Corporate Success Through Innovation and Adaptation free essay sample

In this paper we look at how different innovation and adaptation initiatives by the corporations have translated into their growth and success and how interactive management control systems have influenced the same. We have identified 6 different levels or elements (from strategy to operation, internal and the external forces affecting the companies) at which an organization can introduce innovation. There on, for each element we have identified a company from the top 25 most innovative companies (as per the SP/Business week survey) and have explained how that specific organization has translated innovation into corporate success. ? Introduction In the present situation of fast economic growth and accelerated corporate expansion, innovation is the fuel of new business development. New products, processes, ideas, and services are the backbone of sustained increases in both revenue and profitability of any business. As more companies see to exploit the emerging opportunities and provide similar services targeted on new markets, innovation is a key differentiator. Even in the challenging times of recession, cost reductions, budget cuts, growth subsidies, innovation no longer remains an option to add value and deliver extra competitive advantage but it becomes the core means for survival and that is when it becomes the real case of â€Å"innovate or die†!! Innovation influences the financial non financial performance of an organization also the industry as a whole. A successful innovation is when the organization acquires a creative culture and there is a motivated work force and also attracts the best talents to join. A successful innovation has a very positive impact on the customers, suppliers, subcontractors and on the industry as a whole. Innovation success within a firm encourages more innovation outside. The other companies in that industry starts to â€Å"adapt† to the environment of innovation by spinning out new ventures ,relocation of partner or supplier operations . Today no longer a firm can remain shackled with traditional asset based economies, it has to adapt to the ever changing environment by exploiting its intellectual property across multiple streams ,collaboratively working across networks, matching its equity to brand value and thus introduce a continuous stream of evolving new products and services. Evolution of innovation capability Since past 20 years there have been three main waves of innovations and new approaches that have occurred across industry in each phase there was a specific focus. Today we are in the middle of fourth wave of innovation capability development and that is the leading edge. Companies that are developing and refining the new techniques for innovation success are today at the fore front of innovation practice. They are â€Å"innovating at the edge†. 1980 1985 1990 1995 2000 Use of management control systems in innovation and performance Innovation is considered to be one of the major determinants of long-term organizational performance in contemporary environments . Many empirical studies (e. g. Capon, Farley, Lehmann Hulbert, 1992) have shown a positive relationship between innovation and corporate performance. Control systems have been used by organizations to support both innovation and performance. Simons (1991, 1995) defines two different styles i. e. Diagnostic and Interactive styles of use of MCS which include budget systems, balanced scorecards and project management systems for innovation and corporate performance 1. Diagnostic style: In this, MCS are employed for setting pre-established standards and monitoring and correcting deviations, and attract the managers’ attention only on an exception basis. 2. Interactive style: In this, MCS focus on strategic uncertainties and become a recurring forum and agenda for a continuous and challenging debate in which top managers are involved. As per the results of Simons’ framework, corporate performance through innovation is influenced by the extent to which there is an interactive use of MCS in the organization. Bisbe Otley, in press). This framework has been validated by Hartmann and Moers (1999) and Irwin and McClelland. Interactive Use of MCS Innovation Performance Figure 1: Conceptual framework Innovation Adaptation from MCS point of view Innovation is understood from an output perspective and is defined as the development and launching of products services that are in some respect unique and distinctive from existing products. The me asure of product innovation is done on following †¢Rate of introduction of new products. Tendency of firms to pioneer. Part of the product portfolio corresponding to recently launched products.. Performance from MCS point of view The construct performance was defined as the degree of goal attainment along several dimensions, including both financial and non-financial aspects (GuptaGovindarajan, 1984; Venkatraman Ramanujam, 1986; Kaplan Norton, 1996; Chenhall Langfield-Smith, 1998, Otley). The financial aspects cover †¢sales growth rate †¢revenue growth rate, †¢return on investment †¢profit/sales ratio Non financial aspects are the customer perspectives which include †¢customer satisfaction customer retention †¢customer acquisition †¢increase in market share Areas of Innovation The MCS perspective described above has an impact on all aspects of firms, starting from strategy to its operations. We have identified six individual elements (considering the usage of MCS) across which adaptation and innovation practices have occurred and cont inue to occur. 1. Strategic impetus: the corporate theme that has driven innovation 2. Market focus: how innovations have been presented to customers 3. Product attribute: the differentiating feature of a new products and services 4. Development process activity effectiveness: how new products and services have been delivered 5. Enabling organization-the structure of the group delivering innovation 6. External alliances: how firms work with partners to realize innovation We have identified one company for each of these elements and analyzed how innovation initiatives across these elements have translated into their performance and growth. The companies that are selected are amongst the top 25 most innovative companies as per the SP /Business week innovative index survey of 2008(Appendix 1). 