Endnotes
Chapter 1
1 Often the original innovator fails to capture the market that it creates. For an excellent analysis of this phenomenon, see Markides, C.C., and P. A. Geroski. 2005. Fast second: How smart companies bypass radical innovation to enter and dominate new markets. Indianapolis: John Wiley & Sons.
2 Wylie, Ian. How Nokia has tackled the ultimate creative act: Building innovation into the company’s culture. Fast Company, Vol 70, May 2003; page 46.
3 Stevenson, Seth. 2002. I would like to buy the world a shelf-stable children’s lactic drink. The New York Times Magazine. March 10.
4 Tomkins, Richard. 2002. Added spice. The Financial Times. April 5.
5 Drucker, Peter F. 1998. The discipline of innovation. Harvard Business Review. November–December.
6 CEO2CEO Conference Report, 2002.
7 For evidence on the underperformance of diversification, see Healy, P.M., K.G. Palepu, and R.S. Ruback, Does corporate performance improve after mergers? Journal of Financial Economics (31): 135-175. See also the classic study by Rumelt, R.P., 1974. Strategy, structure, and economic performance. Boston, MA: Harvard Business School.
8 Source: Navigant Consulting, Inc.
9 Similarly, the three criteria that the Red Herring—a leading business of technology magazine—uses to select the top 100 start-up technology firms are the quality of its management team, the firm’s potential to disrupt an existing market or create a new one, and the quality of its execution strategy.
10 For more details on the concept of espoused theories and theories in use and their relevance to organizational learning and organizational blocks, see Argyris, C. 1993. Overcoming organizational defenses: Facilitating organizational learning. San Francisco, CA: Jossey-Bass.
11 On this line of reasoning, see Collins, J. 2001. Good to great: Why some companies make the leap . . . and others don’t. New York: HarperCollins Publishers.
12 See the section titled, “Clearly Defined Innovation Strategy Defines Change,” in Chapter 3, “Choosing Your Destiny: How to Design a Winning Innovation Strategy.”
13 The two innovation strategies—Play-to-Win and Play-Not-to-Lose—are described in Chapter 3.
14 Palmisano, Samuel J. 2003. How the U.S. can keep its innovation edge. Business Week, November 17, page 34.
15 Amabile, Teresa. 1998. How to kill creativity. Harvard Business Review. September–October.
16 von Hippel, Eric. 1998. The sources of innovation. New York: Oxford University Press.
Chapter 2
1 Also, the academic literature focuses mostly on technological innovations. See Henderson R.M., and K.B. Clark. 1990. Architectural innovation: the reconfiguration of existing product technologies and the failure of established firms. Administrative Science Quarterly, 35(1): 9-30; Abernathy, W. and J.M. Utterback. 1978. Patterns of industrial innovation. Technology Review, 80(7): 40-47; Christensen, C. and R. Rosenbloom. 1995. Explaining the attacker’s advantage: technological paradigms, organizational dynamics and the value network. Research policy, 24: 233-257.
2 Some authors have also included market as an additional dimension to technology to understand innovation (Afuah, 1998). We believe that focusing on the market unnecessarily restricts the locus of innovation to one piece of the business model.
3 Wal-Mart is currently focusing its attention on RFID (radio frequency identification) technology. The objective is to optimize even more of its supply chain. RFID will allow Wal-Mart to track the movements of every single item from the point of production until it reaches the final customer. This new enabling technology will be transparent to customers, but it will enable a much more efficient business model that will translate into further advantage for the retail giant.
4 Cane, A. 2005. The brain behind the brains at Big Blue. Financial Times, January 21.
5 Bucklet, N. 2003. Free deliveries help lift Amazon. Financial Times, October 22.
6 Dann, J. 2003. Can khakis really be disruptive? Strategy & Innovation, 3.
7 For the importance of process change, see Pisano, Gary. 1997. The development factory: Unlocking the potential of process innovation. Boston: Harvard Business School Press.
8 Examples of process improvements are numerous around the quality movement. See Cole, Robert E. 1998. Learning from the Quality Movement: What did and didn’t happen and why? California Management Review 41 (1): 43-74. Also see Juran, J.M. 1992. Juran on Quality by Design: The new steps for planning quality into goods and services. New York: The Free Press.
9 There are various approaches to thinking about innovation. Gatignon, Hubert, Michael L. Tushman, Wendy Smith, and Phillip Anderson. 2002. A structural approach to assessing innovation: Construct development of innovation locus, type, and characteristics. Management Science 48 (9): 1103-1122. The Innovation Matrix is best suited for designing innovation strategies.
10 A more traditional way of looking at this matrix is using technology and market dimensions. See Meyer, Mark H. and Edward B. Roberts. 1986. New product strategy in small technology-based firms: A pilot study. Management Science, 32 (7): 806-822.
11 For this model, see Tushman, M. and P. Anderson. 1986. Technological discontinuities and organizational environment. Administrative Science Quarterly, 31: 439-465.
12 Utterback, J.M. 1994. Mastering the dynamics of innovation: How companies can seize opportunities in the face of technological change. Boston: Harvard Business School Press.
13 This is just one example of what are known as disruptive technologies.
14 See Bernstein, W. 2004. The birth of plenty: How the prosperity of the modern world was created. New York: McGraw-Hill.
15 The idea of incremental innovation has been applied to the technology innovation dimension. See Dewar, Robert D. and Jane E. Dutton. 1986. The adoption of radical and incremental innovations: An empirical analysis. Management Science, 32 (11): 1422-1433. Ettlie, John E., William P. Bridges, and Robert D. O’Keefe. 1984. Organizational strategy and structural differences for radical versus incremental innovation. Management Science, 30: 682-695. Green, Stephen, Mark Gavin, and Lynda Aiman-Smith. 1995. Assessing a multidimensional measure of radical innovation. IEEE Transactions Engineering Management, 42 (3): 203-214.
16 Incremental innovation is critical to sustain a firm’s position in the market. See Banbury, Catherine M. and Will Mitchell. 1995. The effect of introducing important incremental innovations on market share and business survival. Strategic Management Journal, 16: 161-182.
