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9 Hard Foundations Strategy, Incentives, and Management Systems

Tony Davila Berrett-Koehler Publishers ePub

AN INNOVATIVE ORGANIZATION requires a management infrastructure that supports the work of the leadership team as well as the culture of the company. Think about racing. If you are a team owner, and you want not simply to be competitive but to win, you need both a great driver and a great car. You may have a super driver (the leader) and a fabulous team (engineers and mechanics), but without an outstanding car you won’t win. Conversely, a great car with an average driver won’t get you there, either. If innovative organizations really hope to deliver, they must have soft foundations—culture and leadership—together with hard foundations—strategy, incentives, and management systems. Table 9.1 presents these hard foundations.

Strategy defines the playing field and the ambitions of the company. It defines what businesses the company is in and, more important, what businesses it is not in. It balances a focus on the present with investment in the future. A defensive, wait-andsee, play-not-to-lose strategy bets on the stability of the industry and the ability of the organization to react quickly to structural changes in the environment. A more aggressive, lead-the-change, play-to-win strategy looks for opportunities to create new markets or upset existing ones. Microsoft, for example, has followed a defensive strategy for many years, competing as a fast second in markets such as gaming devices, browsers, and mobile operating systems. The strategy has paid off in certain markets but has not been as successful as expected in others.

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10 Wrapping Up

Tony Davila Berrett-Koehler Publishers ePub

MANY ESTABLISHED COMPANIES have a unique combination of access to networks, global presence, knowledge, resources, and management expertise that makes them well positioned to address the complex challenges that our societies face. Making progress toward solutions to these issues will require breakthrough thinking. Simply extrapolating our current business and social models will be far from enough. Yet the coming of age at roughly the same time of two trends—the emergence of a huge technological shift and the rise of venture capital funding—has created the myth that established companies cannot bring breakthrough innovations to market. Although this myth holds true for many companies, others have proven it wrong.

The innovation paradox reflects how a narrow understanding of innovation has led many established players to believe in this myth—which has become a self-fulfilling prophecy. Over the decades the relentless focus on efficiency, execution, and shortterm financial goals has reinforced the business unit as the preferred organizational structure. The business unit has proven to be the most effective management approach to deliver on these dimensions. As we have said before, it is hard to argue against efficiency, quality, and flexibility.

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2 The Benefits and Limits of the Business Unit

Tony Davila Berrett-Koehler Publishers ePub

BUSINESS UNITS date back to the 1930s, when General Motors took the leadership position in the car market from Ford.1 Ford had become extremely good at process innovation during that decade—streamlining its operations to be the lowest-cost automobile producer—but General Motors was better at reading the consumer of the time. While Ford was busy working to keep costs down, GM was capturing new market segments for which price was not the main purchasing criterion. More than one car market existed, and GM restructured its organization to serve multiple markets. Contrary to the traditional functional organization, GM was divided into business units—each focused on a particular market segment, each with its own brand, each run as if it were an independent company (figure 2.1). This structure proved to be much faster than the traditional organization at capturing the demands of customers and translating them into new designs.

The widespread use of divisional structures and business units speaks to their success.2 Razor focused on execution in a particular market, they beat any alternative management solution developed thus far. In the absence of industry revolutions, execution and the ability to manage incremental innovation decide winners and losers. Focusing on being more efficient, more attentive to shifts in customer needs, and more creative in addressing and fulfilling customer needs pays off.

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5 Implementing the Startup Corporation

Tony Davila Berrett-Koehler Publishers ePub
Medium 9781609945534

1 What is the Innovation Paradox?

Tony Davila Berrett-Koehler Publishers ePub

NOKIA WAS A FINE-TUNED MACHINE when it came to grabbing the latest trends in mobile phone use and translating them into robust, profitable designs. Its scouters mixed up with young urban trendsetters, executives, and families, almost to the point where they understood their customers better than they understood themselves. Techniques ranging from in-depth ethnographies to early prototyping helped the company keep its healthy lead in mobile communication. For instance, the discovery that people in countries such as Morocco and Ghana would share phone conversations led Nokia to develop phones with more powerful speakers, making it easier for more people to participate in conversations.1 Incremental innovations—gradual, regular improvements to existing products and services—allowed Nokia to maintain and extend their lead in the market as they knew it. What could possibly go wrong?

Nokia’s market lead fell apart when the smart phone became the mobile device of choice. Since the company was so successful in the market for traditional mobile phones, when the market shifted away from their flagship products, Nokia was left with a nearly perfect organization innovating for a market whose relevance quickly eroded. Not only did Nokia lose its venerable market position, but it also lost any meaningful chance of making a dent in the smart phone market, allowing companies like Apple and Samsung to establish themselves.

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