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Organizational learning types – According to Jones (2004), the two types of organizational learning are exploration and exploitation (p. 376).
To quickly find a term within this wiki, press the CTRL button at the same time as the F button, and then type in the term you seek in the search box. The references are found at the bottom.
The You Tube, Wikipedia, and Google links below each term will take you to the search engine results for that term to expose the user to more knowledge. Please feel free to recommend new terms related to these topics to innometrics@gmail.com.
WIKOD
Organizational learning types – According to Jones (2004), the two types of organizational learning are exploration and exploitation (p. 376).
Exploration organizational learning - Exploration is the “organizational members’ search for and experimentation with new kinds or forms of organizational activities and procedures” (Jones, 2004, p. 376).
Exploitation organizational learning - Exploitation is the “organizational members’ learning of ways to refine and improve existing organizational procedures” (Jones, 2004, p. 376).
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Organizational learning principles - A learning organization is one that “purposefully designs and constructs its structure, culture, and strategy so as to enhance and maximize the potential for organizational learning to take place” (Jones, 2004, p. 377).
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Organizational learning principles: Personal mastery - “Organizations should empower individuals and allow them to experiment and create and explore what they want” giving “employees the opportunity to develop an intense appreciation for their work that translates into a distinctive competence for the organization” (Jones, 2004, p. 377).
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Organizational learning principles: Mental models - “As part of attaining personal mastery, and to give employees a deeper understanding of what is involved in a particular activity, organizations need to encourage employees to develop and use complex mental models that challenge them to find new or better ways of performing a task” (Jones, 2004, p. 377-378 ).
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Organizational learning principles: Team learning - According to Davila et al. (2006), “through techniques like dialogue and skillful discussion, teams transform their collective thinking, learning to mobilize their energies and ability greater than the sum of individual members' talents” (p. 32).
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Organizational learning principles - A learning organization is one that “purposefully designs and constructs its structure, culture, and strategy so as to enhance and maximize the potential for organizational learning to take place” (Jones, 2004, p. 377).
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Organizational learning principles: Personal mastery - “Organizations should empower individuals and allow them to experiment and create and explore what they want” giving “employees the opportunity to develop an intense appreciation for their work that translates into a distinctive competence for the organization” (Jones, 2004, p. 377).
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Organizational learning principles: Mental models - “As part of attaining personal mastery, and to give employees a deeper understanding of what is involved in a particular activity, organizations need to encourage employees to develop and use complex mental models that challenge them to find new or better ways of performing a task” (Jones, 2004, p. 377-378 ).
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Organizational learning principles: Team learning - According to Davila et al. (2006), “through techniques like dialogue and skillful discussion, teams transform their collective thinking, learning to mobilize their energies and ability greater than the sum of individual members' talents” (p. 32).
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Organizational learning principles: Building shared vision - “Building the ongoing frame of reference or mental model that all organizational members use to frame problems or opportunities and that binds them to an organization” (Jones, 2004, p. 379).
Organizational learning principles: Building shared vision - “Building the ongoing frame of reference or mental model that all organizational members use to frame problems or opportunities and that binds them to an organization” (Jones, 2004, p. 379).
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Organizational learning principles: Systems thinking - “Emphasizes that in order to create a learning organization, managers must recognize the effects of one level of learning on another” (Jones, 2004, p. 380).
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Organizational learning principles: Systems thinking - “Emphasizes that in order to create a learning organization, managers must recognize the effects of one level of learning on another” (Jones, 2004, p. 380).
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Individual learning – “Employees and managers need to do all they can to facilitate the learning of new skills, norms, and values so that individuals can increase their own personal skills and abilities and thereby help build the organization's core competences” (Jones, 2004, p. 377).
Group learning – “Using various kinds of groups-such as self-managed groups or cross-functional teams-so that individuals can share or pool their skills and abilities to solve problems” (Jones, 2004, p. 378).
Organizational learning – “At the organizational level, managers can promote organizational learning through the way they create an organization's structure and culture. (Jones, 2004, p. 379).
Interorganizational learning - “Organizational structure and culture not only establish the shared vision or framework of common assumptions that guide learning inside an organization, but also determine how learning takes place at the interorganizational level. For example, organizations with organic, adaptive cultures are more likely to actively seek out new ways to manage interorganizational linkages with other organizations while mechanistic, inert cultures are slower to recognize or to take advantage of new kinds of linkage mechanisms” (Jones, 2004, p. 379). Interorganizational learning is where one organization imitates other organizations distinctive competences (Jones, 2004). “Similarly, organizations can encourage explorative and exploitative learning by cooperating with their suppliers and distributors to find new and improved ways of handling inputs and outputs” (Jones, 2004, p. 380).
Incremental innovation - "leads to small improvements to existing products and business processes. It can be thought of as an exercise in problem-solving where the goal is clear but how to get there needs to be solved” (Davila, Epstein, & Shelton, 2006, p. 39). “Incremental innovation always firmly embraces the existing technologies and business model. Although some elements may change slightly in the incremental innovation, most stay unchanged” (Davila, Epstein & Shelton, 2006, p. 40-41).
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Semi-radical innovation – “Semi-radical innovation involves substantial change to either the business model or technology of an organization—but not to both. Often change in one dimension is linked to change in the other, although the concomitant change may not be as dramatic or disruptive” (Davila et al., 2006, p. 47). “Any semi-radical change in either the business model or technology always requires some degree of change in the other. However, the change in one element (in other words, either technology or business model) is much larger and more important to the success of the innovation than the other” (Davila et al., 2006, p. 49).
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Semi-radical innovation – “Semi-radical innovation involves substantial change to either the business model or technology of an organization—but not to both. Often change in one dimension is linked to change in the other, although the concomitant change may not be as dramatic or disruptive” (Davila et al., 2006, p. 47). “Any semi-radical change in either the business model or technology always requires some degree of change in the other. However, the change in one element (in other words, either technology or business model) is much larger and more important to the success of the innovation than the other” (Davila et al., 2006, p. 49).
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Radical innovation – “radical innovation results in new products or services delivered in entirely new ways. It can be thought of as an exercise in exploration where there might be something relevant in a particular direction but what will be found is unknown (Davila et al., 2006, p. 39). “Radical innovations include changes to levers in both the technology and business model but usually not to all six levers of innovation” (Davila et al., 2006, p. 41). “Radical innovations usually bring fundamental changes to the competitive environment in an industry” (Davila et al., 2006, p. 51).
Ersatz radical innovation – “Sometimes, companies like Apple combine two semi-radical innovations to create a blockbuster innovation that has a fundamental change in an industry. The effect is like a radical innovation but it is the result of two separate innovations. We call this phenomenon ersatz radical innovation (in other words, a substitute for radical innovation)” (Davila et al., 2006, p. 55). “These two semi-radical innovations—coupled first through semi-radical technology innovation and then through semi-radical business model innovation—had a similar effect as if radical innovation had occurred and the entire industry was changed. However, as with most cases of two-stage semi-radical innovation, the risks, costs, and benefits of the two stages were borne by different groups” (Davila et al., 2006, p. 55).
Disruptive technologies – “The term disruptive innovation focuses on one of the effects of innovation, namely disruption to the competitive landscape, as opposed to incremental, semi-radical, and radical innovations that describe the relative change in the technology and business model elements” (Davila et al., 2006, p. 57). “Disruptive innovation is a broader term that addresses both technology and business model changes. Disruptive innovations include technology-driven innovation (semi-radical technology innovation; upper-right quadrant). It also can mean changes to the business model in a semi-radical business model innovation” (Davila et al., 2006, p. 57).
Value proposition – “Value proposition: What is sold and delivered to the market” (Davila et al., 2006, p. 32). “Changes in the value proposition of the product or service—essentially, what you sell and deliver to the marketplace—may be an entirely new product or service or an expanded proposition for an existing offering” (Davila et al., 2006, p. 32).
Supply chain – “The second element of innovative business model change is the supply chain—how value is created and delivered to the market. Changes to the supply chain are usually “behind-the-scenes,” changes that customers typically do not see. This type of business model change affects steps along the value chain, including the way an entity organizes, partners, and operates to produce and deliver its products and services” (Davila et al., 2006, p. 32).
Target customer – “Changes in to whom you sell—the target customer segments— usually occur when an organization identifies a segment of customers to whom it does not currently direct its marketing, sales, and distribution efforts that would consider its products and services valuable. For example, developers of the nutritional bars originally targeted athletes and extreme sports participants” (Davila et al., 2006, p. 34).
Product and service offerings – “A change to a product or service that a company offers in the marketplace—or the introduction of an entirely new product or service —is the most easily recognized type of innovation because consumers see the changes first-hand” (Davila et al., 2006, p. 35).
Process technologies – “Changes in the technologies that are integral parts of product manufacturing and service delivery can result in better, faster, and less expensive products and services. These process technology changes are usually invisible to the consumer but often vital to a product’s competitive posture. Process technologies also include the materials used in the manufacturing, because manufacturing and materials are intimately connected” (Davila et al., 2006, p. 36).
Enabling technologies – “A third source of technology innovation resides in what we call enabling technology. Rather than changing the functionality of the product or the process, enabling technology enables a company to execute the strategy much faster and leverage time as a source of competitive advantage” (Davila et al., 2006, p. 36).
Integrating the innovation model – “This new model of innovation requires integrating the management of business models and technologies inside the company. But this integration does not always occur. Facing increasingly effective competition, Intel in 2004 was spending billions on developing and commercializing technology innovations but not apparently on business model innovation” (Davila et al., 2006, p. 38).
Learning to act (incrementally) – “This type of learning includes collaborative assessments of how the current systems (including the structure, processes and resources) are working, a development of shared understanding of strengths and weaknesses, and a proactive effort to improve them. This type of learning takes the current strategic objectives as given and does not question them” (Davila, et al, 2006, p. 213).
Quality circles – “where team members brainstorm about making the current manufacturing process better, are a classical example of learning to act.” (Davila, et al, 2006, p. 213).
Learning to learn (radically) – “This type of learning consists of structured processes to assess how well the organization learns and changes. This big picture perspective is critical to ensure that the investments in innovation are yielding maximum return and that the organization is building sustainable innovation. The Learning to Learn cycle questions the current processes as the best way to innovate. By questioning what is pursued and how, the organization is more open to new ideas and taking educated risks (the type of risks that can have large payoffs). At the process level, reengineering does not try to improve the way processes are currently performed.” (Davilla et al, 2006, p. 214).
Systems for delivering value - “These systems reflect what the organization knows by making this knowledge explicit in processes that can be controlled and acted upon, if deviations happen. Learning is embedded in the design of the process and the responses to the deviations” (Davilla et al, 2006, p. 215).
Systems for refining the current model – “The second level at which systems interact with learning is through their own improvement and the improvement of organizational processes. During the execution of a particular project, there is learning about the process itself, which is captured. In other words, there is learning not only about the particular innovation, but also about how the company can improve its innovation processes. Systems here have the purpose of refining processes” (Davilla et al, 2006, p. 218).