17 Leading the way back: The CEO’s role. CEO Conference Report, 2002.
18 Winning through incremental innovation. CEO2CEO Conference Report, 2002.
19 CEO2CEO Conference Report, 2002.
20 Semi-radical innovation is a common way to break away from incremental innovation but still rely on a subset of core competencies. See Utterback, James M. 1994. Mastering the dynamics of innovation: How companies can seize opportunities in the face of technological change. Boston: Harvard Business School Press.
21 Henderson R.M. and K.B. Clark. 1990. Architectural innovation: The reconfiguration of existing product technologies and the failure of established firms. Administrative Science Quarterly, 35 (1): 9-30.
22 Existing firms typically survive waves of semi-radical innovation because of the existence of complementary assets. See Tripsas, Mary. 1997. Unraveling the process of creative destruction: Complementary assets and incumbent survival in the typesetter industry. Strategic Management Journal, 18: 119-142.
23 Radical innovation has a higher degree of inherent risk and higher impact to the organization than semi-radical innovation. See Cooper, Arnold and Clayton Smith. 1992. How established firms respond to threatening technologies. Academy of Management Executive, 6 (2): 55-70. Also see Damanpour, Fariborz. 1996. Organizational complexity and innovation: Developing and testing contingency models. Management Science, 42 (5): 693-701. Also see Foster, Richard N. 1986. Innovation: The attacker’s advantage. New York: Summit Books. For the high level of unsuccessful radical innovations, see Dougherty, Deborah and Cynthia Hardy. 1996. Sustained product innovation in large, mature organizations: Overcoming innovation-to-organization problems. Academy of Management Journal, 39: 1120-1153.
24 Radical innovation typically comes from architectural changes. See Henderson, Rebecca M. and Kim B. Clark. 1990. Architectural innovation: The reconfiguration of existing product technologies and the failure of established firms. Administrative Science Quarterly, 35 (1): 9-30. Also see Baldwin, Carlyss Y. and Kim B. Clark. 2000. Design rules: The power of modularity. Cambridge, MA: MIT Press.
Radical innovation also comes from the destruction of current competencies. See Anderson, Phillip and Michael L. Tushman. 1990. Technological discontinuities and dominant designs: A cyclical model of technological change. Administrative Science Quarterly, 35 (4): 604-633. Also see Tushman, Michael L. and Phillip Anderson. 1986. Technological discontinuities and organizational environment. Administrative Science Quarterly, 31: 439-465. Also see Tushman, Michael L. and Johann P. Murmann. 1998. Dominant designs, technology cycles, and organizational outcomes. Research in Organizational Behavior, 20: 231-266.
25 These game changers have also been called technological discontinuities. Ehrenberg, Ellinor. 1995. On the definition and measurement of technological discontinuities. Technovation, 15: 437-452.
26 CNN News, June 2, 2004.
27 Radical innovation is frequently associated with startup companies that upset the current industry structure. For the problems facing incumbents when threatened by an external radical innovation, see Day, George S. and Paul J.H. Schoemaker. 2000. Avoiding the pitfalls of emerging technologies. California Management Review, 42 (2): 8-33.
28 Radical innovation also has a larger probability of being born in the interfaces of current business units requiring the participation of these various units—a concept called white spaces (Hamel, Gary and C.K. Prahalad. 1994. Competing for the future. Boston, MA: Harvard Business School Press)—with a significant chance of shifting the current strategy. The need for resources from various units and the strategic disruptive nature are labeled as “scope” and “reach” of the innovation (Burgelman Robert A. and Yves L. Doz. 2001. The power of strategic integration. Sloan Management Review, 42 (3): 28-38).
29 Abrahams, P. 2002. Branching out. Financial Times, July.
30 Christensen, Clayton M. 1997. The innovator’s dilemma: When new technologies cause great firms to fail. Boston: Harvard Business School Press.
31 Waters, R. 2003. Dell aims to stretch its way of business. Financial Times, November 13.
Chapter 3
1 Conference Board. 1999. The Business Innovation Conference, New York.
2 Chandy, R., J. Prabhu, and K. Anita. 2003. What will the future bring? Dominance, technology expectations, and radical innovation. MSI Report, 02-122 (Summer).
3 The problem of startups to grow beyond the first stage has been frequently associated with the difficulties that entrepreneurs have in becoming managers. See Chandler, G. N. and E. Jansen. 1992. The founder’s self-assessed competence and venture performance. Journal of Business Venturing, 7: 223-237; Flamholtz, E.G., and Y. Randle. 2000. Growing pains: Transitioning from an entrepreneurship to a professionally managed firm (2nd ed.). San Francisco, CA: Jossey-Bass; Greiner, L. E. 1998. Evolution and revolution as organizations grow. Harvard Business Review, May-June: 55-64; Willard, G. E., D.A. Krueger, and H.R. Feeser. 1992. In order to grow, must the founder grow: A comparison of performance between founder and non-founder managed high-growth manufacturing firms. Journal of Business Venturing, 7: 181-195.
4 Artne, F. and A. Weintraub. 2004. J&J: Toughing out the drought. Business Week, January 26, 84-85.
5 Palmeri, C. 2003. To really be a player, Mattel needs hotter toys. Business Week, July 28, 64.
6 Markides, C.C. and P.A. Geroski. 2005. Fast second: How smart companies bypass radical innovation to enter and dominate new markets. Indianapolis: John Wiley and Sons.
7 Deutsch, C. 2002. G.E. research returns to roots. The New York Times, December 26.
8 Roberts, D. 2004. Voyage of discovery: G.E. stakes its future on the innovation of it scientists. Financial Times, October 11.
9 Weisman, R. 2004. G.E.’s sandbox for scientists. Boston Globe, March 15.
10 Schrage, M. 2000. Getting beyond the innovation fetish. Fortune, November 13.
11 Brown, S. and E. Eisenhardt. 1998. Competing on the edge. Boston, MA: Harvard Business School Press.
12 Buckley, N. 2002. Revolution with a relaxed approach. Financial Times, August.
13 Hamel, G. and P. Skarzynski. 2001. Innovation: The new route to wealth. Journal of Accountancy, November, 65.
14 The research literature that identifies internal non-transferable assets as key to a sustainable competitive advantage has a long history. See Prahalad, C. K. and G. Hamel. 1990. The core competence of the corporation. Harvard Business Review, 68: 79-91; Wernerfelt, B. 1984. A resource-based view of the firm. Strategic Management Journal, 5: 171-181; Zollo, M. and S.G. Winter. 2002. Deliberate learning and the evolution of dynamic capabilities. Organization Science, 13: 339.
