Organizing for Innovation

Point Summary

Books and Articles

Henry W. Chesbrough and David J. Teece, “When is Virtual Virtuous?,” Harvard Business Review, January, 1996.

The authors argue that the virtual corporation has been oversold. Innovation is not monolithic, and it is critically important to understand the type of innovation in question. For some innovations, joint ventures, alliances, and outsourcing can play a useful role. But for others, they are inappropriate--and strategically dangerous.

Clayton Christensen and Michael Overdorf, “Meeting the Challenge of Disruptive Change,” Harvard Business Review, May 2000.

As a company grows, what it can and cannot do becomes more sharply defined in certain predictable ways. The authors have analyzed those patterns to create a framework managers can use to assess the abilities and disabilities of their organization as a whole.

George S. Day and Paul J. H. Schoemaker with Robert E. Gunther, Wharton on Managing Emerging Technologies. New York: Wiley, 2000.

George S. Day and Paul J. H. Schoemaker, “Avoiding the Pitfalls of Emerging Technologies,” California Management Review, Spring, 2000.

Despite their superior resources, incumbents have a poor track record in developing and managing emerging technologies. Established firms are prone to delay participation and stick with the familiar too long. Even if these pitfalls are sidestepped, incumbents are often unwilling to make a full-fledged commitment and find it difficult to persist in the face of uncertainty and adversity. Some established firms have been able to avoid these pitfalls by: attending closely to signals from the periphery of their markets; investing in a learning capacity so there is a diversity of viewpoints that challenge prevailing mind-sets and myopic views of new ventures; maintaining their flexibility by adopting a real options perspective, which lets the firm make informed investments when the time is right; and organizationally separating the fledging initiative pursuing the emerging technology from the mainstream activities

Gary Hamel, “Bringing Silicon Valley Inside,” Harvard Business Review, September 1999.

In Silicon Valley, ideas, capital, and talent circulate freely, gathering into whatever combinations are most likely to generate innovation and wealth. Unlike most traditional companies, which spend their energy in resource allocation--a system designed to avoid failure--the Valley operates through resource attraction--a system that nurtures innovation.

Andrew B. Hargadon, “Firms and Knowledge Brokers:  Lessons in Pursuing Continuous Innovation,” California Management Review, Spring 1998.

A set of firms exists whose output consists solely of innovative solutions to novel problems, and whose long-term success depends on their ability to continuously innovate. These firms act as knowledge brokers, spanning multiple industries to innovate by transferring knowledge from where it is known to where it is not. They are often consultants to clients in a range of markets, but are also groups within a large organization that serve a range of otherwise independent divisions. Rather than producing breakthroughs in any one technology or dominating any one industry, knowledge brokers rely on an alternative but equally powerful strategy that lends itself to continuous innovation. These firms create new products and processes by combining existing technologies in ways that result in dramatic synergy. This article presents a theory of innovation through knowledge brokering that explains the actions and advantages of such firms, and it considers the lessons these firms can offer to others seeking to innovate. 

Charlan Nemeth, “Managing Innovation: When Less is More,” California Management Review, Fall, 1997.

An analysis of many highly successful and "visionary" companies reveals the existence of corporate cultures that emphasize adherence to company goals and cohesiveness within the group. While such cultures can improve effort, morale, and productivity, they also tend to thwart innovation--limiting not only the expression of "original" ideas, but even their production. Research in social psychology suggests that flexibility to changing circumstances and innovation is better served by a "culture" that not only tolerates, but welcomes dissent and minority views. Such dissent--even when wrong--stimulates better decision making and innovation. Thus, the proper harnessing of dissent may provide a mechanism for creating unity without uniformity and for igniting the "spark" of innovation.

Otis Port, “Back to Basics,” Business Week, June 16, 1989, pp. 14-18. 

With 15 million companies, 5.5 million scientists and engineers, and almost twice as much spent each year on research and development as Japan and Germany combined, the US should be unbeatable.  Unfortunately, each new US invention is often just another opportunity for a foreign rival to out-innovate a US company in producing it.  The crux of America's problem is manufacturing - translating ideas into products.  The Japanese have become masters at developing a constant barrage of incrementally better products.  US managers impose financial guidelines on researchers that force them to go for the large innovations, rather than the small improvements, in order to meet the high payback expectations on capital investment.  More US products are being designed with manufacturability in mind, and many firms are forming research consortiums.  Organizing for innovation means flattening the hierarchy, giving more responsibility to the lower levels, and scuttling discipline-oriented departments in favor of ad hoc mission-team groups.   