Systems for building competencies - “Certain systems interact with learning through their role in building future competencies. Top management oftentimes drives strategic renewal. It asks the questions and comes with novel answers for the design of the company’s strategy. Top management senses the need for a new approach—for lack of current performance or anticipation of future threats to the current model” (Davilla et al, 2006, p. 219-220).
Systems for crafting strategy - “Systems interact with learning to craft the future strategy and business models. Innovation often emerges from unexpected places in the organization” (Davila, Epstein & Shelton, 2006, p. 221). “There are unplanned discoveries that initially may grow outside the span of attention of top management. If the organization does not identify them, they will move and thrive as independent companies (and potential competitors)” (Davila, Epstein & Shelton, 2006, p. 221).
Knowledge management -“Knowledge management systems are important elements to code data and give it a structure that makes it useful throughout the company. These systems rely heavily on information technology. They store particular executions of organizational processes that can help current projects to be more efficient. Their value depends on their design—how easy is to store and retrieve information, how is the database structured—and the discipline of the organization to code learning histories of the projects” (Davila, Epstein & Shelton, 2006, p. 223).
Ignorance management - “Ignorance management is the process of identifying the most important things the team does not know and designing an approach to help reduce that ignorance to a level that allows forward movement. Experiments are great ignorance management tools. They help resolving technological decisions but also business model design. Approximation is another ignorance management tool” (Davila, Epstein & Shelton, 2006, p. 223).
Project roadmap - “Project roadmaps assist management in understanding how different innovation efforts reinforce each other. A roadmap visualizes how the learning in a particular project becomes the basis for a new project. Projects are not isolated efforts that compete against each other as in ranking systems. They form a whole, where learning cumulates to make possible alternatives otherwise unfeasible” (Davila, Epstein & Shelton, 2006, p. 224).
Learning histories - “Learning histories is a term for stories that are specially constructed to uncover the truths about how an organization innovates. Learning histories review past projects, initiatives, and situations to identify in as unbiased way as possible what really happened, what worked, what did not, and what the possible root causes were” (Davila, Epstein & Shelton, 2006, p. 226).
The technology stage - “Early in the lifecycle of an industry, technology innovation often dominates. This is a very fluid stage, where different companies bet on different technologies—a risky environment typically populated by startups. Learning focuses on exploring new technologies and generating new solutions. Learning systems focus on building the capabilities to develop the technologies that top managers have in mind or on crafting new ideas that may radically change the technology” (Davila, Epstein & Shelton, 2006, p. 228).
The performance stage – “After a dominant technology emerges, performance begins to improve quickly. Radical innovation in the underlying technology is still possible but much less likely than in the previous stage. A few companies may still bet on a new technological solution that would radically change the market. But most companies invest in improving the performance of the technology as quickly as possible. At this stage, performance is measured primarily on a single dimension. Competition is often focused solely in this dimension” (Davila, Epstein, & Shelton, 2006, p. 230).
The market segmentation stage – When a product is out in the market, many customers begin to value different dimensions of a product such as price, availability, aesthetics, and style (Davila, et al., 2006). “Now the technology stabilizes and fluidity moves to the market. Customer needs evolve quickly, and new segments appear at a fast pace. The investment in learning moves to develop market knowledge. The winners are those companies that are able to “read” the market and understand the differences across market segments” (Davila, et al., 2006, p. 231).
The efficiency stage – “As market segments stabilize, competition shifts to efficiently create more value to customers—whether in the supply chain, in design, or in marketing. At this stage, efficiency becomes critical, and the winner is the company that becomes more efficient. Winning can happen in this stage via superior learning on how to make a steady flow of incremental innovations” (Davila, et al., 2006, p. 232).
The complementary stage – “In the last stage, the focus shifts to managing complementary. This capability comes from the ability to maximize the synergies among different products and businesses within a company. It also comes from establishing a network of partners that can substantially enhance the value proposition to the customer. Competition shifts from identifying the value proposition for each market segment to managing interactions and complexity” (Davila, et al., 2006, p. 232).
Learning and the innovation rules - “In a healthy innovative company, leadership supports learning and puts in place the systems for it to happen. This includes quick-and dirty diagnostics that are run to provide critical insights into problems and opportunities, as well as more complex learning systems that operate continually to provide feedback and guidance, such as planning tools. Driving innovation into the business mentality requires learning and change” (Davila, et al., 2006, p. 233). “Managing the balance between creativity and value capture requires learning systems. Otherwise, despite best intentions, one always becomes dominant over the other and the correct balance is lost” (Davila, et al., 2006, p. 233). “In addition, innovation networks are fairly dynamic. Managing them requires information and learning to remodel and update the structure. Without learning, the networks become bureaucratic, cumbersome, and ineffective. Many companies that have established strong networks have failed to maintain the levels of learning and change required to keep them current, and the networks have become weak and fallen into disuse” (Davila, et al., 2006, p. 234). “Finally, learning is one of the most important elements in combating organizational antibodies. Preventing the antibodies requires learning systems and activities that allow the organization to differentiate good change from bad change. Otherwise, the organizational antibodies become unselective and they attack and disrupt all change. In that state, innovation is dead” (Davila, et al., 2006, p. 234).
Improving employee decision making – “Organizational inertia and cognitive biases make it difficult to promote organizational learning and maintain the quality of organizational decision making over time. There are several ways in which an organization can overcome the effect of cognitive biases and promote organizational learning and change. It can implement strategies for organizational learning, increase the breadth and diversity of the top-management team, use devil’s advocacy and dialectical inquiry to evaluate proposed solutions, utilize game theory, and develop a collateral organizational structure” (Jones, 2004, p. 391).
Improving employee learning – “At the individual level, managers need to do all they can to facilitate the learning of new skills, norms, and values so that individuals can increase their own personal skills and abilities and thereby help build the organization’s core competences” (Jones, 2004, p. 378). “The goal is to give employees the opportunity to develop an intense appreciation for their work that translates into a distinctive competence for the organization” (Jones, 2004, p. 378). “As part of attaining personal mastery, and to give employees a deeper understanding of what is involved in a particular activity, organizations need to encourage employees to develop and use complex mental models that challenge them to find new or better ways of performing a task” (Jones, 2004, p. 378).
Strategies for organizational learning – “In studying organizational learning, James March has proposed that two principal types of organizational learning strategies can be pursued: exploration and exploitation” (Jones, 2004, p. 376). “Exploration involves organizational members searching for and experimenting with new kinds or forms of organizational activities and procedures to increase effectiveness” (Jones, 2004, p. 376). “Exploitation involves organizational members learning ways to refine and improve existing organizational activities and procedures in order to increase effectiveness” (Jones, 2004, p. 376).
Game theory –“In understanding the dynamics of decision making between competitors in the environment, a useful tool that can help managers improve decision making and enhance learning is game theory, in which interactions between organizations are viewed as a competitive game” (Jones, 2004, p. 391).
Nature of the top-management team – “The way the top-management team is constructed and the type of people who are on it affect the level of organizational learning” (Jones, 2004, p. 394). “The level and quality of organizational learning and decision making by the top management team is also a function of the personal characteristics and backgrounds of team members” (Jones, 2004, p. 394).
Devil’s advocacy – “An organization that uses devil’s advocacy institutionalizes dissent by assigning a manager or management team the role of devil’s advocate. The devil’s advocate is responsible for critiquing ongoing organizational learning and for questioning the assumptions the top-management team uses in the decision-making process” (Jones, 2004, p. 395).
Dialectical inquiry – “Managers have to continuously unlearn old ideas and constantly test their decision making skills by confronting errors in their beliefs and perceptions. Three ways in which they can stimulate the unlearning of old ideas (and the learning of new ones) are by listening to dissenters, by converting events into learning opportunities, and by experimenting” (Jones, 2004, p. 399). “An organization that uses dialectical inquiry creates teams of decision makers. Each team is instructed to generate and evaluate alternative scenarios and courses of action and then recommend the best one. After hearing each team’s alternatives, all of the teams and the organization’s top managers sit down together to cull the best parts of each plan and synthesize a final plan that offers the best chance of success” (Jones, 2004, p. 396).
Collateral organizational structure - “There are several ways in which an organization can overcome the effect of cognitive biases and promote organizational learning and change. It can implement strategies for organizational learning, increase the breadth and diversity of the top-management team, use devil’s advocacy and dialectical inquiry to evaluate proposed solutions, utilize game theory, and develop a collateral organizational structure” (Jones, 2004, p. 390).
Characteristics of innovative companies – “Innovation in some companies is more than a strategy, it’s a way of life—a religion almost. Companies such as Virgin and Southwest Airlines have embedded innovation into their company cultures. “People in organizations, ones that are riding a high due to successful innovation, believe intensely in what they are doing, so much so that the intensity is palpable when you are near them. They are zealous and energetic in espousing their commitment to innovation their processes that surround it" (Davila, et al., 2006, p. 236).
How culture affects innovation – “Layered on top of and spread throughout the organization, a company’s systems and processes are a network of social interactions—the organizational culture. Culture, comprised of unwritten rules, shared beliefs, and mental models of the people, affects the effectiveness of the innovation tools we have described. Culture is not static; it continually evolves. New systems and processes, new symbols and organizational values can be designed to evolve company culture” (Davila, et al., 2006, p. 235-236).
Organizational levers of an innovative culture – “Managers have different levers to create the culture that the innovation strategy needs. These levers locate the company in a position between conflicting goals. The particular position depends on the culture that management wants to create.” These levers are Balanced vs Disequilibria; Stability vs Change; Focused vs Diverse, Disciplined vs Surprising; Proud vs Threatened; Conservative vs Risk-taker; Guidance vs Freedom; Control vs Trust (Davila & et al., 2006, p. 243).
Innovation cultures – “Understanding and managing organizational culture takes on a new dimension when your organization crosses geographical borders. For managers in multinational and global organizations, the challenge of managing the culture to foster innovation begins with the challenge of understanding how local culture affects the values and beliefs people hold, and thus affects how they think, behave, and contribute. It is important to be aware that a person’s cultural background has a fundamental impact on how he or she responds to organizational culture” (Davila, et al., 2006, p. 250).
Culture and the innovation rules – “Culture is not static; it continually evolves. New systems and processes, new symbols and organizational values can be designed to evolve company culture” (Davila, et al., 2006, p. 236).
Recruiting to build an innovative organization – “To foster innovation in your organization, you need to attract and recruit people who will be innovative. While it may be true that some people are more naturally innovative than others, it is the interplay between the person and their environment that will ultimately determine their level of innovativeness” (Davila, et al., 2006, p. 253). It is the culture that helps a person to become innovative and not under or over challenged.
The role of senior management in innovation – “An aspiration that challenges the complacency and demands the organization to go beyond its current performance; to search, create, and surprise the customer.A vision that tells the organization where it is going. A leadership commitment in terms of resources. An innovation strategy and a set of processes and management systems to support the strategy. Leadership by example. A clear sense of command. A culture receptive to new ideas and change” (Davila, et al., 2006, p. 257).