15 For example, see Leonard-Barton, D. 1992. Core capabilities and core rigidities: A paradox in managing new product development. Strategic Management Journal, 13: 111-125.
16 Hamel, G. and P. Skarzynski. 2001. Innovation: The new route to wealth. Journal of Accountancy, November.
17 Simons, J. 2003. The $10 billion pill. Fortune, January 20, 58-68.
18 Barrett, A., J. Carey, M. Arndt, and A. Weintraub. 2003. Feeding the pipeline. Business Week, May 12, 78-82.
19 According to Goldman Sachs, as cited in Financial Times, October 24, 2002.
20 http://www.fda.gov/cder/reports/rtn/2003/Rtn2003.pdf
21 Geoff Dyer, G. 2002. Sagging morale, departing scientists, a dwindling pipeline: when will GSK’s research overhaul produce results? Financial Times, October 24: 13.
22 Harris, G. 2003. Where are all the new drugs? The New York Times, October 5.
23 Stipp, D. 2003. How Genentech Got It. Fortune, June 9: 81-88.
24 Mossberg, W. 2004. Steve Jobs: We’re doing it all and we’re having a blast. Always On, August 21.
Chapter 4
1 Christensen, Clayton M. and Tara Donovan. 1999. Putting your finger on capability. Harvard Business School, note #399148.
2 Markides, C. 1998. Strategic innovation in established companies. Sloan Management Review, 39 (3): 31-42.
3 Thomke, S.H. 2003. R&D comes to services: Bank of America’s pathbreaking experiments. Harvard Business Review, April: 71-79.
4 Shelton, R. 2001. Developing an internal marketplace for innovation. Prism, 1.
5 Ibid.
6 O’Brien, G. 2000. The Triumph of Marxism. The New York Review of Books, July 20, 47 (12).
7 For a detailed study of the options under a corporate venture capital structure, see Block, Zenas and Ian C. MacMillan. 1995. Corporate venturing: Creating new businesses within the firm. Boston: Harvard Business School Press.
8 There has been a lot of debate in the academic literature about the right way to structure innovation, from having a completely separate structure (Christensen, Clayton M. 1997. The innovator’s dilemma: When new technologies cause great firms to fail. Boston: Harvard Business School Press), a new venture division (Burgelman, Robert A. 1984. Designs for corporate entrepreneurship in established firms. California Management Review, 26 (3): 154-166. Chesbrough, Henry. 2002. Designing corporate ventures in the shadow of private venture capital. California Management Review, 42 (3): 31-49), a corporate venture capital arm (Chesbrough, Henry. 2002. Making sense of corporate venture capital. Harvard Business Review, 80 (3): 90-100), or within existing divisions (Sykes, Hollister B. and Zenas Block. 1989. Corporate venturing obstacles: Sources and solutions. Journal of Business Venturing, 4: 159-167).
9 An important piece of external structures is managing partnerships and alliances. There is extensive academic literature on the topic; see Arino, A., J. Torre, and P. Smith Ring. 2001. Relational quality: Managing trust in corporate alliances. California Management Review, 44 (1): 109-132.
10 Chesbrough, Henry W. 2003. A better way to innovate. Harvard Business Review, July: 12-13.
12 Greene, Jay, John Carey, Michael Arndt, and Otis Port. 2003. Reinventing corporate R&D. Business Week, September 22, 74-76.
13 London, S. 2004. Good old fashioned innovation. Financial Times, March 12, 10.
14 Thomke, Stefan and Eric von Hippel. 2002. Customers as innovators: A new way to create value. Harvard Business Review, April: 5-11.
15 von Krogh, G. 2003. Open-source software development. MIT Sloan Management Review, Spring: 14-18.
16 Chesbrough, H. 2003. A better way to innovate. Harvard Business Review, July: 12-13.
17 Quinn, James Brian. 2000. Outsourcing innovation: The new engine of growth. MIT Sloan Management Review, 41 (4): 13-28.
19 Adapted from Navigant Consulting, Inc. Also see www.strategos.com.
20 For a completely different innovation from CEMEX, see Prahalad, C.K. 2005. The fortune at the bottom of the pyramid. Upper Saddle River, NJ: Prentice Hall.
21 Doughtery, D.J., and E.H. Bowman, 1995. The effects of organizational downsizing on product innovation. California Management Review, Summer.
22 Source: Navigant Consulting, Inc.
23 Buderi, R. 2003. GE finds its inner Edison. Technology Review, October: 46-50.
24 Block, Z. and I.C. MacMillan. 1995. Corporate venturing: Creating new businesses within the firm. Boston, MA: Harvard Business School Press.
25 Source: Navigant Consulting, Inc., and Arthur D. Little, Inc.
26 Tushman, Michael L., and Charles A O’Reilly, 1997. Winning through innovation: a practical guide to leading organizational change and renewal. Boston, MA: Harvard Business School Press.
27 The idea of combining incremental and radical innovation within one firm is also discussed under the definition of “complex strategic integration.” In Burgelman, R.A., and Y.L. Doz. 2001. The power of strategic integration. Sloan Management Review, 42 (3): 28-38.
28 A study (Cooper, Robert. 1998. Benchmarking new product performance: results of the best practices study. European Journal of Management 16[1]: 1-7) found that businesses with a strong resource commitment have a 40 percent higher new product success rate. Resource commitment is also strongly correlated to the impact and profitability of a business’s new product efforts. Resources should not be perceived as just budgets. Human resources are also important in the success of new product development. In Cooper’s study, it was found that although organizations had the right processes in place, its people were sometimes assigned to six different projects or were assigned to R&D in addition to their “real” jobs.
29 Flaherty, J. 2003. In handling innovation, patience is a virtue. The New York Times, September 29.
Chapter 5
1 For the importance of systems such as scanning, planning, and strategic controls, see Barringer, Bruce R. and Allen C. Bluedorn. 1999. The relationship between corporate entrepreneurship and strategic management. Strategic Management Journal, 20: 421-444.
