Innovation and the large enterprise

Innovation within large enterprises is where internal politics meets platform-constrained ideas. And yet, it is still a great source of innovation. Especially because of the recent consumerization of IT and tools.  This forces IT to be responsive, with innovations for the workforce. 

“consumers are bringing their preferences to work is clear. At many companies, they’re actually bringing their own tools.  Forrester has done a number of studies on the trend. In a recent survey of 1,700 information workers, nearly half of the respondents said that they bought their own work smartphones while only 41 percent reported that their company paid. Another study of 4,000 similar workers found that 37 percent of employees were using “do-it-yourself technologies without IT’s permission. LinkedIn, Google Docs, Smartsheet.com, Facebook, iPads, YouTube, Dropbox, Flipboard — the list is long and growing.” <citation>

The responsive company already has a lot of the thinking done for us.  With excellent work by Alan Murray, Jack Welch, and Clayton Christensen’s research on the market conditions around Innovation, and the sources of Innovation, the threats to Innovation, and the value which Innovation provides. Disruptive technologies and disruptive times are not frequent, but most companies miss those opportunities, and are often upended by them.  With consumer products (and cloud-services) increasingly being incredibly easy to use/install/deploy, the IT departments have large pressure to innovate.  Saying NO is not enough anymore (thanks God!).

I’ve summarized the different ways companies tap creativity using the exact motivations which are specifically important for knowledge workers.  The specifics of Innovation programs at Google, Wikipedia, GE, Seagate, 3M, and other companies are included in the link above. I hope I described the link between the  knowledge workers’ Drive (Daniel Pink!) and the Innovation program successes at those companies. Pink repeats the answer several times: Science already knows a lot about motivation and behavior, which most businesses have yet to understand about us humans.

  1. Sources of Innovation – Small, cross-functional, diverse thinking and visibly supported in taking risk to solve important problems which they believe the company will act to solve.
  2. Threats to Innovation -The sacred structures so beloved in the post-industrial manufacturing world – the MBO management by objective scorecards – the measures which are not linked to bottom-line or top-line growth. Managers seeking acquisition of resouces or budgets, rather than accomplishment. Uniformity and conformist cultures.
  3. Value of Innovation – this is tempting to say, if you don’t ‘get it’ you never will.  But…
    1. Facebook’s Hackathon Innovation sessions are credited as large part of leading FB to 1B users in less than 7 years.
    2. Failure to embrace distuptive change they themselves started – killed Seagate.
    3. The largest 3M product (post-it!) was bootlegged within the company to prevent existing products from killing it.
    4. Gmail and Adsense @ Google were created on 20% free-time – these are top revenue and advertising elements in Google’s platform.
    5. Employees leading reason for leaving companies? Bad managers. A top reason employees cite- bad managers failing to support good, new ideas.

Innovator’s Dilemma – http://www.amazon.com/gp/product/0875845851/   I am including my own notes blended with the summaries there.    

Harvard professor Clayton M. Christensen says that in certain circumstances, “outstanding companies can do everything right and still lose their market leadership, or worse, disappear completely.” He proves his conclusion and articulates how to avoid a being killed by disruptive technologies.  Incrementalism is defined as a management strategy to pursue annual 2%-5% changes through optimization.  In dealing with disruptive, market changing situations the incrementalist approach causes actual harm to a company’s ability to adopt fast-moving changes in cost, function, features. Several corporate institutional hurdles also insulate the incrementalist’s failure under rapidly changing value propositions.  The movement of structural and software development to “the cloud” changes cost, speed and availability radically, and maps well to the topics covered in 8088 processor, Seagate drives, and the hydraulic excavator. 

Alan Murray’s WSJ summary of most managers is interesting to evaluate -“Corporations are bureaucracies and managers are bureaucrats. Their fundamental tendency is toward self-perpetuation. They are, almost by definition, resistant to change. They were designed and tasked, not with reinforcing market forces, but with supplanting and even resisting the market.” Alan Murray and Christensen are collectively observing that managers, management, and companies are usually unsuited to move quickly during disruptive periods.