Evaluate the relationship between change and innovation – “Rarely does a technology change occur without also causing a change in business processes (what and how value are delivered to whom)” (Davila, et al., 2006, p. 30).
Intrapreneurship – Intrapreneurs are “employees who notice opportunities for either quantum or incremental product improvements and are responsible for managing the product development process to obtain them” (Jones, 2004, p. 409). The support of and system designs for intrapreneurship will aid an organization with innovation and creativity while preventing the possibility of intrapraneurs becoming entrepreneurs by starting their own separate companies.
Evaluate the role of technology in creativity and innovation – “It has been estimated that only 12 to 20 percent of R&D projects result in products that get to market. Thus, while innovation can lead to change of the sort that organizations want—the introduction of profitable new technologies and products—it can also lead to the kind of change that they want to avoid—technologies that are inefficient and products that customers don’t want” (Jones, 2004, p. 403). New technology and advancement of ideas results in innovation and vice versa. Identifying the need for something new and different leads to examining current and future technology that makes meeting those needs as efficient as possible. “To attract new customers, managers are trying to outdo each other by being the first to market with a product that incorporates a new technology or that plays to a new fashion trend. Creativity is nothing more than going beyond the current boundaries, whether those boundaries are technology, knowledge, social norms or beliefs” (Jones, 2004, p. 408).
Innovation and information technology - “Information efficiencies, the cost and time saving that occur when IT allows individual employees to perform their current tasks at a higher level, assume additional tasks, and expand their roles in the organization due to advances in the ability to gather and analyze data. The ability of IT to enhance a person’s task knowledge and technical skills is also an important input into the innovation process, however. In fact, IT facilitates the innovation process because it promotes creativity in many ways and affects many aspects of the process of bringing new problem-solving ideas into use” (Jones, 2004, p. 422).
Innovation and information synergies - “In fact, one of the most important performance gains that result from IT occur when two or more individuals or subunits pool their resources and cooperate and collaborate across role or subunit boundaries, creating information synergies. Information synergies occur when IT allows individuals or subunits to adjust their actions or behaviors to the needs of the other individuals or subunits on an ongoing basis and achieve gains from team-based cooperation. IT changes organizational forms and promotes creativity and innovation inside both network and virtual organizational forms. IT-enabled virtual forms composed of electronically connected people or firms facilitate knowledge sharing and innovation. Compared to face-to-face communication, for example, the use of electronic communication has increased the amount of communication within the organization. IT’s ability to link and enable employees within and between functions and divisions— whether through database repositories, teleconferencing, or electronic mail—helps lead to information synergies. The application of IT has been shown to promote cross-functional workflows, makes critical information more accessible and transparent to employees, and increases the incidence of problem-solving leading to innovation” (Jones, 2004, p. 423).
IT, organizational structure and culture - “IT also affects the innovation process through its many effects on organizational structure. Specialization typically leads to the development of subunit orientations that reduce the ability of employees to understand the wider context within which they are contributing their skills and expertise. IT can mitigate this tendency by providing greater information access to specialists through such technologies as e-mail, corporate intranets, access to the Internet, and so on. To speed innovation, many organizations have begun to move decision making lower in the organization to take advantage of specialized workers who possess more accurate and timely local information. IT helps this process in two ways. First, IT gives lower-level employees more detailed and current knowledge of consumer and market trends and opportunities. Second, IT can produce information synergies because it facilitates increased communication and coordination between decentralized decision makers and top managers. Third, IT means that fewer levels of managers are needed to handle problem-solving and decision-making, which results in a flatter organization. In addition, since IT provides lower-level employees with more freedom to coordinate their actions, information synergies may emerge, as employees experiment and find better ways of performing their tasks. IT can also promote innovation through its effects on organizational culture. IT facilitates the sharing of beliefs, values and norms because it allows for the quick transmission of rich, detailed information between people and subunits. IT thus can enhance the motivational effects of cultural values supportive of innovation” (Jones, 2004, p. 425).
Systems and processes - “Having examined strategy in innovation and the various options for structuring your organization to best enable innovation to thrive, systems are the next important elements to be considered. The decisions you make on strategy will guide where you focus your innovation efforts. The structure you put into place will act as foundation for the innovation process. However, even with the proper strategy and structure in place, innovation could fail if your systems are inadequate. It is the management systems that are the mechanisms that to a great extent will make innovation happen. Innovation systems are established policies, procedures, and information mechanisms that facilitate the innovation process within and across organizations. They are the mechanisms by which innovation (and the other tasks of organizations) gets done. They determine the shape of daily interactions and decisions of staff: the order in which work happens, how it is prioritized and evaluated on the daily level, and how different parts of the organization use the organizational structure to communicate. For innovation to happen successfully, there needs to be an explicit process in place to manage all the steps of innovation—from design, to measurement, to reward” (Davila et. al, 2006, p. 119).
Choosing and designing innovation systems - “Innovation can be envisioned as a flow that starts with many and ends up with a few—a multitude of great ideas are created and are windowed, selected, and refined until only the few best are brought forward to commercialization. At the beginning of the process, a lot of ideas float around; it is the creative phase, and more ideas are developed than can or should be used. As ideas progress through the funnel, the process rejects some ideas (they leave the funnel) and continues to evaluate others (they move forward). Ideas move through the selection process until those that are selected receive a major resource commitment and move to the execution stage. Those ideas that become intellectual property move to the value creation stage. At the far end, the funnel grows larger again reflecting that value creation should be maximized for the intellectual capital that has been developed (in other words, via application to more than one product or cross-licensing). The first stage where management systems play a role is in ideation: generating ideas and moving them across the organization to where funding decisions are made. The second stage is the funding decisions themselves, where selected innovations receive initial funding to move ahead or are discarded. The last stage is the execution of the innovation project (commercialization). The creation of value and commercialization of innovations follows a general path from early adoption to maturity” (Davila et al, 2006, p. 125).
Product life cycle – “The product life cycle reflects the changes in demand for a product that occur over time. Demand for most successful products passes through four stages: the embryonic stage, growth, maturity, and decline. In the embryonic stage a product has yet to gain widespread acceptance. In the growth stage many consumers are entering the market and buying the product for the first time; demand increases rapidly. The growth stage ends and the mature stage begins when market demand peaks because most customers have already bought the product. The decline stage follows the mature stage if and when the demand for a product falls. Falling demand often occurs because a product has become technologically obsolescent and superseded by a more advanced product” (Jones, 2004, p. 406).
Innovation cycle - “At the beginning of the process, a lot of ideas float around; it is the creative phase, and more ideas are developed than can or should be used. As ideas progress through the funnel, the process rejects some ideas (they leave the funnel) and continues to evaluate others (they move forward). Ideas move through the selection process until those that are selected receive a major resource commitment and move to the execution stage. Those ideas that become intellectual property move to the value creation stage. At the far end, the funnel grows larger again reflecting that value creation should be maximized for the intellectual capital that has been developed (in other words, via application to more than one product or cross-licensing)” (Davila, Epstein, & Shelton, 2006, p. 125). “The first stage where management systems play a role is in ideation: generating ideas and moving them across the organization to where funding decisions are made. The second stage is the funding decisions themselves, where selected innovations receive initial funding to move ahead or are discarded. The last stage is the execution of the innovation project (commercialization). The creation of value and commercialization of innovations follows a general path from early adoption to maturity” (Davila, et al., 2006, p. 126).
Technology adoption lifecycle – “Composed of 2.5% innovators (more assets, more educated, and risk takers), 13.5% early adopters (younger, educated, leaders), 34% early majority (conservative, open-minded, social), late majority (fairly conservative, less social, less educated, and older), and 16% laggards (very conservative, little assets, little education, and the oldest) (Beal, Rogers, & Bohlen, 1957).
BCG growth matrix – “BCG Matrix divides products into four categories, cash cow, star, question mark (or problem child), and dog. Cash cows are low-growth, high market share products. Stars are high-growth, high market share products, which require investment to become cash cows. Question marks are high-growth, low market shares, a select few of which should receive investment. Dogs are low-growth, low market shares, requiring divesting” (Value Based Management, 2011, para. 1).
Systems for ideation: Seeing the gaps - “Ideas begin with the recognition and understanding that somewhere a gap exists. That gap may be large or small—a new product feature, a new business model element, an improved process technology, or an entirely new business model. Whatever the size and type of gap, innovation depends on the realization that something is missing somewhere in the network that produces value for customers. Because all ideas start with recognition of gaps, all processes for identifying ideas are aimed at creating perspectives that make the gaps and holes visible. Sometimes top management sees the gap. Alternatively, a person in the ranks or a team may identify the gap. The management challenge is to create an environment to nurture the generation of large quantities of great ideas about gaps (without interfering in day-to-day business) and to move the ideas to the next stages in the innovation process. When discussing ideas, it specifically means ideas that address a gap and have the potential of generating economic value. By the way, experience demonstrates that it is easy to generate many ideas—just reward people on the number of ideas they submit, and the suggestion box will overflow. The challenge is to nurture the generation of economically viable ideas and to move a manageable number of ideas through the innovation process” (Davila, Epstein, & Shelton, 2006, p. 127).
Structured idea management – “SIM is prototypical for many idea management processes. Its individual steps are specifically designed to maximize the achievement of three desirable end-goals. (1) Control of the working context/environment to ensure the maximum possible creativity. (2) Use of the best and most rigorous screening mechanisms to ensure the highest quality output. (3) Explicit recognition and protocols for the creative ‘bundling’ or ‘clustering’ of ‘idea fragments’ to create truly breakthrough concepts” (Davila, & et al., 2006, p. 128).
Experimentation - “Experiments provide a probing dynamic into new technical, business, and market spaces Well-designed experiments provide insight and uncover hidden value. Experiments also provide learning that guides the radical innovation process by defining the right questions and suggesting the best answers” (Davila, Epstein, & Shelton, 2006, p. 130). “A radical innovation relies to a larger extent on ongoing experiments that test, refute, modify, and validate potential radical breakthrough concepts” (Davila, Epstein, & Shelton, 2006, p. 130).
Prototyping - “enables you to visualize and understand better where your ignorance exists” (Davila & et al., 2006, p. 131). The three rules of prototyping are to think modularly, fail fast and cheap, and fail often to succeed more quickly. Thinking modularly means building prototypes that address one or two uncertainties. Failing fast and cheaply is building prototypes cheaply and testing them quickly to learn and answer questions, then modify the prototype accordingly. Fail often to succeed faster is a vital approach for continually modifying prototypes until the right answer is found” (Davila & et al., 2006, p. 131). “Prototyping needs to be a core competency of the radical innovation team. The competency of prototyping requires people who are capable of working with and through incompleteness. Building, testing, refining, refuting, and corroborating prototypes are essential activities. They challenge the existing mental models of the team. Uncover patterns of results from which the team can learn. Pull the team together and create a common, shared vision and language. Generate a level of excitement that traditional means cannot equal. Generate new thinking that eventually becomes the radical innovation” (Davila & et al., 2006, p. 132).
