TUM: Strategic Management of Innovation Day 2: 9.00-16.00
Slide 2
Day 1 Strategy as Internal and External perspective Innovation
as (creation of) knowledge platform fits better the Internal,
Learning Perpsetive Path dependency, Asset Legacy Review of Watch
Industry, GM and Seafax to highlight the dilemma of old vs new
Slide 3
Strategy and Innovation Part I, Day 2 Kodak, Polaroid Industry,
Sector Evolution and Inertia Part II, Day 2 Core Rigidities and
Competencies Firm Inertia Gunfire at Sea Part III, Day 2 Ab und
Aufbauen or Reinventing the Firms strategy
Slide 4
Inertia as a Industry-wide Innovation Challenge Market,
Industry Value Chain Ecology what is firm competitive arena
Slide 5
Technological Substitution time performance/cost 35MM
Digital
Slide 6
From 35MM to Digital Cameras 35MM with FILM Digital with FLASH
CARD
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Paradigm 35MMDigital
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Key Players, Value Chain Players: Kodak, Canon, Minolta, Fuji,
Agfa-Gevaert, Sony, Zeiss Ikon, Polaroid (bankrupt in 2002), Casio
Value Chain: (1) Housing, (2)Shutter mechanism, (3) Optics, (4)
Flash and Power source, (5) Development, (6) Printing, (7)
Wholesale and (8) Retail
Slide 9
Evolution in this ecology !: 80-85.2: 86-90.3: 91-95.. 4: 96-03
Photography Group Adjacent Groups (Computer HW and SW) Development
Infrastructure
Slide 10
Evolution of Photography 35MM Cameras And Early DI (Sony MAVICA
No Substitution Paradigm and its Trajectory Very Obvious PC
Revolution Internet and Email limited to Universities Photo CD with
CD Player 1. Complementary technologies And 2. Firms with NE
Strategies, hugging Aging Paradigms 80-85 86-9091-9596-2003
Polaroid Bankrupt Price-adjusted Quality full Match Digital sales
Exceeds Conventional Sales Counter Innovations APS Convergence In
Full Swing
Slide 11
Paradigm 35MM : Complements are development, paper 50Mn plus
pixels Limited duplication, transmission Analog Hard, Real Key
Players Kodak, Agfa, Fuji, also Canon Companion Paradigms: Film and
film reels, Movie Production, Projection Digital: Complements are
PC, WWW, Email Number of pixels growing Duplication Digital Soft,
Virtual Key Players Canon, Sony, Minolta, and perhaps Kodak
Companion Paradigms: Editing, Visual arts, Movie Production
Slide 12
Key photography elements of product/service/delivery Relative
Value PriceResolutionFeatures Immediate Viewing Image Sharing
Digital
Slide 13
Camera Film Image Taken Slides Developing Negatives Prints
Slide Album Photo Album Consumer Re-purchase Cycle Traditional Film
Image Lifecycle Frequent re-purchases Photographic Process Digital
vs. Film Paradigm
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Imaging Equipment Imaging Media Imaging Transfer Imaging
Storage Imaging Display Canon Nikon Kodak Olympus Minolta Polaroid
Traditional Industry Players Digital Industry New Players Sony H-P
Kodak film Fuji film Agfa film Kodak Chemicals Kodak Paper Fuji
Paper Various Album Manufacturers SanDisk Sony Intel Toshiba
Microsoft Software Adobe Software Kodak Software Dell Software H-P
Printers / Ink Epson Printers / Ink Lexmark Printers / Ink Ofoto
online H-P paper CVS.com AH.com CD-ROMs PC Manufacturers Mobile
Phones Palm Pilots / PDAs Imaging Equipment Imaging Media Imaging
Transfer Imaging Storage Imaging Display Imaging / Photography
Value Chain
Slide 15
Cameras Old versus New Paradigm Razor Blade Polaroid Dead and
Kodak out of the Dow (DJIA) Movie Theaters and Hollywood next?
Film, Paper and Album replaced by Digital ..and WWW and Email What
is Next ?
Slide 16
Kodak Options Majority of Kodaks revenues come from sales of
films not 35MM cameras, and digital cameras do not use any film.