2 The spark that initiates the innovation has received significant attention, but the process by which this spark translates into value has been less studied. Woo, Carolyn Y., Urs Daellenbach, and Charlene Nicholls-Nixon. 1994. Theory building in the presence of “randomness:” The case of venture creation and performance. Journal of Management Studies, 31: 507-5023.
3 Palmisano, Samual J. 2003. How the U.S. can keep its innovation edge. Business Week, November 17, page 34.
4 The fact that structure and systems are in place does not mean that the random and chaotic nature of innovation disappears (Garud, Raghu and Andrew H. Van de Ven. 1992. An empirical evaluation of the internal corporate venturing process. Strategic Management Journal, 19: 1193-1201; Polley, Douglas and Andrew H. Van de Ven. 1996. Learning by discovery during innovation development. International Journal of Technology Management, 11: 871-882), but instead it facilitates managing these uncertainties.
5 The importance of managing innovation rather than treating it as a mysterious event has been highlighted in the academic literature: Block, Zenas and Ian C. MacMillan. 1995. Corporate venturing: Creating new businesses within the firm. Boston, MA: Harvard Business School Press; Burgelman, Robert A. 1985. Managing the new venture division: Research findings and implications for strategic management. Strategic Management Journal, 6: 39-54.
6 The problem is not associated with the systems and processes per se, but the inability to change them when they are not useful anymore. The obsolescence of competencies and the inability to renew them but rather keep investing in them is called the competency trap. Levitt, Barbara and James G. March. 1988. Organizational learning. Annual Review of Sociology, 14: 319-340.
7 The reliance on structure and controls in innovative firms has been frequently highlighted. Cameron, Kim S. 1986. Effectiveness as paradox: Consensus and conflict in conceptions of organizational effectiveness. Management Science, 32: 539-553; Leonard-Barton, Dorothy. 1995. Wellsprings of knowledge: Building and sustaining the sources of innovation. Boston, MA: Harvard Business School Press; Miller, Danny. 1990. The Icarus Paradox: How exceptional companies bring about their own downfall, New York: Harper Business.
8 A subset of management systems are strategic and financial controls both related to innovation. Barringer, Bruce R. and Allen C. Bluedorn. 1999. The relationship between corporate entrepreneurship and strategic management. Strategic Management Journal, 20: 421-444.
9 Systems are critical to create the strategic flexibility required to combine executing the current strategy and designing long-term value. Burgelman, Robert A. and Yves L. Doz. 2001. The power of strategic integration. Sloan Management Review, 42 (3): 28-38; Raynor, Michael E. and Joseph L. Bower. 2001. Lead from the center: How to manage divisions dramatically. Harvard Business Review, 79 (5): 92-100.
10 Source: Navigant Consulting, Inc.
11 See the discussion later in Chapter 6 regarding electronic collaboration.
12 See, for example, Jolly, Vijay K. 1997. Commercializing new technologies: Getting from mind to market. Boston, MA: Harvard Business School Press.
13 While the process is described as linear, it moves in non-linear cycles. Moss Kanter, Rosabeth. Swimming in newstreams: Mastering innovation dilemmas. California Management Review, 31 (4): 45-69. A better way of thinking about it is a set of concentric circles indicating that once a stage is entered, it remains in the process until the end.
14 The depiction of innovation as a funnel is widely used and accepted. Clearly, it has certain merit in describing the certain aspects of flow from idea to commercial realities. However, it is not a complete picture of the flow and interactions involved in innovation. There is an opportunity for a new depiction of innovation. This could be very valuable to the management of innovation, because it could stimulate fresh insights and better management actions. We note the need but do not offer the improved picture of innovation. Our comment is meant to catalyze among innovation practitioners and researchers a new, improved graphic and mental model for depicting innovation (such as to innovate the innovation model and graphic).
15 Source: U.S. Patent and Trademark Office, U.S. Department of Commerce.
16 Derived from private communication with Southern California Edison and Moore, G. 1991. Crossing the Chasm. New York: Harper Business.
17 There is a general agreement on the stage nature of innovation processes, although the stages and their labels have varied over time. Dougherty, Deborah and T. Heller. 1994. The illegitimacy of successful product innovation in established firms. Organizational Science, 5: 200-218; Stopford, John M. and Charles W.F. Baden-Fuller. 1994. Creating corporate entrepreneurship. Strategic Management Journal, 15: 521-536. Our three stage model adds simplicity to capturing the most salient stages.
18 The idea of an intended process and a fortunate process has been discussed in the strategy literature under various labels such as intended strategy, emergent strategy, or autonomous strategy. Mintzberg, Henry. 1987. Crafting strategy. Harvard Business Review, 65 (4): 66-76; Burgelman, Robert A. 1985. Managing the new venture division: Research findings and implications for strategic management. Strategic Management Journal, 6: 39-54.
19 The strategic management literature has developed an elaborate model of these two sources of ideas within the strategic process concept starting from Bower, Joseph L. 1970. Managing the resource allocation process. Boston, MA: Harvard Business School Press; see Burgelman, Robert A. 2002. Strategy is destiny: How strategy-making shapes a company’s future. New York: The Free Press; Burgelman, Robert A. and Andrew S. Grove. 1996. Strategic dissonance. California Management Review, 38 (2): 8-28.
20 For a list of potential sources for ideas, see Drucker, Peter F. 1985. Innovation and entrepreneurship. New York: Harper & Row.
21 For an elaboration of how to identify opportunities, see Colarelli O’Connor, Gina and Mark P. Rice. 2001. Opportunity recognition and breakthrough innovation in large established firms. California Management Review, 43 (2): 95-116.
22 Nussbaum, B. 2004. Design. Business Week, May 17: 87-94.
23 Source: Navigant Consulting, Inc., and Arthur D. Little, Inc.
24 Rothenberg, R. 2004. Ram Charan: The thought leader interview. Strategy & Business, Fall (36): 91-96.
25 Eisenhardt, Kathleen M. and Behnam N. Tabrizi. 1995. Accelerating adaptive processes: Product innovation in the global computer industry. Administrative Science Quarterly, 40: 84-110.
