CHAPTER 5

MANAGING INNOVATION
WITHIN FIRMS

Prepared by:
Kenny Fo Chee Ming
LL.B (UWE), MBA (ARU)
THE DILEMMA OF INNOVATION MANAGEMENT

Within virtually all organisations there is a fundamental tension

between the need for stability and the need for creativity.

On the one hand, companies require stability and static routines to

accomplish daily tasks efficiently and quickly. This enables the
organisation to compete today.

For example, the processing of millions of cheques by banks

every day or the delivery of food by multiples to their retail outlets all
over the country, demands high levels of efficiency and control.
 CONT.

On the other hand, companies also need to develop new ideas and
new products to be competitive in the future.

Hence they need to nurture a creative environment where ideas can

be tested and developed. This poses one of the most fundamental
problems for management today
 CONT.

The firm needs to ensure there At the same time, it needs to

is a constant pressure to drive provide room for new product
down costs and improve development and making
efficiency in its operations. improvements.

The most obvious way forward is to separate

production from research and development (R&D)
 MANAGING UNCERTAINTY

Pearson’s uncertainty map

(Pearson, 1991) provides a
Y Axis
framework for analysing and
understanding uncertainty and the
innovation process.

The X axis represents the

uncertainty about output.
X Axis

The Y axis represents the uncertainty

about the process.
 CONT.

Quadrant 1
Quadrant 1 represents activities involving a high degree of uncertainty about means and ends. The
ultimate target is not clearly defined and how to achieve this target is also not clear. This has been
labelled exploratory research or blue sky research, because the work sometimes seems so far removed
from reality that people liken it to working in the clouds!

These activities often involve working with technology that is not fully understood and where potential
products or markets have also not been identified. This is largely the domain of university research
laboratories, which usually are removed from the financial and time pressures associated with industry.

Some science-based organisations also support these activities, but, increasingly, it is only large
organisations that have the necessary resources to fund such exploratory studies. For example, Microsoft
conducts the majority of its research in Seattle, United States. Interestingly, it calls this centre a campus.
 CONT.

Quadrant 2
In this area, the end or target is clear. For example, a commercial opportunity may have been identified
but, the means of fulfilling this has yet to be established. Companies may initiate several different projects
centred around different technologies or different approaches to try to achieve the desired product. Also,
additional approaches may be uncovered along the way. Hence, there is considerable uncertainty about
precisely how the company will achieve its target.

This type of activity often is referred to as development engineering and is an ongoing activity within
manufacturing companies that are continually examining their production processes, looking for
efficiencies and ways to reduce costs. A good example of a successful development in this area is the
Guinness ‘In-can system’. The company was clear about its target – trying to make the taste of Guinness
from a can taste the same as draught Guinness. Precisely how this was to be achieved was very
uncertain and many different research projects were established.

Quadrants 3 and 4 deal with situations where there is more certainty associated with how the business
will achieve the target. Usually, this means that the business is working with technology it has used
before.
 CONT.

Quadrant 3
In this area, there is uncertainty regarding ends. Usually, this is associated with attempting to discover
how the technology can be used most effectively. Applications engineering is the title given to this area of
activity. Arguably, many new materials fall into this area.

For example, the material kevlar (used in the manufacture of bullet_x0002_proof clothing) currently is
being applied to a wide range of different possible product areas. Many of these may prove to be
ineffective, due to costs or performance, but some new and improved products will emerge from this
effort.
 CONT.

Quadrant 4
This area covers innovative activities where there is most certainty. In these situa_x0002_tions, activities
may be dominated by improving existing products or creating new products through the combination of a
market opportunity and technical capability.

With so much certainty, similar activities are likely to be undertaken by the compe_x0002_tition. Hence,
speed of development is often the key to success here. New product designs that use minimal new
technology but improve, sometimes with dramatic effect, the appearance or performance of an existing
product are examples of product innovations in this area.

A good exponent of this is Samsung. It has demonstrated an ability to introduce new mobile phones
incorporating new designs rapidly into the market, thereby maintaining its position as market leader.
ORGANISATIONAL CHARACTERISTICS THAT
FACILITATE THE INNOVATION PROCESS

Figure: Innovation stimulus, capacity and performance

 CONT.

Figure: Critical factors for innovation success

CONT.

Table: Innovation management

measurement areas
 CONT.

Table: Summary of the organisational

characteristics that facilitate the
innovation process
ORGANISATIONAL STRUCTURES AND INNOVATION

Table: Organic versus mechanistic organisational

structures
 THE ROLE OF THE INDIVIDUAL
IN THE INNOVATION PROCESS

Figure: Key individual roles within the innovation

process
IT SYSTEMS AND THEIR IMPACT ON INNOVATION

Enterprise resource planning (ERP) is a

process used by companies to manage and
integrate the important parts of their
businesses.

Many ERP software applications are

important to companies because they help
them implement resource planning by
integrating all of the processes needed to
run their companies with a single system.

An ERP software system can also integrate

planning, purchasing inventory, sales,
marketing, finance, human resources, and
more.
 CONT.

Some of the potential benefits of implementing ERP systems are:

- more efficient business processes;

- reduction of costs to several business procedures;
- better coordination and cooperation between functions and
different company departments;
- better management monitoring and controlling functions;
- modification and adaptation abilities accordingly to company and
market requirements;
- more competitive and efficient entrance to electronic markets and
electronic commerce;
 CONT.

- possible redesigning of ineffective business functions;

- access to globalisation and integration to the global economy;
- inventory visibility and better decision support;
- active technology for market research and media environment; and
- improving communication between partners of the channel.
 CONT.

In practice:

Enterprise Resource Planning (ERP) software has enabled business across the world to
innovate by automating and integrating their core business so that they can focus on being
more effective and successful. It helps to manage risk, by automating the customer order
process, scheduling operations, keeping a watchful eye on inventory records, and the
company’s financial data.

An ERP system can drive huge improvements by defining business processes, protecting
business data, enabling work plans, providing customer service tools, and translating data into
easy-to-understand information that allows for better product development, and driving
down costs and wastage.
 CONT.

Figure: Paradox of ERP systems and innovation organisational requirements

INNOVATION MANAGEMENT TOOLS & TECHNIQUES

Developing successful innovative products does not always mean

using the latest patented technology.

Being successful at managing innovation is rather a way of thinking

and finding creative solutions within the company.

With this in mind, innovation management can benefit from well-

established management principles to help the leaders of an
organisation sustain innovativeness and even recover from a period of
stagnation, if applied correctly and vigorously.
CONT.
 INNOVATION AUDIT

Innovation audit is designed to map out innovation challenges and risks that prevent
organisations from achieving their maximum potential with innovation initiatives.

The aim of the innovation audit is not to decide an innovation strategy for an
organisation – choosing the balance between different innovation types.

Rather, the aim is to highlight the strengths and weaknesses of all areas of
innovation so that the management could have a realistic overview of the
organizational capacity and the opportunities as well as threats that are not
immediately obvious from the internal perspective.