How difficult for Kodak to give up its cash cow product. The
economics of traditional photography are much more attractive for
35MM producers than those of digital. A constraint on Kodak?
Finally, given that Kodak supports a vast organization on the basis
of film sales, and that digital wont yield profits for some time to
come, how will this 35MM competency will be supported in lieu of
film sales.
Slide 17
Patents, Strategic Alliances, Joint Ventures..
Slide 18
Approached digital photography as a threat to its core business
Saw cannibalization of existing film-based business Focused on
current consumer behavior vs. emergent technologies (Paradigm
Hugging) Focused on traditional film competitors (e.g. Fuji) Kodaks
Response to Digital Disruption
Slide 19
Before December 2001: Kodaks organization was organized by
end-user market The work of digital champions had to be divided
among the various segments rather than as a unified strategy
Besides having the difficulty of charging one group with the
responsibility to develop Kodaks digital strategy, simple funding
for R&D efforts would be divided among the existing segments
Given this structure, digital imaging was a threat to the
established paradigm and its owners
Slide 20
Kodaks Prospects Kodak is not the leader it once was; its core
competencies in paper and film have become core rigidities The
photography market is likely to be much more fragmented As we will
see on June 13, we need a dedicated integrated business unit for
new paradigm to overcome core rigidities
Slide 21
From Industry Inertia to Firm Inertia How do firms become
trapped in their learning curve Core competencies and core
rigidities
Slide 22
So far lessons: 1. Death of Dominant Design Firm versus its
environment Innovations Inertia and Paradigm Huggers 2. Unlocking
the Firm or Industry from Old Paradigm Photography Industry
Slide 23
Strategy and Innovation Part I, Day 2 Kodak, Polaroid Industry,
Sector Evolution and Inertia Part II, Day 2 Core Rigidities and
Competencies Firm Inertia Gunfire at Sea Part III, Day 2 Ab und
Aufbauen or Reinventing the Firms strategy
Slide 24
Overcoming Inertia Gunfire at sea: firm-specific obstacles for
shedding the old S curve Steps towards a new paradigm
Slide 25
Established firms and Innovation Firms are locked into a
dominant design Its departments, career paths, customer base and
suppliers share in the dominant design that has become the standard
Dilemma of being entrapped by tangible and intangible, mindsets and
values, whose platform you need to move on.
Slide 26
Core Competencies Knowledge human capital social capital
technical systems Managerial systems knowledge creation and
recycling Culture (norms and values)
Slide 27
Core Rigidities (as distinct from core competencies) Competency
Traps NE Strategy Disruptive Technology Forgetting Difficulties Old
skills get in the way (Cobol vs C++) Learning Mandarin while you
speak already Cantonese Competencies to create New Competencies
Dynamic capabilities
Slide 28
Strategy and Innovation Part I, Day 2 Kodak, Polaroid Industry,
Sector Evolution and Inertia Part II, Day 2 Core Rigidities and
Competencies Firm Inertia Gunfire at Sea Part III, Day 2 Ab und
Aufbauen or Reinventing the Firms strategy
Slide 29
U.S Navy and Continuous Firing
Slide 30
Gunfire at Sea What is meant by They are holding the horses?
Why gunnery as case study? What is that gunnery innovation? What
was Sims motivation? How did this motivation differ from Scotts Why
did the Navy resist Sims efforts? Identify some core rigidities.
What remedies?