26 Leary, W. 2002. The inquiring minds behind 200 years of inventions. The New York Times, October 22, D4.
27 Source: Navigant Consulting, Inc.
28 Seikman, P. 2003. A long way from tiny time pills. Fortune, July 21: 126C-126H.
29 Kirkpatrick, D. 2003. How to erase the middleman in one easy lesson. Fortune, March 17: 122.
30 On the impact of technologies and the ability to execute innovation, see O’Hara-Devereaux, Mary and Robert Johansen. 1994. Global work: Bridging distance, culture, and time. San Francisco, CA: Jossey-Bass; Schrage, Michael. 2000. Serious play: How the world’s best companies simulate to innovate. Boston, MA: Harvard Business School Press; Thomke, Stefan. 2001. Enlightened experimentation: The new imperative for innovation. Harvard Business Review, 79 (2): 67-75.
31 Von Krogh, Georg. 2003. Open-source software development: An overview of new research on innovators’ incentives and the innovation process. MIT Sloan Management Review, Spring: 14-18.
32 Chesbrough, H. 2003. A better way to innovate. Harvard Business Review, July: 12-13.
Chapter 6
1 Private communication with R. Shelton, 2004.
2 Further discussion in Hertenstein, J.H., and M.B. Platt. 1997. Developing a strategic design culture. Design Management Journal, 8: 10-19.
3 A classic article on the dangers of a badly designed management system is Kerr, Stephen. 1975. On the folly of rewarding A while hoping for B. Academy of Management Journal, 18 (4): 769-784.
4 Frigo, Mark L. 2002. Strategy, business execution, and performance measures. Strategic Finance, May: 6-8.
5 The list of financial metrics range from simple ROI metrics to Net Present Value (NPV) calculations or sophisticated real options analysis. Amram, Martha and Nalin Kulatilaka. 1999. Real options: Managing strategic investment in an uncertain world. Boston, MA: Harvard Business School Press.
6 Within product development, these descriptive statistics have been provided by Hertenstein, Julie H. and Marjorie B. Platt. 2000. Performance measures and management control in new product development. Accounting Horizons, 14 (3): 303-323.
7 For a more detailed explanation of the turnaround at Mobil, see Kaplan, Robert S. 1997. Mobil USM&R (A1) and (A2), Harvard Business School Cases numbers 197120 and 197121.
8 Private communication with authors, 2004.
9 Monitoring is the traditional role of measurement systems. The sharpest tools are financial measures through which budgets are carefully monitored through variances. Merchant, Kenneth A. 1997. Modern management control systems: Text and cases. Upper Saddle River, NJ: Prentice Hall. Stage-gate systems for product development rely to a large extent on this interpretation of measurement systems where action only happens if execution deviates from expectations at the gates. McGrath, Michael E. 1995. Product strategy for high-technology companies. New York: Richard Irwin, Inc.
10 The importance of this interaction is highlighted in the concept of creative abrasion: Leonard-Barton, Dorothy. 1995. Wellsprings of knowledge: Building and sustaining the sources of innovation. Boston: Harvard Business School Press.
11 For more detail, see Simons, Robert. 1995. Levers of control: How managers use innovative control systems to drive strategic renewal. Boston, MA: Harvard Business School Press. He uses the term interactive systems to describe the learning role.
12 The concept of the Balanced Scorecard was originally formulated and further developed by Robert Kaplan and David Norton. Their bibliography is extensive; an important reference is Kaplan, R. S. and Norton, D. P. 2001. The strategy-focused organization: How Balanced Scorecard companies thrive in the new business environment. Boston, MA: Harvard Business School Press.
13 For the relevance of these causal maps, see Kaplan, Robert S. and David P. Norton. 2003. Strategy maps: Converting intangible assets into tangible outcomes. Boston, MA: Harvard Business School Press.
14 For a description of this concept, see Epstein, Marc J. and Robert A. Westbrook. 2001. Linking actions to profits in strategic decision-making. MIT Sloan Management Review, Spring: 39-49.
15 Rucci, Anthony J., Steven P. Kirn, and Richard T. Quinn. 1998. The employee-costumer-profit chain at Sears, Harvard Business Review, 76 (1): 82-98.
16 The Total Quality Management (TQM) philosophy is a widely-used, systematic approach to incremental innovation. The Deming and Baldrige Awards have recognized the TQM efforts of companies such as Boeing or Nippon Telephone and Telegraph (NTT) to put into place systematic approach for incremental innovation.
17 For more detail on measures for human resource-related topics, see Becker, Brian E., Mark A. Huselid, and Dave Ulrich. 2001. The HR scorecard: Linking people, strategy, and performance. Boston, MA: Harvard Business School Press.
18 The importance of having a dense network within the company has been highlighted in previous chapters. Also see Chesbrough, Henry. 2003. Open innovation: The new imperative for creating and profiting from technology. Boston, MA: Harvard Business School Press.
19 For a broader elaboration of the concept of boundaries, see Simons, Robert. 1995. Control in an age of empowerment. Harvard Business Review, 73 (2): 80-89.
20 Portfolios are an important approach to minimizing risk; for recent developments in portfolio management, see Cooper, Robert G. and Scott J. Edgett. 1999. New product portfolio management: Practices and performance. Journal of Product Innovation Management, 16 (4): 333-352; Cooper, Robert G., Scott J. Edgett, and Elko J. Kleinschmidt. 2001. Portfolio management for new product development: Results of an industry practices study. R&D Management, 31 (4): 361-381; Chen-Fu, Chien. 2002. A portfolio evaluation framework for selecting R&D projects. R&D Management, 32 (4): 359-369. For the problems of blindly applying portfolio ranking systems, see Souder, William E. 1987. Managing new product innovations. Lexington, KY: Lexington Books. Souder argues for some low-priority projects to be funded in order to establish a beachhead.
21 The information technology age has brought significant power to measurement systems, and nowadays there are numerous software packages that provide this power. See Applegate, Lynda M., Robert D. Austin, and F. Warren McFarlan. 2003. Corporate information strategy and management: Text and cases, 6th edition. New York: McGraw-Hill/Irwin.