Negotiation - “Deal-making positions key persons in the company as the seller and another as the buyer. The transaction is very much of seller and champion taking a deal to the buyer and getting them to “buy in.” At that point, they are in the deal together. They move the deal forward by changing, accelerating, redirecting, leveraging, mortgaging, or otherwise improving the deal to meet their mutual vision. They also might divest themselves of the deal, garnering the available value and using it to make/further other deals in their portfolio” (Davila, Epstein, & Shelton, 2006, p. 133).
Innovation that fits - “A company that knows their core competencies and what to innovate on and around them is a key to successfully fitting innovation” (Davila, Epstein, & Shelton, 2006, p. 134). “A company sometimes will unknowingly limits the innovation opportunities it considers or chooses by assuming too narrow a range of opportunities that could “fit” the company” (Davila, Epstein, & Shelton, 2006, p. 134). “Experience has shown that it is foolhardy and a waste of money and time (possibly even value-destroying) to go into businesses where a company has no relevant competencies or relevant experience. History is littered with the wrecks of those types of investments that did not fit a company” (Davila, Epstein, & Shelton, 2006, p. 134, 35). “The fundamental question are, how close a fit is close enough? Going too far a field is usually a disaster. However, staying too close to the existing is too limiting and loses value creation opportunities” (Davila, Epstein, & Shelton, 2006, p. 135).
Star model - “The first is strategy, which determines direction. The second is structure, which determines the location of decision-making power. The third is processes, which have to do with the flow of information; they are the means of responding to information technologies. The fourth is rewards and reward systems, which influence the motivation of people to perform and address organizational goals. And the fifth category of the model is made up of policies relating to people (human resource policies), which influence and frequently define the employees’ mind-sets and skills” (Galbraith, 2002, p. 9).
Balancing integration with differentiation – “Horizontal differentiation is supposed to enable people to specialize and thus become more productive. However, companies have often found that specialization limits communication between subunits and prevents them from learning from one another. As a result of horizontal differentiation, the members of different functions or divisions develop a subunit orientation—a tendency to view one’s role in the organization strictly from the perspective of the time frame, goals, and interpersonal orientations of one’s subunit” (Jones, 2004, p. 103). “To avoid the communication problems that can arise from horizontal differentiation, organizations try to find new or better ways to integrate functions—that is, to promote cooperation, coordination, and communication among separate subunits” (Jones, 2004, p. 103). “Managers must achieve an appropriate balance between differentiation and integration. Managers facing the challenge of deciding how and how much to differentiate and integrate must do two things: (1) carefully guide the process of differentiation so that it develops the core competences that give the organization a competitive advantage; and (2) carefully integrate the organization by choosing appropriate integrating mechanisms that allow subunits to cooperate and that build up the organization’s core competences” (Jones, 2004, p. 107).
Balancing centralization and decentralization – “Distribution of power, in its vertical dimension, refers to the classic issues of centralization or decentralization (Galbraith, 2002, p. 11). The more variety in a company’s work, the more decentralization it needs (Galbraith, 2002, p. 41). Distribution of power in an organization refers to two concepts. The first is the vertical distribution of decision-making power and authority. This is called centralization or decentralization. As illustrated in Chapter Two, there are pros and cons attached to changes in centralization. These should be weighed and tested against the strategy when choosing” (Galbraith, 2002, p. 22).
Balancing standardization and mutual adjustment - “Standardization reduces the need for managers and extra levels in the hierarchy because rules and standard operating procedures substitute for direct supervision—that is, rules replace face-to-face contact” (Jones, 2004, p. 143). “Standardization is conformity to specific models or examples—defined by sets of rules and norms—that are considered proper in a given situation. Standardized decision making and coordination procedures make people’s actions predictable in certain circumstances. Mutual adjustment is the process through which people use their judgment rather than standardized rules to address problems, guide decision making, and promote coordination. The right balance makes some actions predictable so that basic organizational tasks and goals are achieved, yet it gives employees the freedom to behave flexibly so that they can respond to new and changing situations creatively” (Jones, 2004, p. 112).
Mechanistic organizational structures – “designed to induce people to behave in predictable, accountable ways. Decision-making authority is centralized, subordinates are closely supervised, and information flows mainly in a vertical direction down a clearly defined hierarchy. In a mechanistic structure the tasks associated with a role are also clearly defined. There is usually a one-to-one correspondence between a person and a task” (Jones, 2004, p. 115). “Each person is individually specialized and knows exactly what he or she is responsible for, and behavior inappropriate to the role is discouraged or prohibited” (Jones, 2004, p. 115).
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Organic organizational structures – “Organic structures promote flexibility, so people initiate change and can adapt quickly to changing conditions. Organic structures are decentralized; that is, decision-making authority is distributed throughout the hierarchy, and people assume the authority to make decisions as organizational needs dictate. Roles are loosely defined—people perform various tasks and continually develop skills in new activities” (Jones, 2004, p. 117). “Each person performs all three tasks, and the result is joint specialization and increased productivity. Employees from different functions work together to solve problems and become involved in each other’s activities” (Jones, 2004, p. 117).
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Relationship between strategy, structure, and processes - Strategy specifies the goals and objectives to be achieved as well as the values and missions to be pursued; it sets out the basic direction of the company (Galbraith, 2002, p. 10). The structure of the organization determines the placement of power and authority in the organization (Galbraith, 2002, p. 11). Information and decision processes cut across the organization's structure; if structure is thought of as the anatomy of the organization, processes are its physiology or functioning (Galbraith, 2002, p. 12). “Just as strategy drives the choice of structure, it should help set the priorities here. The bases for lateral processes are the same as the bases for structure, that is, function, product, market, geography, and work flow. If one is chosen for the structure, the other four are candidates for lateral processes” (Galbraith, 2002, p. 97).
Organic organizational structures – “Organic structures promote flexibility, so people initiate change and can adapt quickly to changing conditions. Organic structures are decentralized; that is, decision-making authority is distributed throughout the hierarchy, and people assume the authority to make decisions as organizational needs dictate. Roles are loosely defined—people perform various tasks and continually develop skills in new activities” (Jones, 2004, p. 117). “Each person performs all three tasks, and the result is joint specialization and increased productivity. Employees from different functions work together to solve problems and become involved in each other’s activities” (Jones, 2004, p. 117).
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Relationship between strategy, structure, and processes - Strategy specifies the goals and objectives to be achieved as well as the values and missions to be pursued; it sets out the basic direction of the company (Galbraith, 2002, p. 10). The structure of the organization determines the placement of power and authority in the organization (Galbraith, 2002, p. 11). Information and decision processes cut across the organization's structure; if structure is thought of as the anatomy of the organization, processes are its physiology or functioning (Galbraith, 2002, p. 12). “Just as strategy drives the choice of structure, it should help set the priorities here. The bases for lateral processes are the same as the bases for structure, that is, function, product, market, geography, and work flow. If one is chosen for the structure, the other four are candidates for lateral processes” (Galbraith, 2002, p. 97).
How the environment selects the structure - “The structure of the organization determines the placement of power and authority in the organization. Structure policies fall into four areas, specialization, shape, distribution of power, departmentalization” (Galbraith, 2002, p. 9). “The standard dimensions on which departments are formed are functions, products, work flow processes, markets, and geography” (Galbraith, 2002, p. 9). “The leader’s first organization design choice is the basic structure. This choice process begins with an understanding of the business’s strategy. By matching what is required by the strategy to what is done best by the various structures, the leader can optimize the decision” (Galbraith, 2002, p. 10). “Unfortunately, in the typical situation no one type of structure best fits the business strategy. The decision maker should list the strengths and weaknesses of each structural alternative. The decision maker must also develop priorities for strategic attributes, such as cycle-time reduction or scale of manufacturing. Then the choice of structure can be made for the top priorities” (Galbraith, 2002, p. 10). “If an organization (1) limits itself to producing a small number of similar products, (2) produces those products in one or a few locations, and (3) sells them to only one general type of client or customer, a functional structure will be able to manage most of its control problems. As organizations grow; however, they are likely to produce more and more products, which may be very different from one another. As an organization increases the kinds of goods it manufactures or the services it provides, a functional structure becomes less effective at coordinating task activities. A divisional structure groups functions according to the specific demands of products, markets, or customers. The goal behind the change to a divisional structure is to create smaller, more manageable subunits within an organization” (Jones, 2004, p. 164-167). “In general, the decision that an organization makes reflects the degree of complexity of and difference between its products. An organization whose products are broadly similar and aimed at the same market will choose to centralize support services and use a product division structure. An organization whose products are very different and that operates in several different markets or industries will choose a multidivisional structure. An organization whose products are very complex technologically or whose characteristics change rapidly to suit changes in customer preferences will choose a product team structure” (Jones, 2004, p. 167).
How the structure selects the processes – “The structure of an organization determines the placement of power and authority in the organization” (Galbraith, 2002, p. 11). “Information and decision processes cut across the organization’s structure; if the structure is thought of as the anatomy of the organization, processes are the physiology or functioning” (Galbraith, 2002, p. 12). Structuring of processes can be vertical or horizontal, or both. “Vertical processes are usually business planning and budgeting processes. Lateral processes are designed around the workflow – for example new product development or the entry and fulfillment of a customer order” (Galbraith, 2002, p. 12).
Functional structure – “it is a design that groups people on the basis of their common skills and expertise or because they use the same resources” (Jones, 2004, p.160). “Functional structure develops first and foremost because it provides people with the opportunity to learn from one another and become more specialized and productive” (Jones, 2004, p. 162). “Today, companies are focusing on work flows and creating cross-functional work flow teams to gain speed and reengineer processes. In all simple structures, the designer tries to create an end-to-end task, so that the team has a complete piece of work. In this manner, the team controls most of the factors that influence its performance outcomes. The team can then be independently measured on its performance and held accountable for it. Management can give considerable decision-making power to such a group” (Jones, 2004, p. 60). “Finally, people in a function who work closely with each other over a span of time develop norms and values that allow them to become more effective at what they do. They become team members committed to organizational activities. These commitments may develop into core competencies for the organization” (Jones, 2004, p. 163).
Why functional structures evolve into divisional structures – “If an organization (1) limits itself to producing a small number of similar products, (2) produces those products in one or few locations, and (3) sells them to only one general type of client or customer, a functional structure will be able to manage most of its control problems. As organizations grow, however, they are likely to produce more and more products, which may be very different from one another. When organizations grow these ways, what is needed is a structure that will increase the organization’s control of its different subunits so that they can better meet product and customer needs” (Jones, 2004, p. 190). “When an organization that has a functional structure grows, produces more products, in different locations what it needs is a divisional structure that will increase the organization’s control of its different subunits so that they can better meet product and customer needs. A divisional structure groups functions according to the specific demands of products, markets, or customers. The goal behind the change to a divisional structure is to create smaller, more manageable subunits within an organization” (Jones, 2004, p. 165).