Slide 31
What is here the Innovation Old Paradigm Close proximity Poor
hit rate Risk of black eye New Paradigm Telescope mounted on sleeve
such that it could move Gear ratio 3000% Improvement
Slide 32
Gunfire at Sea:take-away Innovation not due to R&D but
creative use of existing technology Continuous aim gunfire due to a
chance event and a driven person who was maverick, prepared to
break rules Tyranny of past success entraps the organization (core
rigidities) Resistance to change is society-wide Role of leadership
in unlocking system
Slide 33
Strategy and Innovation Part I, Day 2 Kodak, Polaroid Industry,
Sector Evolution and Inertia Part II, Day 2 Core Rigidities and
Competencies Firm Inertia Gunfire at Sea Part III, Day 2 Ab und
Aufbauen or Reinventing the Firms strategy
Slide 34
Basic Templates of Organization Design Templates, Structure,
Governance, Form Functional and Divisional
Slide 35
Two Templates Function Business
Slide 36
Organization Structure Functional (F-form) is attractive: ease
of supervision maximum specialization in occupational skills But,
has drawbacks: conflict prone free ridership performance
responsibility difficult to define do not produce general manager
Divisional (M-form) is attractive: simplifies coordination creates
client responsiveness accountability of performance do-ers decide
But has also drawbacks: duplication of effort creates superficial
skills competition between business units Note Newer Types such as
Matrix, Corrupted Divisional and Network
Slide 37
SalesServiceFinance NewCars UsedCars Service
FinanceServiceSales NewCars UsedCars Trucks Matrix
FunctionalDivisional Corrupted Divisional NewCars Service UsedCars
Trucks Network or Spaghetti CEO
Slide 38
Network Theory: two schools of thought Cohesion: dyad
communication with the primary group and its closest confidants,
attraction social proximity due to physical proximity inducing
similarity Sherif, Schachter, Festinger: reduction of ambiguity;
Lazarsfeld :voting Structural Equivalence: social system
competition and relative deprivation within a status- set with the
nearest rival compare a menage a trois, the laughing third physical
proximity providing alters for whose evaluation affection etc. ego
competes similarity due to effort to eliminate relative deprivation
Burt: adoption to avoid embarrassment, to acquire legitimacy:
Slide 39
Slide 40
Three Forms of Capital an MGI Post-script Financial Capital
($$$$) Human Capital (skills, training, experience, looks) Social
Capital (networks, channels, alliances) all three contribute to
performance and innovation
Slide 41
A Communications Network 1 2 3 4 5 6 7 8 9 10 11
Slide 42
Why Worry about Networks? Access to know-how, contacts,
resources Unique combinations of network benefits yield opportunity
Network ideas operate within and across organizations Expand size
of radar screen and make you detect technological discontinuities,
emergent markets, new designs.
Slide 43
Internal Circulation of Knowledge Job Rotation
Boundary-Spanning Roles Information Technology(email, intranet)
Social Networks
Slide 44
External Circulation of Knowledge Strategic alliances Equity
JVs, licensing, minority participation, R&D partnerships, etc.
Consortia
Slide 45
You Network A You Network BNetwork C You Strategic Network
Expansion
Slide 46
The Social Structure of Competition A YOU B D C Structural
Holes Filled by You Redundant contact Non-redundant contact
Slide 47
Spider and its Net
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Osama Bin Laden and his network?
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Network of Countries linked by Footballers Movements
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Complete Network
Slide 51
Smallness due to Hub: in this vast network we sense our own
little world WWW The Internet Airline networks Mobile phone
networks Sexual-contact networks Food web
Slide 52
Smallness due to shortcut Social networks E.g.) A flight
attendant for Air Canada played a key role in spreading AIDS among
homosexuals who were locally isolated in several regions. Neural
networks
Slide 53
Random shortcuts Often, social contact is not constrained by
physical distance. E.g.) Spam mail, Viral marketing, Internet chat
room, & Internet auction
Slide 54
The Watts Strogatz Model No shortcutsLots of Shortcuts
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Communication Technologies and Shortcuts Instant messaging
E-mailChat room No or few shortcuts Lots of shortcuts
Slide 56
Cumulative distributions of market share difference by Entry
Time
Slide 57
Strategic Implications for Innovation and Change Networks with
few or no shortcuts An entrant with large resources can attempt to
win the market by offering an incompatible paradigm Change agents
in a firm can seek to break away the firm form legacy
Slide 58
Some other key concepts Networking Structural Holes Network
surrounding some individual, an entrepreneur like Bill Gates,
Ellison, Karl Rove Tipping Point
Slide 59
Why Worry about Networks? Access to know-how, contacts,
resources, serendipity Network ideas operate within and across
organizations BA&H mcc Expand size of radar screen
Slide 60
Internal Circulation of Knowledge Job Rotation
Boundary-Spanning Roles Information Technology(email, intranet)
Social Networks
Slide 61
External Circulation of Knowledge Strategic alliances Equity
JVs, licensing, minority participation, R&D partnerships, etc.