22 Meyer, Mark H., Peter Tertzakian, and James M. Utterback. 1997. Metrics for managing research and development in the context of the product family. Management Science, 43 (1): 88-111.
23 For a very helpful framework to structure leading-lagging measures, see Epstein, Marc J. and Robert A. Westbrook. 2001. Linking actions to profits in strategic decision-making. MIT Sloan Management Review, Spring: 39-49.
24 Hauser, John R. Research, development, and engineering metrics. Management Science, 44 (12): 1670-1689.
25 For the original formulation of the economic value added, see Stewart, G. Bennett. 1991. The quest for value. New York: Harper Business; for additional applications, see Epstein, Marc J. and S. David Young. 1998. Improving corporate environmental performance through economic value added. Environmental Quality Management, 7 (4): 1-8; Zimmerman, Jerold L. 1997. EVA and divisional performance: Capturing synergies and other issues. Bank of America Journal of Applied Corporate Finance, Summer: 98-108.
26 Smith, Fred. 2002. How I delivered the goods. Fortune Small Business, October.
27 For recent ideas on how to improve innovation measurement, see Meyer, C. 1994. How the right measures help teams excel. Harvard Business Review, May-June: 95-103; Meyer, Mark H. and James M. Utterback. 1993. The product family and the dynamics of core capability. MIT Sloan Management Review, 34 (3): 29-48; Werner, B.M. and W.E. Souder. 1997. Measuring R&D performance—U.S. and German practices. Research Technology Management; Hauser, John R. Research, development, and engineering metrics. Management Science, 44 (12): 1670-1689.
28 See, for example, Davila, Tony. 2000. An empirical study on the drivers of management control systems’ design in NPD. Accounting, Organizations and Society, 25: 383-409.
29 For a more detailed account of the limitations of subjective evaluation (including theft, compression of ratings, and rent-seeking activities), see Prendergast, Canice. 1999. The provision of incentives in firms. Journal of Economic Literature, 37 (1): 7-64.
30 The New York Times. 2002. Living on Internet time, in an earlier age. April 4, E7.
31 Navigant Consulting, Inc., and 2001 Arthur D. Little.
Chapter 7
1 There is ample evidence that financial rewards are not the main driver as long as the opportunity costs of engaging in the innovative activity are not high. Busenitz, Lowell W. 1999. Entrepreneurial risk and strategic decision-making: It’s a matter of perspective. Journal of Applied Behavioral Science, 35 (3): 325-340; Nonaka, Ikujiro and Hirotaka Takeuchi. 1995. The knowledge-creating company: How Japanese companies create the dynamics of innovation. New York: Oxford University Press; Shane, Scott and S. Venkataraman. 2000. The promise of entrepreneurship as a field of research. Academy of Management Review, 25 (1): 217-226.
2 See, for example, Judge, William Q., Gerald E. Fryxell, and Robert S. Dooley. 1997. The new task of R&D management: Creating goal-directed communities for innovation. California Management Review, 39 (3): 72-85; Krueger, Jr., Norris F. and Deborah V. Brazeal. 1994. Entrepreneurship potential and potential entrepreneurs. Entrepreneurship Theory and Practice, 18 (3): 91-104.
3 Accordingly, it has received significant attention at the top management level (Tosi, H.L., and L.R. Gomez-Mejia. 1994. CEO compensation monitoring and firm performance. Academy of Management Journal 37 (4): 1002-1016; Ittner, Christopher D., David F. Larcker, and Madhav V. Rajan. 1997. The choice of performance measures in annual bonus contract. Accounting Review, 72: 231-273.) as well as the level of the division (Keating, A.S. 1997. Determinants of divisional performance evaluation practices. Journal of Accounting and Economics, 24 (3): 243-273.) and the sales organization (Bartol, K.M. 1999. Reframing salesforce compensation systems: an agency theory-based performance management perspective, Journal of Personal Selling and Sales Management. 29 (3): 1-16.).
4 Amabile, Teresa. 1998. How to kill creativity. Harvard Business Review, September–October.
5 For the dangers of over-emphasizing incentives, see Amabile, Teresa M. 1997. Motivating creativity in organizations: On doing what you love and loving what you do. California Management Review, 40 (1): 39-58; Csikszentmihalyi, Mihaly. 1996. Creativity: Flow and the psychology of discovery and invention. New York: Harper Collins.
6 Most books on compensation and rewards provide descriptions of these different rewards. For example, Flannery, Thomas P. 1996. People, performance, and pay: Dynamics compensation for changing organizations. New York: Free Press.
7 Work on improved business models for commercial photovoltaics is underway in the California Energy Commission, supported by Navigant Consulting, Inc.
8 Stretch goals should not be used for incentive purposes like regular goals; it breaks their magic. This does not mean that team members should not be rewarded for their effort and for reaching breakthroughs. Rather, the team must be recognized for its efforts and accomplishments.
9 Source: Navigant Consulting, Inc.
10 A survey given to the 1994 PDMA membership.
11 An academic study reports evidence indicating that the evaluation of individual team members and individual reward based on position and status is correlated to a higher satisfaction among team members as opposed to a generic team reward for all members. Survey referenced in Sarin, Shikhar and Vijay Mahajan. 2001. The effect of reward structures on performance of cross-functional product development teams. Journal of Marketing, 65: 35-53.
12 Subjective measures can behave as substitutes of objective measures. In particular, their weight in the compensation contract increases with the noisiness of objective measures that receive lower weight (Ittner, Christopher D., David F. Larcker, and Madhav V. Rajan. 1997. The choice of performance measures in annual bonus contracts. Accounting Review, 72: 231-255), or when objective measures have congruity limitations (Hayes, Rachel M. and Scott Schaefe. 2000. Implicit contracts and the explanatory power of top executive compensation for future performance. RAND Journal of Economics, 31 (3): 273-293). In dynamic settings, subjective measures can behave both as complements and substitutes of objective measures (Baker, G., R. Gibbons, K. J. Murphy. 1994. Subjective performance measures in optimal incentive contracts. Quarterly Journal of Economics, 109, 1125-1156).
13 For a more detailed account of the limitations of subjective evaluation (including theft, compression of ratings, and rent-seeking activities), see Prendergast, Candice. 1999. The provision of incentives in firms. Journal of Economic Literature, 37 (1): 7-64.