Product divisional structure - “Product structure is a divisional structure in which products are grouped into separate divisions according to their similarities or differences to increase control” (Jones, 2004, p. 167). “The three kinds of product structures: product division structure, multidivisional structure, and product team structure” (Jones, 2004, p. 190). “An organization that decides to group activities by product must also decide how to coordinate its product divisions with support functions like research and development, marketing and sales, and accounting” (Jones, 2004, p. 167). “A product division structure is a structure in which a centralized set of support functions service the needs of a number of different product lines. First, managing complex and diverse value creation activities requires a multidivisional structure, a structure in which support functions are placed in self-contained divisions. Self-contained division is when each division has its own set of support functions and controls its own value creation activities. Each division needs its own set of support functions because it is impossible for one centralized set of support functions to service the needs of totally different products. As a result, horizontal differentiation increases” (Jones, 2004, p. 170). “The second innovation in a multidivisional structure is a new level of management, a corporate headquarters staff, composed of corporate managers who are responsible for overseeing the activities of the divisional managers heading up the different divisions. The corporate headquarters staff is functionally organized, and one of the tasks of corporate managers is to coordinate the activities of the divisions” (Jones, 2004, p. 171). “The third innovation is a product team structure, in which specialists from the support functions are combined into product development teams that specialize in the needs of a particular kind of product” (Jones, 2004, p. 176).
Geographic divisional structure – “When the control problems that companies experience are a function of geography, a geographic divisional structure, in which divisions are organized according to the requirements of the different locations in which an organization operates, is available. As an organization grows, it may develop a national customer base. As it spreads into different regions of a country, it needs to adjust its structure to align its core competencies with the needs of customers in different geographic regions. A geographic structure allows some functions to be centralized at one headquarters location and others to be decentralized to a regional level” (Jones. 2004, p. 179).
Divisional market structure – “A market structure aligns functional skills and activities with the needs of different customer groups. Marketing, not manufacturing, becomes the basis on which the organization establishes divisions” (Jones, 2004, p. 180). “Each group makes use of centralized support functions. Engineering tailors products to suit the various needs of each group, and manufacturing follows each group’s specifications” (Jones, 2004, p. 181).
Matrix structure – “A design that groups people and resources in two ways simultaneously: by function and by product. A matrix structure is both similar to and different from a product team structure. A matrix is a rectangular grid that shows a vertical flow of functional responsibility and a horizontal flow of product responsibility” (Jones, 2004, p. 183). “A matrix structure has four significant advantages over more traditional structures. First, the use of cross-functional teams is designed to reduce functional barriers and overcome the problem of subunit orientation. With differentiation between functions kept to a minimum, integration becomes easier to achieve. In turn, the team structure facilitates adaptation and learning for the whole organization. The matrix’s team system is designed to make the organization flexible and able to respond quickly to changing product and customer needs” (Jones, 2004, p. 185).
Network structure – “A network structure is a cluster of different organizations whose actions are coordinated by contracts and agreements rather than through a formal hierarchy of authority” (Jones, 2004, p. 187). Advantages of network structure, “enables an organization to find a network partner that can perform a specific functional activity reliably, and at a lower cost; permits an organization to contract with other organizations to perform specific value creation activities avoiding high bureaucratic costs of operating a complex organizational structure; allows an organization to act in an organic way . With changes in the environment and new opportunities, the organization can quickly alter its network in response” (Jones, 2004, p. 188).
Organizational design and decision-making -“The organization designer must match the amount of lateral coordination needed to execute a multidimensional strategy with different types and amounts of lateral processes. The management challenge for a functional organization is to coordinate the cross-functional work flow and common contact points with customers, suppliers, and other shared constituencies. This coordination is most easily accomplishes when the company produces a single line of products or services for a single customer type, and when product life and development cycles are long. But the need for lateral coordination will exceed the capacity of the team at the top when a company’s strategies and tasks involve the following: diversity, rapid change, interdependence between functional units, internet connections, and speed” (Galbraith, 2002, p. 9).
Factors affecting the shape of a hierarchy – “Vertical differentiation refers to the way organizational designs its hierarchy of authority and creates reporting relationships to link organizational roles and subunits. Vertical differentiation establishes the distribution of authority between levels to give the organization more control over its activities and increase its ability to create value” (Jones, 2004). “A basic design challenge, is deciding how much authority to centralize at the top of the organizational hierarchy and how much authority to decentralize to middle and lower levels. That authority is the power to hold people accountable for their actions and to directly influence what they do and how they do it. The shape of an organization’s hierarchy- that is, the number of levels of authority within an organization-and the span of control at each level” (Jones, 2004, p. 124). “When there are limits on the usefulness of direct personal supervision by managers, organizations have to find other ways to control their activities. Typically, organizations first increase the level of horizontal differentiation and then decide on their responses to the other design challenges. Keep in mind that successful organizational design requires managers to meet all of those challenges of the level of horizontal differentiation, the level of vertical differentiation, the level of standardization, the level of decentralization, and the strength of the informal ties and relationships that exist between organized members” (Jones, 2004, p. 139).
Principles of bureaucracy - “Principle One: A bureaucracy is founded on the concept of rational-legal authority. Principle Two: Organizational roles are held on the basis of technical competence. Principle Three: A role’s task responsibility and decision-making authority and its relationship to other roles should be clearly specified. Principle Four: The organization of roles in a bureaucracy is such that each lower office in the hierarchy is under the control and supervision of a higher office. Principle Five: Rules, standard operating procedures, and norms should be used to control the behavior and the relationship between roles in an organization. Principle Six: Administrative acts, decisions, and rules should be formulated and put in writing” (Jones, 2004, p. 145).
7 P’s of Marketing - "Once you've developed your marketing strategy, there is a "Seven P Formula" you should use to continually evaluate and reevaluate your business activities. These seven are: product, price, promotion, place, packaging, positioning and people. As products, markets, customers and needs change rapidly, you must continually revisit these seven Ps to make sure you're on track and achieving the maximum results possible for you in today's marketplace" (Tracy, 2004).
Six principles of influence – “Reciprocity, people tend to return favors, and free samples are a popular marketing ploy; commitment and consistency, "if people commit, orally or in writing, to an idea or goal, they are more likely to honor that commitment because of establishing that idea or goal as being congruent with their self image. Even if the original incentive or motivation is removed after they have already agreed, they will continue to honor the agreement; social proof, people decide what is appropriate based on what overs have done or they will do things which they see others are doing; authority, people tend to obey authority figures even when asked to do objectionable acts; liking, people are more easily persuaded by people they like, hence the use of movie stars and athletes in commercials; scarcity, perceived scarcity will stimulate demand, commercials stating that offers are only available for a limited time encourages sales” (Caldini, 2010, para. 7).
Influence of informal organization and culture – “Many of the rules and norms that employees use to perform their tasks emerge out of informal interactions between people and not from the formal blueprint and rules established by managers. Thus, while establishing a formal structure of interrelated roles, managers are also creating an informal social structure that affects behavior in ways that may be unintended” (Jones, 2004, p. 151). “Every organization has an established informal organization that does not appear on any formal chart but is familiar to all employees. The informal organization can actually enhance organizational performance. New approaches to organization design argue that managers need to tap into the power of the informal organization to increase motivation and provide informal avenues for employees to use to improve organizational performance” (Jones, 2004, p. 153).
IT, empowerment, and self-managed teams – “The increasing use of IT has led to a decentralization of authority in organizations and an increasing use of teams. Decentralizing authority to lower level employees and placing them in teams reduces the need for direct, personal supervision by managers, and organizations become flatter. Empowerment is the process of giving employees at all levels in an organization’s hierarchy the authority to make important decisions and to be responsible for their outcomes. Self-managed teams are formal work groups consisting of people who are jointly responsible for ensuring that the team accomplishes its goals and who are empowered to lead themselves” (Jones, 2004, p. 154).
Boundaryless organizations - “The ability of managers to develop a network structure to produce or provide the goods and services their customers want, rather than create a complex organizational structure to do so, has led many researchers and consultants to popularize the idea of the “boundaryless organization.” The boundaryless organization is composed of people who are linked by computers, faxes, computer-aided design systems, and video teleconferencing, and who may rarely or ever see one another face to face. People come and go as their services are needed, much as in a matrix structure, but they are not formal members of an organization, just functional experts who form an alliance with an organization, fulfill their contractual obligations, and then move on to the next project” (Jones, 2004, p. 189).
Lateral coordination - Lateral coordination is [the coordination of cross-functional workflows and common contact points with customers, suppliers, and other shared constituencies, to create and deliver products or services] (Galbraith, 2002, p. 39). It involves matching lateral processes with multi-dimensional strategies to facilitate success. Information and decision making processes that coordinate activities within each organizational unit must be coordinated and matched with the multi-dimensional strategies of the organization. Lateral coordination decentralizes the general management decisions.
Benefits of lateral coordination – According to Galbraith, (2002) “The benefits involve permitting the company to make more decisions, different kinds of decisions, and better and faster decisions” (p. 44). Lateral coordination decentralizes general management decisions it increases the capacity of the organization to make more decisions, be flexible, and be more adaptable to change.
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Five types of lateral processes – “Informal or voluntary lateral processes occur spontaneously. They are the least expensive and easiest form to use. Although they occur naturally, organization designers can greatly improve the frequency and effectiveness of these voluntary processes. E-coordination involves using Internet technology to communicate and coordinate across departments. These electronic links may combine the efforts of people working on a new product using three-dimensional computer-aided design (3D-CAD) or serving the same customer using CRM processes. The next type of lateral process, which requires more time commitment, is the formal group. Teams or task forces are formally created, members appointed, charters defined, and goals set for the cross-functional effort. Formal groups are more costly than voluntary groups because they are the creation of management and do not occur naturally. They require some team building and maintenance for proper functioning” (Galbraith, 2002, p. 45-46). “The fourth level of commitment to lateral processes comes with appointment of integrators to lead the formal groups. At some point, full-time leaders may be required. Leaders may be product managers, project managers, process managers, brand managers, and so on. They are all “little general managers,” who manage a product or service in place of the general manager. They are enlisted because there are many products, new products, and rapid life cycles” (Galbraith, 2002, p. 46). “The last and most difficult form of lateral process is the matrix organization. To create a matrix, the integrator role becomes a line organizational position. The person in the functions who works on the products or project team acquires a second boss. The company then has two line organizations. The matrix is used only when there is a need for a power balance” (Galbraith, 2002, p. 47).
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E-coordination - “The potential of Internet technology for linking previously independent departments is rapidly approaching realization. So far, individual functions have been moving their processes to the Web —we’re seeing e-procurement, e-HR, Enterprise Resource Planning (ERP) systems, and CRM for customers” (Galbraith, 2002, p. 59).