Consortia
Slide 62
Connecters make Links What endows a a person, a firm with
Social Capital? How do we measure Social Capital?
Slide 63
Networking Person, Firm or Market Tipping Point in market
(craze, fad, herd, bandwagon) due to: Connector> schmoozer,
bundler Maven> reservoir or pool of know how to be linked
Salesperson> motivator
Slide 64
Chemical Patents (chemical firms only) Networking, based on
joint ventures Firms with non-redundant joint ventures Firms with
redundant joint ventures Joint ventures are beneficial, but some
are more beneficial!
Slide 65
Groups What is the New Structure of Oticon? Firm drop the
Matrix Structure and Adopts a Spaghetti Structure Do you like what
you see? Why would that noodle structure fail?
Slide 66
Internal Newtorks Oticon and Foss
Slide 67
SalesServiceFinance NewCars UsedCars Service
FinanceServiceSales NewCars UsedCars Trucks Matrix
FunctionalDivisional Corrupted Divisional NewCars Service UsedCars
Trucks Network or Spaghetti CEO
Slide 68
Internal or External Hybrid Firm AFirm B
Slide 69
Oticon Manufacturer of hearing aids Paradigm shift from
behind-the-ear to in- the-ear (innovation with a 1 cm travel)
Oticons miniaturization competencies were becoming obsolete, locked
in a trap.
Slide 70
Discussion Questions READ: Oticon Oticon Strategy involves a 1
cm journey (moving from Out to In-the- Ear hearing aids) by
crafting the spaghetti design: what is that new organization? Do
you like what Kollind, the CEO accomplished? Would the spaghetti
design work for EPCD? Why do you think did Oticon abandon the
spaghetti structure in 1998 and move back to a matrix design?
Slide 71
Spaghetti Structure at Oticon (1) What idea behind this
structure? Where would this structure work well? Where would this
structure not work well? Firms with strong cost control needs Large
Firms Firms whose employees do not share strategic vision
Slide 72
Oticon (2): Spaghetti as Structure JV with Firm B Project Teams
with Cross Functional Backgrounds Subcontractors
Slide 73
Oticon Story Spaghetti structure has structural ambiguity
Knowledge-centers connected by links in non- hierarchical way Jobs
fit the persons Free market forces New building, no walls
Paperweight (only two layers), flat project organization Multi-job
(multi projects and skills) with knowledge transfer Delegation of
rights to make decisions
Slide 74
Oticon Story Balance chaos of skill mixing and coherence of
projects: Project organization New ICT system (hypertext) Physical
walls, fixed workplace eliminated Corporate values of
responsibility and freedom Produced effects Old ideas returned, new
ideas emerged
Slide 75
Other Elements of Oticons (6) New Design Tasks Anything goes
Informal Arrangements Culture (creed, wheeled furniture), chaos
Networks, job banks P&P Oversight, PA People Computer
illiterates Paradigm huggers and loose canons
Slide 76
Oticon (7) : Organizational Change and Results * * Dk is
approximately .11
Slide 77
Demant Hldgs (Oticon Owner)
Slide 78
Oticon Story(Post Mortem2): contrasting ways to produce
innovation and profits Market versus Hierarchy (or Firm) Capitalism
vs Socialism Transaction versus Coordination Costs Haggling,
(bargaining) versus Shirking and Free Ridership Hierarchy: dilemma
of delegation: too much or too little empowerment
Slide 79
Oticon Story (PostMortem3) Co-location of knowledge with
decision and income rights Transparency Major AGENCY problem:
Decision rights (begin, ratify implement or track projects) and
P&P (Project and Product) Committee Get all the elements to fit
at same time Return to Matrix structure in 1998
Slide 80
Oticon Story (PostMortem4) Failure of Spaghetti structure:
Mis-Allocation of competencies Get rid of promotion ladders Get rid
of special skills Coordination problems Knowledge hoarding
Politicking Impossibility of selective intervention by boss
Slide 81
S Matrix FunctionalDivisional Corrupted Divisional Network or
Spaghetti CEO Oticon 1986 1998
Slide 82
Oticon Story(final 1) Co-location of knowledge with decision