14 See Kohn, Alfred. 1993. Why incentive plans cannot work. Harvard Business Review, 71 (5), 54-61.
15 Davila A. 2003. Short-term economic incentives in new product development. Research Policy, 32: 1397-1420.
16 A study was done where two groups of people were asked to write a poem; one group received monetary compensation while the other did not. Afterwards, both groups were asked why they wrote the poems; the first group—the one that received monetary compensation—answered that they did it for the money, and the people in the second group replied that love for poetry drove them to write the poems.
17 Amabile, T.M., R. Conti, H. Coon, J. Lazenby, and M. Herron. 1996. Assessing the work environment for creativity. Academy of Management Journal. 39: 1154-1184; Deci, E.L., R.M. Ryan. 1985. Intrinsic motivation and self-determination in human behavior. New York: Plenum; Skaggs, K.J., A.M. Dickinson, and K.A. O’Connor. 1992. The use of concurrent schedules to evaluate the effects of extrinsic rewards on “intrinsic motivation:” a replication. Journal of Organizational Behavior Management, 12: 45-83.
18 See Eisenhardt, K.M., and B.N. Tabrizi. 1995. Accelerating adaptive processes: product innovation in the global computer industry. Administrative Science Quarterly, 40: 84-110.
19 Amabile, Teresa M. Motivating creativity in organizations: On doing what you love and loving what you do. California Management Review, 40 (1): 39-58.
20 Amabile, T.M., R. Conti, H. Coon, J. Lazenby, and M. Herron. 1996. Assessing the work environment for creativity. Academy of Management Journal, 39: 1154-1184.
21 See, for example, Coughlan, A. T. and C. Narasimhan. 1992. An empirical analysis of sales-force compensation plans. Journal of Business, 65 (1): 93-121; Feldman, L. P. 1996. The role of salary and incentives in the new product function. Journal of Product Innovation Management, 13 (3): 216-228; Jenkins, G. D., A. Mitra, et al. 1998. Are financial incentives related to performance? A meta-analytic review of empirical research. Journal of Applied Psychology, 83 (5): 777-787; John, G. and B. Weitz. 1989. Salesforce compensation: An empirical investigation on factors related to use of salary versus incentive compensation. Journal of Marketing Research, 26: 1-14; Kunkel, J. G. 1997. Rewarding product development success. Research Technology Management 40 (5): 29-31; Natter, M., A. Mild, et al. 2001. The effect of incentive schemes and organizational arrangements on the new product development process. Management Science, 47 (8): 1029-1045; Oliver, R. L. and E. Anderson. 1995. Behavior and outcome-based control systems: Evidence and consequences of pure-form and hybrid governance. Journal of Personal Selling & Sales Management, 25 (4): 1-15.
Chapter 8
1 For the importance of fast learning, see Brown, Shona L. and Kathleen M. Eisenhardt. 1997. The art of continuous change: Linking complexity theory and time-paced evolution in relentlessly shifting organizations. Administrative Science Quarterly, 42: 1-34; Brown, Shona L. and Kathleen M. Eisenhardt. Competing on the edge: Strategy as structured chaos. Boston, MA: Harvard Business School Press. See, for example, Nevis, Edwin C. and Anthony J. DiBella. 1995. Understanding organizations as learning systems. MIT Sloan Management Review, 36 (2): 73-86. For the role of learning in the innovation process, see Zahra, Shaker A., R. Duane Ireland, and Michael A. Hitt. 2000. International expansion by new venture firms: International diversity, mode of market entry, technological learning, and performance. Academy of Management Journal, 43 (4): 925-950.
2 Leslie, M. 2004. The sales learning curve, always on. http://www.alwayson-network.com. September 9.
3 This is a basic premise of learning processes: Lucifer, Richard, Christopher M. McDermott, Gina Colarelli O’Connor, Lois S. Peters, Mark R. Rice, and Robert W. Veryzer. 2000. Radical innovation: How mature companies can outsmart upstarts. Boston, MA: Harvard Business School Press; Gunther McGrath, Rita and Ian C. MacMillan. 1995. Discovery driven planning. Harvard Business Review, 73: 4-12; Sykes, Hollister B. and David Dunham. 1995. Critical assumption planning: A practical tool for managing business development risk. Journal of Business Venturing, 10 (6): 413-424.
4 The ability of an organization to learn has been studied under the concept of absorptive capacity; see Cohen, Wesley M. and Daniel A. Levinthal. 1990. Absorptive capacity: A new perspective on learning and innovation. Administrative Science Quarterly, 35: 128-152.
5 For the importance of managing uncertainty in product development: Thomke, Stefan and Donald Reinertsen. 1998. Agile product development: Managing development flexibility in uncertain environments. California Management Review, 41 (1): 8-31.
6 Burgelman, R. A. 2002. Strategy is destiny: How strategy-making shapes a company’s future. New York: The Free Press.
7 Argyris, Chris. 1977. Double loop learning in organizations. Harvard Business Review, September-October: 115-124.
8 For the limitations of learning, see Levinthal, Daniel A. and James G. March. 1993. The myopia of learning. Strategic Management Journal, 14: 95-112.
9 See Simons, Robert, Antonio Davila, and Afroze Mohammed. 1996. Becton Dickinson—Designing the new strategic, operational, and financial planning process. Harvard Business School Case 9-197-014.
10 The second year was briefly outlined in financial and strategic terms. According to the CEO, anything beyond year two and even any detail in year two was pure conjecture, given the rate of change in the market.
11 A similar concept in the learning literature is the difference between knowledge exploration and knowledge exploitation: March, James G. 1991. Exploration and exploitation in organizational learning. Organization Science, 2 (1): 71-88; Kuemmerle, Walter. 1999. The drivers of foreign direct investment in research and development: An empirical investigation. Journal of International Business Studies, 30 (1): 1-25.
12 On the idea of tacit knowledge, see Nonaka, Ikujiro. 1990. Redundant, overlapping organization: A Japanese approach to managing the innovation process. California Management Review, 32 (3): 27-38; Nonaka, Ikujiro. 1994. A dynamic theory of organizational knowledge creation. Organization Science, 5 (1): 14-38.
