural knowledge remains unchanged.

4. Architectural innovation, will have a great impact upon the linkage

of components, the knowledge of single components will remain the
same.
 Organisational
Characteristics that
Facilitate the
Innovation Process
1. Growth orientation
• Companies that are seeking growth are more
likely to be interested in innovation than those
that are not.
• Company’s objective is to grow the business;
innovation provides a means to achieving growth.
• Actively plan for the long term.
• E.g.: Roche, Google and Microsoft are companies
that make this explicit in their annual reports.
2. Organizational heritage and innovation
experience

• Fosters and encourages widespread recognition of the need

to innovate.
• Groups and departments are willing to cooperate
• Numerous problems arise when:
- individuals & groups are either unwilling or reluctant to work
together and share ideas.
- it slows down communication and decision making and, at
worst, leads to projects being abandoned due to lack of
progress.
• Internal ability to share information and knowledge lead to
succeeding
3. Vigilance and external links
• Vigilance requires continual external scanning, by senior
management & all other members of the organization.
• Part of this activity may be formalized
• E.g.: the marketing function the activity would form part
of market research and competitor analysis.
• Collecting valuable information - open communication
system will help to facilitate this.
• Extensive external linkages with the market,
competitors, customers, suppliers & others will all
contribute to the flow of information into the firm
4. Commitment to technology and R&D
intensity
• Most innovative firms exhibit patience in
permitting ideas to germinate and develop over
time.
• Needs to be accompanied by a commitment to
resources in terms of intellectual input
• Ideas that look most promising will require
further investment
• Without it would be extremely difficult for the
company to attract good scientists.
 5. Acceptance of risks
• Willingness to consider carefully risky opportunities.
• Includes the ability to make risk assessment
decisions.
6. Cross-functional cooperation &
coordination within organizational
structure
• Scientists & technologists can be fascinated by new
technology and may sometimes lose sight of the
business objective
• The marketing function often fails to understand the
technology involved in the development of a new product.
• Ability to confront and resolve frustration and conflict that
is required.

7. Receptivity
• Most technology-based innovations involve a
combination of several different technologies.
• It would be unusual for all the technology to develop in-
house.
• Businesses are witnessing an increasing number of joint
ventures and alliances often with former competitors
• E.g.: Sony and Ericsson formed a joint venture to work
on the development of mobile phone handsets.
8. Space for creativity
• The need for efficiency, there also a need for a
certain amount of slack to allow individuals
room to discuss ideas & be creative
• In many R&D functions, this issue is directly
addressed by allowing scientists to spend 10–
15 % of their time on the projects they
choose.
9. Strategy towards innovation
• The firm has developed plans for the future
regarding selection of markets to enter & which
technologies may be appropriate for the firm.
• Involve further long-term planning, establishing
a range of projects, some of which will
subsequently provide opportunities that the
firm will be able to exploit.
• Long-term planning and investment with regard
to technology and markets distinguishes.
10. Coordination of a diverse range of skills

• Organizations require a combination of specialist

skills and knowledge in the form of experts.
• They require individuals of a hybrid nature who
are able to understand a variety of technical
subjects and facilitate the transfer of knowledge
within the company ability to manage this
diversity of knowledge and skills effectively that
lies at the heart of the innovation process.
• Individuals must play as part of the team
Table 3.2 Summary of the organisational characteristics that facilitate the innovation process
Organisational Structures &
Innovation
Table 3.3 Organic versus mechanistic organisational structures
Source: D.P. Slevin and J.G. Covin (1990) Juggling entrepreneurial style and organizational structure: how to get your act together, Sloan
Management Review, Winter, 43 – 53.
 The Role of the
Individual in the
Innovation
Process
Table 3.4 Key individual roles within the innovation process
Source: Based on E.B. Roberts and A.R. Fushfield (1981) Staffing the innovative technology-based organisation, Sloan Management
Review, Spring, 19 – 34.