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The Importance of Management Innovation.

The theme of IRI's 2018 Annual Conference, held in May in Atlanta, was Breaking Boundaries. Presentations and conversations focused on new approaches to innovation, new ways of innovating, and new technologies that will reshape both the practice and product of innovation. Many of the discussions alluded to the need for culture change of some kind to support these new approaches--to allow experimentation with new business models, for example, or to support new kinds of partnerships. It has become a given ol innovation management practice and theory that organizations are reflexively resistant to these kinds of changes. Indeed, many innovators believe that established businesses, however forward-looking they may purport to be, will resist the new, often (if not always) to the point of killing even projects with blockbuster potential.

The traditional solution to this problem is to work around the organization and the roadblock it represents. That can mean establishing a completely separate innovation organization (think Lockheed-Martin's Skunkworks) or a venture division that works with startups, thus moving the innovation function entirely outside of the corporation. Even Charles O'Reilly and Michael Tushman's "ambidextrous" approach seems to be a solution, but it's really a stopgap; while it doesn't remove the

In this space, we offer a series of summaries on key topics, with pointers to important resources, to keep you informed of new developments and help expand your repertoire of tools and ideas. We welcome your contributions, in the form of suggestions for topics and of column submissions. function entirely from the corporation, the only link between the innovation arm and the operational arm is the executive suite. (For a quick rundown of some key examples, see Peter Cohan's 2012 article for Forbes.) The organization as a whole doesn't have to change its operational framework or adapt in any fundamental way. Indeed, the stated aim of an ambidextrous structure is to, in a sense, protect the two functions from each other. And in any of these approaches, the goal for the innovation arm is to escape the bureaucracy (that last word generally uttered in a tone of exasperation or sneering dismissal).

But avoidance is not a long-term solution. At some point, if it's to become something more than a novelty, the carefully nurtured innovation will have to leave the protection of the incubator and cross over to the operational side of the company, which will have to figure out how to assimilate it without gutting it.

This dilemma is becoming even more acute as innovation increasingly encompasses elements well beyond good old-fashioned product innovation. Platform initiatives, new business models, digitalization, and servitization--all of these demand the participation of the organization as a whole, even early on. There is, quite frankly, no point in building a platform if the company isn't ready to be a platform company. Accelerating market velocity is also a factor: companies that could once cruise on the power of a flagship product now find themselves struggling to keep up with rapid product development cycles imposed by disruptive competitors and changing consumer expectations.

As a result, innovators increasingly understand that, as Tendayi Viki puts it in a blog post for Forbes, "innovation is management." Ideation and creativity are important, but at some point they have to give way to management concerns: building a business model and a business case to prove the viability of those ideas.

The answer? Management innovation (or, in some vocabularies, organizational innovation). What is management innovation? Richard Evans, using "organizational innovation" because he heads up a nonprofit organization, offers one good definition. "Organizational innovations," he says, "are instances of organizational change that:

1. result from a shift in underlying organizational assumptions,

2. are discontinuous from previous practice, and

3. provide new pathways to creating public value."

In The Future of Management, Gary Hamel defines management innovation as "anything that substantially alters the way in which the work of management is carried out, or significantly modifies customary organizational forms, and, by so doing, advances organizational goals. Put simply, management innovation changes the way managers do what they do, and does so in a way that enhances organizational performance." And in their 2006 MIT Sloan Management Review article, Julian Birkinshaw and Michael Mol define it as "the implementation of new management practices, processes and structures that represent a significant departure from current norms."

Taken together, these definitions suggest some key attributes of management innovation. First, it is more than a new business model or a restructuring that splits off the threat of innovation from operational functions. Rather, it's a fundamental change in the way the organization conceives of itself--the "underlying organizational assumptions" Evans refers to--and, as a result, the way it gets its work done. And ultimately, those new ways serve to "advance organizational goals"-- whether those goals focus on creating public value or creating business value or (as in many organizations) both.

Although it's not often considered in the context of innovation, management innovation is nothing new. It perhaps began with Frederick Taylor, who established "scientific management" as a discipline in the late nineteenth and early twentieth century. Taylor defined scientific management as a methodical approach by a group of ordinary people following scientific principles, as opposed to personal management, Taylor's term for the approach that had dominated before, one in which a company's performance was driven by its brilliant leader.

Scientific management came in the wake of the Industrial Revolution, just at the moment companies were becoming large enough and complex enough to need a management system. In this sense, Taylor arguably midwifed the modern corporation, with its focus on optimized processes and monitored performance indicators. (Taylor may also be the father of best practices; a hallmark of his approach is the search for "the one best" way to do things.) This is the beginning of what Rita Gunther McGrath describes in a 2014 HBR article as the era of "organization-as-machine."

Other waves of management innovation followed, as companies confronted new challenges, from Peter Drucker's Management by Objectives to Total Quality Management and the Toyota Way, which advocated basing management decisions on an underlying philosophy rather than the hunt for short-term performance. The Toyota Production System, a management innovation focused on manufacturing, went on to become another management innovation, Lean, which has been adapted from manufacturing for other contexts, including health care and, recently, innovation. (See Norbert Majerus's recent RTM article on Lean innovation.)

More recently, the discipline of OKRs (Objectives and Key Results) is spreading from its origins at Intel to other tech companies, including Google; John Doerr describes how OKRs work, and what they accomplished at Intel, Google, and other tech companies, in his 2018 book Measure What Matters. The movement to project-based teams (inspired, by some accounts, by NASA's approach to the Apollo project) and experiments with centralized versus decentralized structures are also management innovations.