and income rights Transparency Major AGENCY problem: Decision
rights (begin, ratify implement or track projects) and P&P
(Project and Product) Committee Get all the elements to fit at same
time Challenge of hierarchy dilemma Return to Matrix structure in
1998
Slide 83
Oticon Story(final 2) Failure of Spaghetti structure:
Allocation of competencies Get rid of promotion ladders Get rid of
special skills Coordination problems Knowledge hoarding Politicking
Impossibility of selective intervention by boss
Slide 84
Selective Intervention and Internal Hybrids: Interpreting and
Learning from the Rise and Decline of the Oticon Spaghetti
Organization Nicolai J. Foss
Slide 85
External Hybrids & Internal Hybrids Market exchanges
infused with elements of hierarchical control Relative Benefits:
Fewer incentive problems Hierarchical forms infused with elements
of market control Relative Benefits: Fewer layoffs needed
Slide 86
The Oticon Spaghetti Organization Internal Hybrid introduced to
allow radical changes Only 2 layers left in hierarchy Managerial
team Projects Decision rights widely allocated (or so it seems!)
Any individual can start a project and work on as many projects as
he/she wants (at least 3!)
Slide 87
The Oticon Spaghetti Organization (contd) New high powered
incentives introduced (Stock ownership plan) Lead to increase in
innovatiness new products introduced product development time 50%
reduced Still, the S.O was abandoned after a few years. Why???
Slide 88
Where did the designers of the S.O. fail? Oticon only
recognized the benefits of this internal hybrid!
Slide 89
MarketHierarchy Costs of Markets Costs of Hierarchy Total Costs
Spaghetti O.Matrix O. JV
Slide 90
Potential problems with the S.O. Allocating competence
Elimination of tournaments Sacrificing specialization advantages
Coordination Knowledge sharing Leadership => All of these may
have contributed to the failure, but not likely to be the main
cause
Slide 91
Real Problem Selective intervention: Managerial meddling with
delegated rights Managers can overrule selectively the decision to
start a project => loss of motivation Present in all hierarchies
but especially in very flat organizations How could this have been
avoided? Credible commitment to non-interference (by being
rationally ignorant or making it harmful to themselves to
intervene)
Slide 92
Discussion points (contd) Wasnt a spin-off a viable option? Was
the success caused by the implementation of the S.O. or by the
shake-up it caused? Was the S.O. a failure? Why wasnt the design
adapted instead of abandoned? Can this ever work? Is selective
intervention the real reason for failure? What about the other
problems mentioned?
Slide 93
Discussion points (contd) Couldnt selective intervention be
avoided by putting a different system in place to initiate or
ratificate a project? What alternatives were there to get out of
the competence trap the organization was in?
Slide 94
Wrap Up Firms want to introduce market like conditions within
the firm (e.g., incentive compensation, and project autonomy) to
stir up the innovation pot Firms often reach out to other firms to
combine their assets with those of others for innovation(e.g. joint
venture, outsourcing) yet maintain managerial oversight
Slide 95
Oticon Postscript and Move into Day 3 Spaghetti Structure
failed Matrix was re-instated Other possible hybrids? Internal
:Matrix, or Parallel Structures External JV Ambidexterity: the
paradox of overcoming inertia and joining the new thing
Slide 96
TUM Strategic Management of Innovation: Day 3 Ambidexterity
Three Examples of Internal Structure, Strategy and Innovation: Ely
Lilly: Matrix 3M: Intrapreneurs as strategy makers Hermes Systems:
Create New Departments Do you like Hermes Entrepreneurial
Subsidiaries: Before the buy-out After the buy-out Booz Allen How
to dismantle old structure, cretae new networks, to implement
innovations Prepare in Groups for Day 4
Slide 97
Second Day Industry and Firm Inertia: Kodak, US Navy
Organization Design and Innovation: Ambidexterity, Foresight and
Hindsight, Oticon