Anarag Sharma, “Central Dilemmas of Managing Innovation in Large Firms,” California Management Review, Spring, 1999.

Based on a multi-year field study of internal ventures in several established firms, this article highlights the central dilemmas that confront innovation from concept to commercialization. The chief difficulties in generating innovation arise from five key dilemmas encountered in locating, seizing, and then methodically navigating creative sparks through the maze and haze of large organizations. To systematically address these dilemmas, firms must endeavor to integrate their entire innovation effort. Three overarching themes are useful for understanding how to holistically manage the dilemmas of innovation in large firms: Strategic Envelope, Strategic Pacing, and Strategic Partnerships.  

Paul Strebel, “Organizing for Innovation over an Industry Cycle,” Strategic Management Journal, Mar/Apr, 1987,  8(2), pp. 117-124.

It is argued that a gap tends to develop over an industry's life cycle between potential innovators in a company and the dominant company culture.  The nature of the gap is explored by contrasting the different types of innovation needed for longer run survival during an industry's evolution, with the disposition of mainstream corporate organization toward innovation.  As a result of the growing innovator/company culture gap, successful organization for innovation, it is argued, will require greater decoupling from the organizational mainstream over the industry life cycle.  This hypothesis is used to predict which of 4 popular organizations for innovation (widespread team competition, independent task forces, simulated entrepreneurship, and organizational spin-offs) is most suited to each stage of an idealized industry's evolution, based upon its fit with the dominant corporate culture and the type of innovation required.  The predicted organization set is discussed in terms of well-known cases and tested using executive survey data.

Michal Tushman and David Nadler, “Organizing for Innovation,” California Management Review, Spring 1986.

In today's business environment, there is no executive task more vital and demanding than the sustained management of innovation and change. Rapid changes in the marketplace make it essential to think in terms of the future. This article discusses the various types of innovation and focuses on how to organize for today's work while managing for tomorrow's innovation. It also deals with the role of leadership-specifically, the relationship between executive leadership and innovation.

Harvey E. Wagner, “The Open Corporation,” California Management Review, Summer, 1991.

This article describes a corporate structure for fostering and marketing high-technology innovations. This structure occupies a middle ground between large companies and small start-ups. It is the "open corporation," a non-bureaucratic organization that focuses on identifying entrepreneurially minded engineers and scientists, teaching them how to build businesses that respond to market needs and connecting them to sources and users of innovation. The "product ' of the open corporation is a continuous stream of new enterprises that have a profoundly different character from those created by venture capital.

Case Studies

Tim Craig, “Achieving Innovation Through Bureaucracy:  Lessons from the Japanese Brewing Industry,” California Management Review, Fall, 1995.

During the 1980s, external changes that affected demand for beer in Japan caused Japan's four major brewers to shift to product strategies featuring a heavy emphasis on new product development. This article focuses on the implementation of those strategies, that is, the building of organizational capability to carry out new product development successfully. It examines organizational weaknesses and obstacles that blocked product development, as well as measures taken and organizational arrangements instituted to overcome resistance and support innovative product development. The building of "local" capability-in the units specifically in charge of product development-is a necessary but insufficient condition for successful new product development; support from the broader organization is required as well. The article also shows how the Japanese brewers, rather than eliminating bureaucracy, creatively used "bureaucratic" means such as formal working arrangements, systems, and procedures to foster and support innovation.

David B. Yoffie and Michael A. Cusumano, “Building a Company on Internet Time:  Lessons from Netscape,” California Management Review, Spring 1999.

This article draws lessons from Netscape, the fastest growing software company in history. Netscape executives did four big things right: they crafted a compelling but pragmatic vision; they made experience a top priority in hiring staff; they built big-company resources while maintaining small-company flexibility; and they successfully leveraged external resources in order to compensate for the company's small size. At the same time, company leaders made mistakes: They overestimated the pace of technological change, they failed to develop systematic strategic processes until it was almost too late, and they often sacrificed long-term value in favor of short-term cash. Despite these failings, Netscape built a successful organization that ultimately delivered $10 billion in value to their shareholders after only four years.