Perhaps the most reviled management innovation is bureaucracy itself (see Roger Smith's RTM column for a brief history of bureaucracy as innovation). Like many such innovations, bureaucracy was an attempt to make a large organization run more efficiently--to optimize. And optimize it does, for a specific set of attributes. As a result, traditional bureaucracy is, as Victor Thompson points out in a 1965 article on the relationship between bureaucracy and innovation, "characterized by high productive efficiency but low innovative capacity."

Some would argue that we are on the cusp of another wave of management innovation--another period of upheaval in which companies must rethink why they exist, how they work, and what they're trying to do. McGrath asserts that "we are in the midst of another fundamental rethinking of what organizations are for and for what purpose they exist."

For McGrath, that new era is an era of empathy, one in which organizations exist "to create complete and meaningful experiences," for both customers and employees. She believes the next wave of management innovations will focus on empathy and on "figuring out what management looks like when work is done through networks rather than through lines of command." Perhaps not coincidentally, many of the newer management innovations originating from the tech world--including Agile and OKRs--focus on remaking companies as networks rather than pyramids. The next wave of management innovation may well resemble--and rely on-- the current wave of technological innovation.

Management innovation is increasingly necessary, but it's also much harder to implement than technological innovation, even innovation that involves new business models. Birkinshaw and Mol's MIT Sloan article reports on their study of management innovation in large companies; they observe that management innovation may be difficult to engineer because it happens differently from technological innovation--it tends to be more influenced by external actors, such as consultants and academics, and to happen more slowly and gradually--and because it means reshaping a highly complex social system, one with many stakeholders and sometimes diverging perspectives and objectives.

Why does all this matter to innovation leaders? For two reasons: First, many emerging management innovations actually came out of technical contexts--they started in the R&D lab. Just as Lean was adapted from the manufacturing world to fit other contexts, Agile came from software development, was adapted by forward-thinking product innovation teams in a variety of industries, and is beginning to be seen as a blueprint for building an entire organization. Second, innovation is increasingly about management, and as innovations become less product focused, the ambit of innovation leaders is expanding. It's not enough to introduce a new product or service; that new offering must come with a business model to support it. And if that business model is to work, the innovation team has to have the organization's support.

Organizations that hope to remain competitive will need to find ways to be open to these new kinds of innovation but still protective of their core values and focused on strategic aims. Thus, it will increasingly be the innovation team that leads the company in management innovation; innovation managers will find themselves tasked with championing not just the big new thing but also the management innovation needed to support its adoption.

Already, studies exist that illuminate the link. In their 2015 study, Jose-Luis Hervas-Oliver and coauthors found that introducing management innovations along with technological innovation enhanced a firm's innovation capabilities, providing "a premium effect on performance." Similarly, Henk W. Volberda, Frans A. J. Van Den Bosch, and Cornelis V. Heij note in the introduction to a 2013 special issue of European Management Review on management innovation, "evidence from both SMEs and large firms shows that successful innovation is not just the result of technological innovation, but is also heavily dependent on . . . management innovation." Given that reality, they argue, "more active stimulation of management innovation and its leverage of technological innovation will be crucial to improve the competitiveness of firms."

And yet, as Gary Hamel pointed out in a 2006 article for HBR, "few companies have a well-honed process for continuous management innovation." Given the struggles with business model innovation, servitization, and similar structural innovations narrated in so many articles in RTM and elsewhere, that would seem to still be true.

Resources

IN PRINT

John Doerr. 2018. Measure What Matters: How Google, Bono, and the Gates Foundation Rock the World with OKRs. New York: Penguin-Portfolio.

Gary Hamel with Bill Breen. 2007. The Future of Management. Boston, MA: Harvard Business Review Press.

Jose-Luis Hervas-Oliver, Francisca Sempere-Ripoll, Carles Boronat-Moll, and Ronald Rojas. 2015. Technological innovation without R&D: Unfolding the extra gains of management innovations on technological performance. Technology Analysis and Strategic Management 27(1): 19-38.

Norbert Majerus. 2017. Leveraging Lean principles in R&D. Research-Technology Management 60(2): 17-25.

Roger Smith. 2016. Bureaucracy as innovation. Innovation for Innovators. Research-Technology Management 59(1): 61-63.

ONLINE

Julian Birkinshaw and Michael Mol. 2006. How management innovation happens. MIT Sloan Management Review, Summer, https://sloanreview.mit.edu/ article/how-management-innovation-happens/

Peter Cohan. 2012. How big companies can exploit and explore. Forbes, February 27. https://www.forbes.com/sites/petercohan/2012/02/27/ how-big-companies-can-exploit-and-explore/#140f98196b3d

Richard Evans. 2013. What is organizational innovation? ArtsFwd, January 31. https://www.artsfwd.org/what-is-organizational-innovation/

Gary Hamel. 2006. The why, what, and how of management innovation. Harvard Business Review 84(2): 72-84, 163. https://hbr.org/2006/02/ the-why-what-and-how-of-management-innovation

Rita Gunther McGrath. 2014. Management's three eras: A brief history. Harvard Business Review, July 30. https://hbr.org/2014/07/ managements-three-eras-a-brief-history

Victor A. Thompson. 1965. Bureaucracy and innovation. Administrative Science Quarterly 10(1): 1-20. https://www.jstor.org/stable/2391646

Tendayi Viki. 2017. Innovation is management. Forbes, January 8. https://www. forbes.com/sites/tendayiviki/2017/01/08/innovation-is-management/

Hank W. Volberda, Frans A. J. Van Den Bosch, and Cornells V. Heij. 2013. Management innovation: Management as fertile ground for innovation. European Management Review 10(1): 1-15. https://onlinelibrary.wiley.com/doi/ abs/10.1111/emre.12007
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Title Annotation:RESOURCES
Author:Gobble, MaryAnne M.
Publication:Research-Technology Management
Date:Nov 1, 2018
Words:2118
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