Five types of lateral processes – “Informal or voluntary lateral processes occur spontaneously. They are the least expensive and easiest form to use. Although they occur naturally, organization designers can greatly improve the frequency and effectiveness of these voluntary processes. E-coordination involves using Internet technology to communicate and coordinate across departments. These electronic links may combine the efforts of people working on a new product using three-dimensional computer-aided design (3D-CAD) or serving the same customer using CRM processes. The next type of lateral process, which requires more time commitment, is the formal group. Teams or task forces are formally created, members appointed, charters defined, and goals set for the cross-functional effort. Formal groups are more costly than voluntary groups because they are the creation of management and do not occur naturally. They require some team building and maintenance for proper functioning” (Galbraith, 2002, p. 45-46). “The fourth level of commitment to lateral processes comes with appointment of integrators to lead the formal groups. At some point, full-time leaders may be required. Leaders may be product managers, project managers, process managers, brand managers, and so on. They are all “little general managers,” who manage a product or service in place of the general manager. They are enlisted because there are many products, new products, and rapid life cycles” (Galbraith, 2002, p. 46). “The last and most difficult form of lateral process is the matrix organization. To create a matrix, the integrator role becomes a line organizational position. The person in the functions who works on the products or project team acquires a second boss. The company then has two line organizations. The matrix is used only when there is a need for a power balance” (Galbraith, 2002, p. 47).
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E-coordination - “The potential of Internet technology for linking previously independent departments is rapidly approaching realization. So far, individual functions have been moving their processes to the Web —we’re seeing e-procurement, e-HR, Enterprise Resource Planning (ERP) systems, and CRM for customers” (Galbraith, 2002, p. 59).
Fostering voluntary processes - “An organization characterized by voluntary coordination across units is usually referred to as an informal organization. The process seems to occur naturally and spontaneously” (Galbraith, 2002, p. 48). “Such acts may occur hundreds of times each day and can be a source of great strength for the company. But great weakness occurs when the voluntary acts do not happen. In many cases these acts do not occur because of cross-functional barriers. Today there is great interest in removing barriers and encouraging voluntary cooperation. Leaders can employ a number of actions to elicit voluntary cooperation, Interdepartmental rotation, Interdepartmental events, Co-location, Mirror image departments, and Consistent reward and measurement systems” (Galbraith, 2002, p. 48).
Integrating roles - “The most complex aspect of the lateral process is the creation of full-time leaders. Integrating roles create the truly multidimensional organization. There is a need for these roles when a company wants to attain functional excellence, generate new products and services, and be responsive to customers. Such capacity is a requirement for some businesses in a complex, changing world” (Galbraith, 2002, p. 66).
Formal groups - “Formal groups augment the efforts of voluntary processes. When there is a need for more decision making, a team, task force, or council is created to focus on a set of issues” (Galbraith, 2002, p. 57). “Formal groups enhance the voluntary processes and build on the same capabilities, and are not a replacement for them. Designing a formal group takes into consideration several design choices. These choices include choosing bases for the structure, which includes function, product, market, geography, and work flow; Charter, which is defining the scope, mission, and authority of the group; Selecting the people who participate in the group, or staffing the group; Conflict management must be identified so the group has direction in managing differences of opinion; Rewards must be in place to incentivize participants for their efforts; Defining leader roles, which may be the formal appointment of a leader, choosing different leaders based on individual functions of the team, or allowing the leader to emerge during the processs” (Galbraith, 2002, p. 58).
E-coordination of teams - “This process allows large, complex teams to work together by migrating systems that are accessed via the Web. All participants on the team would have access to all components of the project. Success will still depend on teamwork. This integrated system will need to be matched with an integrated organization capable of e-coordination” (Galbraith, 2002, p. 65).
The four boundaries of a boundaryless organization - “In their quest to achieve the success factors of the twenty-first century, organizations must confront and reshape the four types of boundaries: vertical, horizontal, external, and geographic” (Ashkenas, Ulrich, Jick, & Kerr, 2002, p. 10).
Vertical boundaries - “Vertical boundaries represent layers within a company. They are the floors and ceilings that differentiate status, authority, and power: span of control, limits of authority, and the other manifestations of hierarchy. In a hierarchy, roles are clearly defined and more authority resides higher up in the organization than lower down. You can track the intensity of vertical bounding by the number of levels between the first-line supervisor and the senior executive and by the differences between levels. Hierarchical boundaries are defined by title, rank, and privilege” (Ashkenas, et al., 2002, p. 10).
Horizontal boundaries -“Horizontal boundaries exist between functions, product lines, or units. If vertical boundaries are floors and ceilings, horizontal boundaries are walls between rooms. Rigid boundaries between functions promote the development of local agendas that may well conflict with each other. In the traditional firm, engineering usually wants to create more innovative products and looks for technologically hot ideas, marketing wants more varied and customized products, and manufacturing wants long, stable production runs with little innovation and few variations” (Ashkenas, et al., 2002, p. 10).
External boundaries - “External boundaries are barriers between firms and the outside world—principally suppliers and customers but also government agencies, special interest groups, and communities. Traditional organizations draw clear lines between insiders and outsiders. Some of these barriers are legal, but many are psychological, stemming from varied senses of identity, strategic priorities, and cultures. These differences lead most organizations to some form of we-they relationship with external constituents. Business involves negotiation, haggling, pressure tactics, withholding of information, and the like. When there are multiple customers or suppliers, one may be played off against another” (Ashkenas, et al., 2002, p. 11).
Geographic boundaries -“Geographic, or global, boundaries exist when firms operate in different markets and countries. Often stemming from national pride, cultural differences, market peculiarities, or worldwide logistics, these boundaries may isolate innovative practices and good ideas, keeping a company from using the learning from specific countries and markets to increase overall success” (Ashkenas, et al., 2002, p. 11). “When these four boundaries remain rigid and impenetrable—as they so often do today—they create the sluggish response, inflexibility, and slow innovation that cause premier companies to fall” (Ashkenas, et al., 2002, p. 12).
The turn around kids – “GE, Wal-Mart, Macys, IKEA, and more” (Ashkenas, & et al., 2002, p. 12).
Why external boundaries have to be reformulated – “External boundaries are barriers between firms and the outside world” (Ashkenas, & et al., 2002, p. 11). “In recent years, almost all organizations have experimented with some type of change process aimed at creating more permeable boundaries. Whether it was called total quality, reengineering, reinvention, or business process innovation, organizations have invested untold resources in trying to make change happen" (Ashkenas, et al., 2002, p. 4). "The stark reality is that each company slipped from invincible to vincible when it faced a rate of change that exceeded its capability to respond. When their worlds became highly unstable and turbulent, all these organizations lacked the flexibility and agility to act quickly. Their structures and boundaries had become too rigid and calcified" (Ashkenas, et al., 2002, p. 4).
Why horizontal boundaries need to be loosened – Horizontal boundaries are “between functions, product lines, or units. If vertical boundaries are floors and ceilings, horizontal boundaries are walls between rooms” (Ashkenas, & et al., 2002, p. 10). “Processes that permeate horizontal boundaries carry ideas, resources, information, and competence with them across functions, so that customer needs are well met. Quality, reengineering, and high-performing work team initiatives often foster such processes. Once managers begin to move work quickly and effectively across functions or product lines, horizontal boundaries become subservient to the integrated, faster-moving business processes” (Ashkenas, et al., 2002, p. 10).
How to loosen horizontal boundaries – An organization can loosen horizontal boundaries by “making organizational structure mirror the way work actually gets done” (Ashkenas, & et al., 2002, p. 15). When GE Capital put a cross-functional team in place to analyze their internal processes, “solutions began to emerge” (Ashkenas, & et al., 2002, p. 16). “Quality, reengineering, and high-performing work team initiatives often foster such processes. Once managers begin to move work quickly and effectively across functions or product lines, horizontal boundaries become subservient to the integrated, faster-moving business processes” (Ashkenas, et al., 2002, p. 10).
Why crossing geographic boundaries is important - “Geographic, or global, boundaries exist when firms operate in different markets and countries” (Ashkenas, & et al., 2002, p. 11). “With information technology, workforce mobility, and product standardization, global boundaries are quickly disappearing” (Ashkenas, & et al., 2002, p. 11).
How to cross geographic boundaries – “To cross a geographic boundary, companies must establish a workable global [regional, or national] structure, hire global [regional, or national] supermanagers, manage people for a global [regional, or national] environment, learn to love cultural differences, avoid parochialism and market arrogance, design unifying mechanisms and a global [regional, or national] mindset, and overcome complexity” (Ashkenas, et al., 2002, p. 257).
Why vertical boundaries need to be flattened - “Vertical boundaries represent layers within a company. They are the floors and ceilings that differentiate status, authority, and power: span of control, limits of authority, and the other manifestations of hierarchy” (Ashkenas, & et al., 2002, p. 10). “Customers receive a more personalized service when they do not have to go through layers of hierarchy. When the authority is pushed down to the team level, communication improves and service levels improve through cross-training of staff, and productivity levels increase” (Ashkenas, & et al., 2002, p. 17).
How to flatten vertical boundaries – “Establish self-functioning teams with no layers of management that focus on one large customer or group of customers. Team members are cross-trained to perform every aspect of service for the customers. Senior level team members take on the role of training and problem solving” (Ashkenas, & et al., 2002, p. 17).
Aligning healthy hierarchy with business strategy for vertical boundary change - “The system components for loosening vertical boundaries are, align health hierarchy concepts with business strategy, develop a sustained and visible management commitment through constant actions, big and small, take a cumulative approach, develop a shared mindset. All four of the components …need to be wired together to loosen vertical boundaries within an organization” (Ashkenas, & et al., 2002, p. 63).
Taking a cumulative approach for vertical boundary change – “…no one practice will guarantee a healthy hierarchy, but the cumulation of lots of the right subgoals will make it happen” (Ashkenas, & et al., 2002, p. 69). “An organization should use practices that are evolutionary rather than revolutionary. Revolutionary practices may become fads that are soon rejected, or people who champion different revolutionary initiatives may become competitive and unproductive. Management practices are evolutionary when new initiatives add value to their predecessors” (Ashkenas, & et al., 2002, p. 69).
Developing a shared mindset for vertical boundary change – “Healthy hierarchy firms govern employee behavior through shared mindsets. You don’t need layers of supervision when employees share the firm’s values and beliefs and know how to support them” (Ashkenas, & et al., 2002, p. 70).
Types of cognitive biases – “Prior hypothesis, representativeness, illusion of control, and escalating commitment are some types of cognitive biases” (Weber, 2000).
“Functional specialists may fear losing their technical edge if forced to spend much time as generalists in cross-functional team activities” (Ashkenas, & et al., 2002, p. 23).