13 For the importance of learning out of the chaotic nature of innovation, see Cheng, Yu-Ting and Andrew H. Van de Ven. 1996. Learning the innovation journey: Order out of chaos? Organization Science, 7 (6): 593-614.
14 See, for example, Markides, C. 1997. Strategic innovation. Sloan Management Review, 9-23.
15 For more detail on these four systems, see Davila, Tony. 2005. The failure and promise of management control systems for innovation and strategic change in Controlling strategy: Management, accounting, and performance measurement, Chris Chapman, editor. Oxford: Oxford University Press.
16 For more information on how BP structured its learning processes, see Berzins, Andris, Joel Podolny, and John Roberts. 1998. British Petroleum (B): Focus on learning. Graduate School of Business, Stanford University Case # IB-16B.
17 See Bartlett, Christopher. 1998. McKinsey and Company: Managing knowledge and learning. Harvard Business School Case #9-396-357.
18 See Davila, Tony. 2003. Salesforce.com: The evolution of marketing systems. Graduate School of Business, Stanford University Case # E-145.
19 Wheelwright, Stephen C. and Edward Smith. 1999. The new product development imperative. Harvard Business Review, March.
20 Galvin, Robert. 1998. Science roadmaps. Science, 280 (5365): 803.
21 Amabile, Teresa. 1998. How to kill creativity. Harvard Business Review, September–October: 77-87.
Chapter 9
1 Christensen, Clayton and Kirstin Shu. 1999. What is an organization’s culture? Harvard Business School Case 9-399-104, May 20.
2 Fisher, Lawrence M. 2004. How Dell got solutions. 2004. Strategy & Business, 36, August: 47-59.
3 Schrage, Michael. 2001. Playing around with brainstorming. Harvard Business Review, March: 149-154.
4 Another danger is the size associated with success. Larger organizations need larger opportunities to justify the attention devoted to these opportunities: Bower, Joseph L. and Clayton M. Christensen. 1995. Disruptive technologies: Catching the wave. Harvard Business Review, 73 (1): 43-53; Christensen, Clayton M. 1997. The innovator’s dilemma: When new technologies cause great firms to fail. Boston, MA: Harvard Business School Press; Goold, Michael, Andrew Campbell, and Marcus Alexander. 1994. Corporate-level strategy: Creating value in the multi-business company. New York: John Wiley & Sons.
5 Rivlin, Gary and John Markoff. 2004. Can Mr. Chips transform Intel? The New York Times, September 12: 3-1, 3-4.
6 The term “cultural entrepreneurship” built through cultural mechanisms such as myths, stories, and reputation can change the innovative culture within a company; see Lounsbury, Michael and Mary Ann Glynn. 2001. Cultural entrepreneurship: Stories, legitimacy, and the acquisition of resources. Strategic Management Journal, 22: 545-564.
7 Leonard, Dorothy and Walter Swap. 1999. When sparks fly: Igniting creativity in groups. Boston, MA: Harvard Business School Press.
8 Kelley, Tom. 2001. The art of innovation: Lessons in creativity from IDEO, America’s leading design firm. New York: Currency Books.
9 See, for example, Shane, Scott A., S. Venkataraman, and Ian C. MacMillan. 1995. Cultural differences in innovation championing strategies. 1995. Journal of Management, 21 (5): 931-952. For a traditional work on cultural differences, see Hofstede, Geert. 1980. Culture’s consequences: International differences in work-related values. Beverly Hills, CA: Sage.
10 Sutton, Robert I. 2001. The weird rules of creativity. Harvard Business Review, September: 94-103.
11 Ibid.
12 Amabile, Teresa. 1998. How to kill creativity. Harvard Business Review, September–October: 77-87.
13 Collins, Jim. 1999. Turning goals into results: The power of catalytic mechanisms. Harvard Business Review, July-August: 71-82.
14 The New York Times. 2004. Living on Internet time, in an earlier age. April 4, E7.
15 The role of top management is critical: Hambrick, Donald C. The top management team: Key to strategic success. California Management Review, 30 (1): 88-108; Hambrick, Donald C., Theresa Seung Cho, and Ming-Jer Chen. 1996. The influence of top management team heterogeneity on firms’ competitive moves. Administrative Science Quarterly, 41 (4): 659-684.
16 Schrage, Michael. 2001. Playing around with brainstorming. Harvard Business Review, March: 149-154.
17 The Economist’s Third Annual Innovation Awards and Summit, San Francisco, September 14, 2004.
18 Fisher, Lawrence M. 2004. How Dell got solutions. Strategy & Business, 36: 47-59.
Chapter 10
1 Mossberg, Walt. 2004. The Rollins effect—More Dell for your money? AlwaysOn Network, October 8.
2 Buckley, Neil. 2002. Revolutionary with a relaxed approach. The Financial Times. August 15: 7.
3 The Economist. 2004. King of the catwalk. October 2: 61-62.
4 Nakamato, M. 2004. The Japanese art of performance. Financial Times, May 18, page 8.
5 Mossberg, W. 2004. The Rollins effect—more Dell for your money? AlwaysOn Network, October 5. www.alwayson-network.com
6 Griffith, Victoria. 2003. How Gillette’s media-shy boss led it back to the cutting edge. The Financial Times. May 7: 10.
7 Buckley, N. 2004. Search for the right ingredients. Financial Times, October 7, page 9.
8 Swisher, Kara. 2004. HP: Invent, innovate, and out-compete. AlwaysOn Network, August 21.
9 Marsh, Peter. 2003. Siemens clocks up top results. The Financial Times, August 19: 6.
10 The Economist’s Third Annual Innovation Awards and Summit. September 14, 2004. San Francisco.
11 Adapted from Navigant Consulting, Inc.
12 Source: Navigant Consulting, Inc., and Arthur D. Little, Inc.
13 Kleiner, Art. 2004. GE’s next workout. Strategy & Business, 33: 26-30.
14 Tushman, Michael L. and Charles A. O’Reilly. 1997. Winning through innovation. Harvard Business Press.
15 Swisher, K. 2004. HP: Invent, innovate, and out compete. AlwaysOn. www.alwayson-network.com. August 21.