Examples of corporate insulation mechanisms which cause harm under these disruptive cycles include;  static scorecards, corporate bonus structures on existing KPIs, long-range business-plans, “small market” syndrome and failure to appreciate the need to possibly support new products which erode existing products. These structures all provide validation to the objection against adopting innovations.  This concept links nicely to Jack Welch analogy of layers of management acting like successive layers of coats – preventing people from even accurately perceiving basics like the temperature.  For a humorous look at this see http://www.thelowbar.com/2008/08/how-shit-happens.html

Most technologies improve the performance of existing products in relation to the criteria which existing customers have always used. These technologies are called sustaining technologies. Disruptive technologies do something different. They create an entirely new value proposition. They improve the performance of the product in relation to new performance criteria. Products which are based on disruptive technologies are often smaller, cheaper, simpler, and easier to use. However, the moment they are introduced, they cannot immediately compete against the traditional products and so they cannot directly reach a big market. The initial period of disruptive technologies usually see objections because the innovation does *not* map well to the existing structures of scorecards, traditional delivery models, existing mental models, staffing targets, and other plans built for the existing world, rather than the future.

Christensen focuses on “disruptive technology” of the Honda Supercub, Intel’s 8088 processor, and the hydraulic excavator.  He shows why most companies miss “the next great wave.” Whether in electronics or retailing, a successful company with established products will get pushed aside unless managers know when to abandon traditional business practices. Using the lessons of successes and failures from leading companies, The Innovator’s Dilemma presents a set of rules for capitalizing on the phenomenon of disruptive innovation.”

Christensen researched how disruptive technologies have developed in the computer disk industry, an extremely rapid evolving industry. He identified six steps in the emergence of disruptive technologies:

1. Disruptive technologies often are invented in traditional large companies. Example: at Seagate Technology, the biggest producer of 5,25 disks, engineers in 1985 designed the first 3,5 disk.

2. The marketing department examines first reactions from important customers to the new technology. Then they notice that existing customers are not very interested and they conclude that not a lot of money can be made with the new product. Example: this is what happened at Seagate. The 3,5 disk’s were put upon the shelf.

3. The company keeps on investing in the traditional technology. Performance improvement of the traditional technology is highly appreciated by existing customers and a lot of money is being made. Example: Seagate invested in the 5,25 disk technology. This led to considerable improvement of the technology and to a considerable improvement of sales.

4. New companies are started up (by ex-employees of the traditional companies) and markets for the new technology emerge by trial and error. Example: ex-Seagate people started up Corner Peripherals. This company focused on the small emerging market for 3,5 inch disks. In the beginning this was only for the laptop market.

5. The new players move up in the market. The performance of the new technologies gets better after some time, enabling them to compete better and better with the traditional companies and products. Example: the performance of the 3,5 disks improved drastically. The 3,5 inch disk moved up in the market, to the personal computer market. Corner pushed Seagate out of the PC market for 3,5 inch disk drives.

6. Traditional companies try to defend their market position and to get along in the new market. Often they notice that they have fallen behind so far, that they cannot keep up. Example: Seagate did not succeed in capturing a significant part of the new market for 3,5 inch disk drives for PC’s.

The events described above can be understood by the four principles of disruptive technologies which Christensen formulates:

1. In well-led companies it is customers, not managers, who actually determine resources allocation. This is a proposition of the resources dependence theory (Pfeffer & Salancik, 1978) which is supported strongly by the research of Christensen. In essence: middle managers will not tend to invest in technologies that are not directly appreciated by important (large) clients, because they will not be able to get quick financial gains by doing this.

2. Small markets can not fulfil the growth need of large companies. For several reasons, growth is important for companies. Unfortunately, the bigger the company, the harder it is to continue growth. A small company (40 million sales) with a growth target of 20%, must achieve 8 million extra sales. A large company (4 billion sales), has to achieve 800 million of extra sales! Emerging markets often simply are not large enough to fulfil such growth needs. They can, however, fulfil the growth needs of new small companies.

3. Markets that do not exist cannot be analyzed. The ultimate applications of disruptive technologies cannot be foreseen. Failure is an intrinsic unavoidable step toward success.

4. Technology supply does not always equal the market demand. The speed of technological progress is often bigger than the speed with which the customer demand develops. By improving the performance of the disruptive technologies (for instance the 3,5 inch disks, first only used in the laptop market), they became suitable for the larger PC-market.

These steps explain why traditional companies are often not capable of applying disruptive technologies. Christensen argues that you cannot resist these four principles. What you can do however, is use them to your advantage. For instance: in a large company you can create an ‘island’ where the new technology is developed for the new market. Also it is possible get an ownership in emerging companies which develop the new technologies (several companies have done this successfully).”

Advertisements

About paulscho36

I like to simplify software. I love people who actually deliver software.
This entry was posted in Uncategorized and tagged , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s