“Individuals from different cultures may not want to team with one another or work for one another due to biases and stereotypes and the fears they generate” (Ashkenas, & et al., 2002, p. 23). “Individuals from different cultures may simply have trouble communicating, due not only to different languages but to different ways of viewing the world” (Ashkenas, & et al., 2002, p. 23). “People at all levels may fear having to learn new rules of the game if traditional methods of advancement and career tracking change” (Ashkenas, & et al., 2002, p. 23). “Managers may fear embarrassment if information once typically hidden becomes shared with other levels” (Ashkenas, & et al., 2002, p. 23). “Former competitors within an organization or between organizations may find it difficult to learn how to collaborate” (Ashkenas, & et al., 2002, p. 23).
Specific versus broad goals (where goals are to be thought of as scheduled behaviors - “With clear, specific goals, incremental innovation projects can be managed by exception—when managers intervene only if there are significant deviations” (Davila et al., 2006, p.186). “As product development initiatives take on more risk and shift towards radical innovation, goals necessarily become broader and less specific” (Davila et al., 2006, p. 187). “Broad objectives stimulate constructive conversations between the project team, partners, other groups in the company, and top management” (Davila et al., 2006, p. 187).
Quantitative versus qualitative goals - “Goals can be quantitative or qualitative. As a rule of thumb, incremental innovation projects tend to be more amenable to goals that can be easily quantified, such as time-to-market, level of resource consumption, and incremental changes in product performance. Quantitative goals for innovation usually have a specific time horizon” (Davila et al., 2006, p. 188). “Goals for radical and semi-radical innovation use more qualitative criteria because of the inherent uncertainty. Relying too much on quantitative goals may narrow the scope of the innovation effort and preclude the much-needed room for experimentation” (Davila et al., 2006, p. 188).
Stretch versus expected goals - “Goals also vary in terms of how demanding they are. Incremental innovation projects should have goals that are clearly attainable and realistically set” (Davila et al., 2006, p. 188). “Goals for radical innovation projects should be stretch goals. These goals demand more than what most people would consider to be easy to attain or even realistic” (Davila et al., 2006, p. 189). Stretch goals should be used to stimulate discussion, exploration, experimentation, and exchange of ideas” (Davila et al., 2006, p. 189).
Success-driven versus loss-avoidance goals - Success-driven goals “are based on the key success driver of the project, whether it is time-to-market, product cost, or product performance” (Davila et al., 2006, p. 189). “Loss-avoidance goals are in which “products must be developed within a certain budget and within a certain product cost to be economically sound” (Davila et al., 2006, p. 189). “Loss-avoidance goals are usually tighter for incremental innovations where the margin to redefine a project is smaller. Radical innovations, because of their inherent uncertainty and the larger payoffs if successful, have more slack in their loss-avoidance goals” (Davila et al., 2006, p. 190).
Balancing information sharing to increase innovation and decrease boundaries versus compartmentalization of information to increase control - “The broad dissemination of information is one dimension that can be tuned—that is, legitimated—to various degrees to make vertical boundaries more permeable” (Ashkenas, & et al., 2002, p. 79). “Rather than using boundaries to separate people, tasks, processes, and places, organizations are beginning to focus on how to get through those boundaries—to move ideas, information, decisions, talent, rewards, and actions where they are most needed” (Ashkenas, & et al., 2002, p. 2).
Organizing for innovation - “Organizing for innovation continues to be a challenge for many companies. It is not enough to craft a strategy or to build innovation processes; you need to build and embed innovation into the overall organization. Successful innovation requires choosing, building, and preparing the right organization and the right people for executing and scaling the innovation” (Davila et al., 2006, p. 87).
Developing an internal marketplace for innovation - “One of the main approaches to ensure that innovation is successful in your organization is to develop an internal marketplace where the ideas and functions of innovation can flourish in a supply-and demand environment. In this innovation market, the true commercial value of every idea is reflected in the management attention and funding it receives” (Davila et al., 2006, p. 88).
Systems for developing competencies - “Healthy hierarchies develop competencies wherever needed, without regard to rank, position, or status. When competencies don’t develop at all levels, companies often get into trouble” (Ashkenas, & et al., 2002, p. 79). “Five ways for building competence across vertical boundaries, actions for building competence, conduct a competence audit, establish career banding, improve staffing, establish a 360-degree feedback process, and train and develop” (Ashkenas, & et al., 2002, p. 79).
Balancing creativity and value creation - Critical to creating an internal marketplace for innovation “is balancing creativity and value capture so that both thrive” (Davila et al., 2006, p. 89). “Companies have developed their own internal marketplaces that weigh, select, and prioritize innovations for their creativity and inherent commercial value or worth to the company” (Davila et al., 2006, p. 89). “The market is overseen by senior management to ensure that organizational antibodies and other forces do not skew the market’s perception of potential innovations or that funding for commercialization is not out of line with the true potential of the innovation” (Davila et al., 2006, p. 89).
How creativity and value creation balance changes as the organization matures - “In the business world, there’s a natural evolution in the relationship between creativity and value capture as companies grow from emerging to mature. In the earliest stages, a company is focused on creating new, improved products or services. At that point, the attention to maximizing the value capture (such as faster, better, cheaper delivery) is relatively low. In the later stages of growth and maturity, the singular drive to be creative usually decreases and is replaced by a shift to increasing value capture—improving the process of executing, delivering, and selling its portfolio of products and services” (Davila et al., 2006, p. 91).
Integrating innovation within the organization - By approaching innovation with a business sense, innovation can be integrated into the business strategies of the organization. A good business model “describes how the company will be innovative and how it will generate value from innovation” (Davila et al., 2006, p. 149). “The richer our understanding of the innovation processes, the better our business model will be and the derived measurement system will provide a more informed management of innovation. This integrated perspective is directly linked to the third Innovation Rule: Integrate innovation into the company’s basic business mentality” (Davila et al., 2006, p. 149).
Explain how to integrate roles using a 360 approach - “The organization design issues for integrating roles revolve around the power base from which the integrator will influence decisions” (Galbraith, p. 66). “Individual performance evaluation needs to rely on subjective assessments. The team leader may evaluate the performance of each of his or her team members or use a 360 degrees evaluation mechanism, where the people who work with a person evaluate her. These individual evaluations will help to avoid the free-rider problem” (Davila et al., 2006, p. 192).
Motivation (Maslow and Erikson) - “The theories of Abraham Maslow and Erik Erikson support the use of human response assessment in the experiential and behavioral perspectives. Erikson describes eight stages of development through life. This implies a person continues to develop at all ages. Each stage identifies a task that must be achieved. The achievement can be complete, partial, or unsuccessful. The greater the task achievement, the healthier the personality of the person. Failure to achieve a task for one stage influences the person’s ability to achieve the next task. The developmental tasks are viewed as crises, and successful resolution is supportive to the person’s ego. The individual must find a balance between the positive and negative side of the task Abraham Maslow establishes a hierarchy for meeting human needs. He identifies five levels of human needs in ascending order. Physiologic needs includes the needs crucial for survival, air, food, water, shelter, rest, sleep, activity, and temperature maintenance. Safety and security needs includes both physical and psychological aspects. The person needs to feel safe in the physical environment and in relationships. Love and belonging needs, includes giving and receiving affection, attaining a place in a group, maintaining a feeling of belonging. Self-esteem needs, includes esteem from self (independence, competence, self-respect) and esteem from others (recognition, respect, appreciation). Self-actualization, is the inner need to develop one’s maximum potential and utilize one’s abilities and qualities at the highest level” (Sinclair, 2011, para. 2).
Intrinsic motivation – “is the internal drive that a person has to do something purely because he or she loves it. This is a factor in all innovations and especially in semi-radical and radical innovations” (Davila et al, 2006, p. 204).
Extrinsic rewards – “can actually drive away intrinsic motivation. In this case, a rewards system may have the effect of focusing product development managers’ attention away from relevant dimensions: “Planning and rewarding for schedule attainment are ineffective ways of accelerating pace” (Davila et al, 2006, p. 205).
The importance of matching goals (scheduled behaviors) with rewards and incentives - “Incentives and rewards are some of the most powerful management tools available” (Davila et al., 2006, p. 179). “Measures and incentives are powerful, but they should be carefully designed and balanced with the rest of management tools, including risk management” (Davila et al., 2006, p. 180). “Incentives are designed before an innovation starts and they link performance measures and rewards” (Davila et al., 2006, p. 181). “In contrast, recognition is a reward that occurs after the outcomes of a project are available, even if there was no prior contract in place linking performance to rewards” (Davila et al., 2006, p. 181). “Recognition rewards are based on subjective assessments of the value generated” (Davila et al., 2006, p. 181). “Some people innovate because they have a passion about what they do and not because of extrinsic rewards. People who are deeply interested in their work are self-motivated and are less influenced by external factors” (Davila et al., 2006, p. 182). “Formal reward systems are well-suited for incremental innovation, such as increasing the efficiency of a manufacturing plant or improving quality through quality circles” (Davila et al., 2006, p. 182). “Incentives are much harder to use for radical and semi-radical innovations because the targets are not well-defined and often change during the course of a project” (Davila et al., 2006, p. 183). “Radical innovations rely more on recognition as a reward” (Davila et al., 2006, p. 183). “Using recognition to reward radical innovation gives an organization the flexibility to adjust the reward to each individual project, team, and person” (Davila et al., 2006, p. 183).
Framework for incentive systems design - “The goals for more radical innovations are less specific. Different projects need their own distinct goals” (Davila et al., 2006, p. 184). “Once goals have been set, team and individual incentive contracts are defined to establish the formal link between performance and rewards. The incentive contract can be based on a formula that links performance against goals and prescribes payoffs” (Davila et al., 2006, p. 185). “The advantage of subjective performance evaluation is that it allows for an interpretation of the information that the measurement system provides and adjusts for events that are not adequately reflected in the ‘hard’ numbers. A formula-based incentive system cannot adjust for the negative impact of the unexpected bankruptcy of a key supplier of technology. A subjective incentive system can account for it and reward the manager more fairly” (Davila et al., 2006, p. 185). “The final step in the design of incentive systems is defining the actual rewards. Incentive systems do not work in isolation; they act inside an organization in the context of its own culture and management systems. Incentive systems have to be aligned with the culture and systems to be effective” (Davila et al., 2006, p. 185). “Choosing the wrong goals or the wrong measures is a formula for disaster” (Davila et al., 2006, p. 206).
Incentive design: Danger of over-using incentives - “Incentive systems can fail because they are overused. Putting too much emphasis on pay-for-performance without considering the risks involved may lead managers to shy away from risk-taking behavior. This, in turn, could lead to more incremental and less radical innovation in an organization” (Davila et al., 2006, p. 203). “If economic incentives are always a plus, we would expect a linear relationship between pay-for-performance and actual performance. On the other hand, economic incentives may kill the intrinsic motivation---the internal curiosity that drives engineers to innovate---and decrease performance” (Davila et al., 2006, p. 203). “The important issue is that more incentives, even if appropriately designed, may lead to lower performance. Providing some incentives is good, but too many decreases performance” (Davila et al., 2006, p. 204). “Over-use can dampen the effects of rewards and even produce a backlash” (Davila et al., 2006, p. 206).
Incentive design: Negative effects of incentives on intrinsic motivation - “Intrinsic motivation is the internal drive that a person has to do something purely because he or she loves it. This is a factor in all innovations and especially in semi-radical and radical innovations” (Davila et al., 2006, p. 204). “Sometimes the most important reward for performance is the act of doing the job itself” (Davila et al., 2006, p. 204). “Extrinsic rewards can actually drive away intrinsic motivation” (Davila et al., 2006, p. 205). “Planning and rewarding for schedule attainment are ineffective ways of accelerating pace” (Davila et al., 2006, p. 205). “The promise of money if certain goals are met does not help creativity. It cannot make a job more interesting or enjoyable for an employee, and in some cases generates a negative impression because it is perceived as a bribe” (Davila et al., 2006, p. 205). “The wrong rewards can kill the intrinsic motivation of truly creative people” (Davila et al., 2006, p. 206).
Incentive design: Fear incentive, failure incentive, and fairness incentive - “The level of risk-taking that a company encourages is an important issue to consider in addition to measuring and rewarding. Risk-taking behavior is necessary for successful innovation, but it can be killed if failure is punished either economically or socially” (Davila et al., 2006, p. 205). “Rewards must be designed to address employees’ fear of taking risks, concern that project failure could jeopardize their careers, and the desire to be treated fairly” (Davila et al., 2006, p. 206).
Individual reward versus team reward systems - “Innovation projects are team efforts. Team members have a common objective: achieving the goals set out at the beginning of the project. They should have an incentive to collaborate and support each other’s work. However, many companies block the effectiveness of teams by having inadequate incentives. On the other hand, the individuals on teams may deserve rewards because of their performance. The performance evaluation system cannot ignore important individual efforts—otherwise, the system is perceived as inequitable, dissatisfaction will grow, and the innovation effort will be adversely affected. Team effort and spirit may be undermined if certain team members carry most of the load while others have a free ride” (Davila et al., 2006, p. 191).
Incentive contracts: Expected level of pay - “The expected level of pay is the “market price” for a particular type of job. Compensation consulting firms develop reference tables for industries and regions that define “market prices” and companies use to set their level of pay. The inputs to these “market prices” are the characteristics of the job including skills, knowledge, and competencies required. Some companies add a premium based on the characteristics of the person in addition to job requirements. When pay is based on personal characteristics, the mechanisms used to determine the level are also based on skills, knowledge, or competencies” (Davila et al., 2006, p. 198).
Incentive contracts: Timing incentives - “Another characteristic of the incentive system is timing. Two issues are at play. One is retention of key employees that can be enhanced through deferred and long-term compensation. One of the virtues of stock options is their vesting period, usually over five years” (Davila et al., 2006, p. 200). “The other is the fact that the value which an innovation creates—especially radical innovation—happens over long time horizons” (Davila et al., 2006, p. 201). Stock option plans or restricted stock ownership plans vest over several years with the objective of both retaining key employees and linking their incentives to the long-term performance of the company. Bonus payments also can be based on future performance” (Davila et al., 2006, p. 201).
Incentive contracts: Delivery of compensation - “The most common forms of delivering compensation are cash (through bonuses) and stock-related mechanisms. Cash incentives are better at motivating and rewarding actions that have short-term consequences such as meeting milestones. Stock options and (restricted) stock awards are better at motivating a long-term perspective into the decision-making process and rewarding events that can only be measured after a long period of time, such as the success of a particular technology” (Davila et al., 2006, p. 201).
Incentive contracts: The shape of pay-performance relationship - “Most compensation systems are linear or close to linear. A linear relationship rewards and penalizes proportionally to the performance, and therefore provides a constant incentive to improve performance. In addition to the shape, the slope of the relationship is another relevant parameter. Steeper relationships provide more incentives to deliver performance. Research contracts are cost plus—where a client such as the government reimburses the costs that the team incurs in the project. Cost plus contracts remove economic incentives, and the team can focus its efforts on creating” (Davila et al., 2006, p. 199).
Performance-based rewards - “Incentives are designed before an innovation effort starts, and they link performance measures and rewards. Formal reward systems are well-suited for incremental innovation, such as increasing the efficiency of a manufacturing plant or improving quality through quality circles. Incremental innovation projects have a clear problem to solve. The solution to the problem can be translated into targets and linked to rewards. Incentives are much harder to use for radical and semi-radical innovations because the targets are not well-defined and often change during the course of a project. Radical innovations rely more on recognition as a reward” (Davila et al, 2006, p. 181). “Cash-based incentive systems using performance measures with a large component of formula-based-evaluation are best when innovation initiatives have short-term results, smaller impact on overall organization, easily measured performance, and are relatively easy to describe expected performance” (Davila et al., 2006, p. 207).
Incentive contracts and performance evaluations - “Companies need to decide the right percentage of compensation to make variable and the right mix of economic rewards. Organizations have different types of economic rewards available; most relevant are bonuses, salary increases, stock ownership and stock option plans, and promotions.
Compensation has four components, expected level of pay, shape and slope of the performance-pay relationship, timing, and delivery of the pay” (Davila et al., 2006, p. 197). “Goals are the reference point to evaluate performance during project execution and when the project is complete. In evaluating performance, several issues should be considered, the balance between team and individual performance measures, subjective versus objective performance evaluation, and relative versus absolute performance evaluation” (Davila et al., 2006, p. 191).
Subjective versus objective evaluations - Objective evaluation limitations are that “they leave out important value levers… and the more value levers that an objective measure captures, the more that uncontrollable factors distort it” (Davila, Epstein, & Shelton, 2006, pg. 194). “Subjective measures have their own limitations. They rely on the availability of information and the ability, knowledge, and effort of the person doing the evaluation” (Davila, Epstein, & Shelton, 2006, pg. 195). “Probably, the most severe limitation of subjective measures is that they rely on the reputation, fairness, and ability to judge of the evaluator. A person without credibility will hardly lead to satisfactory evaluation (unless every single subordinate gets the top grade). Without them, subjective evaluation is worse than objective evaluation” (Davila et al, 2006, p. 195-196).
Relative performance versus absolute performance evaluation - “Goals can be set relative to the performance of other projects or initiative either inside or outside the organization. Relative goals are perceived as tangible and less “made up” than absolute goals. They also filter out uncontrollable events that affect the project and its reference target” (Davila et al, 2006, p. 196).
Shifting authority and measuring performance - “The classic example of shifting authority is the once-revolutionary concept of allowing assembly line workers to stop the line to solve the problems they see, rather than catching problems later through inspection and quality checks. It is now well accepted that, with shifted authority, the overall production of perfect units is much higher and its overall cost (without armies of inspectors) much lower” (Ashkenas, & et al., p. 88).
What are management by objectives? - Quoting Douglas McGregor “the essential task of management is to arrange organizational conditions and methods of operation so that people can achieve their own goals best by directing their own efforts toward organizational objectives. This is a process primarily of creating opportunities, releasing potential, removing obstacles, encouraging growth, providing guidance” (Ashkenas, & et al., p. 41).
What are key performance indicators? - “Key Performance Indicators are measures of business performance. They are also known as business or performance metrics, measures, ratios or simply performance indicators” (KPI, 2011).
What are balanced scorecards and dashboards and why are they important to OD? - “While both Balanced Scorecards and Dashboards display performance information, a Balanced Scorecard is a more prescriptive format; a true Balanced Scorecard should always include these components: Perspectives (groupings of high-level strategic areas), Objectives (verb-noun phrases pulled from a strategic plan), Measures (also called Metrics or Key Performance Indicators/KPIs), and Stoplight Indicators (red, yellow, or green symbols that provide an at-a-glance view of a Measure’s performance). These specific components help ensure that a Balanced Scorecard is inherently tied to the organization’s critical strategic needs” (Active Strategy, 2011).“The design of Dashboards, on the other hand, is much more open to interpretation. Most Dashboards are simply a series of graphs, charts, gauges, or other visual indicators that a user has chosen to monitor, some of which may be strategically important, but others of which may not. Even if a strategic link exists, it may not be clear to the person monitoring the Dashboard, since the Objective statements, which explain what achievement is desired, are typically not present on Dashboards” (Active Strategy, 201).
Five steps to balancing creative and commercial markets – “Develop innovation platforms for the different types of innovation you want to pursue, create portfolios of projects in each platform, form internal and external partnerships and networks, ensure that markets for creativity and commercialization are open and transparent, guard against organizational antibodies that may limit or destroy your rejuvenated creative markets and processes” (Davila et al, 2006, p. 99).
The value of networks and innovation platform - “A network or network structure is a cluster of different organizations whose actions are coordinated by contracts and agreements rather than through a formal hierarchy of authority. Members of a network work closely to support and complement one another’s activities. The alliance resulting from a network is more formal than the alliance resulting from a contract, because more ties link member organizations and there is greater formal coordination of activities” (Jones, 2004, p. 75). “The goal of the organization that created the network is to share its R&D skills with its partners and have them use those skills to become more efficient and help it to reduce its costs or increase quality” (Jones, 2004, p. 75).
The corporate venture capital model - “Corporate Venture Capital (CVC) is a model of innovation inspired by external venture capital firms. It is a useful model to consider for promoting radical innovation in your organization while not hindering incremental innovation. The basic premise of CVC is that to promote the development of commercially viable innovations (especially radical innovations) within your organization, you need to have a mechanism in place that evaluates potential innovations in the same way that an external venture capital firm would” (Davila et al, 2006, p. 109-110).
The ambidextrous organization - “The ultimate step in organizing around the customer is to create a separate structural component for customers. Usually this capability in structural form is added to the company’s existing structure creating a front/back hybrid. Managing this structural form creates its own challenge. Building this customer-centric capability is the other management challenge. The result is an ambidextrous organization generating both excellent products and customer focus” (Galbraith, 2002, p. 132-133).
What is the contingency approach to organizational design? - “The contingency approach to organizational design tailors organizational structure to the sources of uncertainty facing an organization. The structure is designed to respond to various contingencies—things that might happen and therefore must be planned for. One of the most important of these is the nature of the environment” (Jones, 2004, p. 118).
What is meant by the Parkinson’s Law Problem? - “Parkinson argued that growth in the number of managers and hierarchical levels is controlled by two principles: (1) “An official wants to multiply subordinates, not rivals,” and (2) “Officials make work for one another” (Jones, 2004, p. 135).
Demonstrate applications of systems thinking on organizational design - Systems Thinking “emphasizes that in order to create a learning organization, managers must recognize the effects of one level of learning on another. Thus, for example, there is little point in creating teams to facilitate team learning if an organization does not also take steps to give its employees the freedom to develop a sense of personal mastery. Similarly, the nature of interorganizational learning is likely to be affected by the kind of learning going on inside an organization” (Jones, 2004, p. 380).
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