1. Strategic impetus for innovation in Apple: Strategic innovation occurs when a company identifies gaps (either new or emerging markets/customer needs/ways of producing) in the industry positioning map, decides to fill them, and the gaps grow to become the new mass market. Apple is literally an iconic company. Some of the power of its brand comes from the extraordinary story of a computer company rescued from near-collapse by its co-founder, Steve Jobs, who returned to Apple in 1997 after years of exile, reinvented it as a consumer-electronics firm and is now taking it into the billion-unit-a-year mobile-phone industry. But mostly Apples zest comes from its reputation for inventiveness. In polls of the worlds most innovative firms it consistently ranks first. From its first computer in 1977 to the mouse-driven Macintosh in 1984, the iPod music-player in 2001 and now the iPhone, which goes on sale in America this month, Apple has prospered by keeping just ahead of the times. (The Economist, June 7th 2007) Strategic Exploration This part of the framework basically looks for sources and fields which have scope for innovation. The study to know, what business do we want to be in? Like the product, the customer segment, the supply chain, processes, distribution and networking, etc. Effective Management of Effective Phases This model talks about the different phases of innovation: Idea is the search of strategic innovation; concept is breading the business plan and experiments, Selections/launches are the market experiments, growth is continuous improvement and implementation and finally profit is to execute according to the plan, to maximize profit. Change in Modus Operandi This aspect talks about the change in old procedures for maximizing the performance, like providing freedom and space to the employees and management, inviting informal, aspiring ideas. Apple is a great example probably the best of a company that keeps one step ahead of everyone. While other companies rush to copy the current product line, Apple is already about to release the next â€Å"big thing. † It not only releases a new product, but it kills off the older lines -the ones the others are copying. For example while companies were trying to copy the iPod Mini, Apple brings out the Nano. The Mini was the most successful MP3 player of all time. And Apple killed it off. Now, while others are trying to emulate the iPod Classic, it brings out the iPod Touch. One of the companies desperately trying to play catch up is Microsoft, with its Zune player. It has just released a new version of the player a scant few weeks after Apple leapfrogs once more. We bet that within the next 18 months Apple will kill off one of its current iPod lines and release something that is again revolutionary and which will catch competitors off guard. 2. Market focus innovation at Honda The escalating growth of the market place, more exacting customer demands, increasing competition and the corresponding need to develop more new products led many companies to identify new requirements for their organization. Many of the early adopters of this approach were larger organizations, of these; one of the most successful lead initiators was the Japanese manufacturer Honda. The Honda Motor Company established in 1948 is one of the world’s leading manufacturers of automobiles and the largest producer of motorcycles. The rapid rise in gas prices has caused many consumers to shift from buying large gas-guzzling SUVs to more fuel-efficient small cars. And this shift in the marketplace has forced the auto industry to drastic changes in realigning their model mix, reallocating production capacity, and adjusting future model plans. While consumers want instant relief to the economic challenges they face, the auto industry is grappling with production cycles measured in years, not months. Honda surprised many at the Tokyo Motor Show with the announcement that they will be putting a hydrogen fuel cell car into production next year for general sale. And though it makes perfect sense that Honda, over anyone else, would be the one to hit the production line first with this technology, most didn’t see this move coming for another five to seven years. Hydrogen is generally regarded as the long-term vision for eco-friendly alternative fuels. \ Honda wanted to expand input, sought to integrate input to ensure that it exceeded current standards in five key areas as in fig. As soaring gasoline prices boost demand for more fuel-efficient vehicles, the global auto giants are battling to define the next generation of automobiles with a blitz of eco-friendly vehicle launches, new technologies and campaigns to show off their green credentials. And Honda is among the first ones to adapt to the changing demand and situation. That’s the kind of forward thinking that seems to be leading Honda to make this major push in the first place. 3. Product attribute driven innovation in Nokia Nokia has travelled a long way in becoming to what it is today. It started off with a multitude of products ranging from rubber boots, toilet paper to radio technology and televisions and then moved on to mobile and radio technology, with additional network technologies, like switches, routers and modems, and standardized software platforms. In this process Nokia has reinvented itself so many times that it has become difficult to predict what its core competency would be ten years down the line. It defines its core competencies as †¢mobile handsets †¢network technology †¢middleware The basic innovation strategy involved is that if the new product is a part of the core competency to Nokia, i. . in the three domains mentioned above, it will be produced in house (internally) without collaborating or outsourcing. Products outside Nokia’s core competency are outsourced. It usually buys from its allies like Flextronics Finland, Texus Instruments etc. Nokia follows want is better known as the open innovation model in development of new products and services. Open innovation model has been defined as ‘Open innovation systems’ (Chesbrough, 2003) are characterized by the flexible way a firm co-ordinates a large number of innovation projects and assess their value. The system is open, because some projects come from outside and some internal projects go outside. The following diagram shows a framework of the open innovation model at Nokia 4. Innovation in development process activity effectiveness at Toyota To overcome the difficulties caused by the deteriorating business environment and to accomplish continuous improvement, Toyota has employed various strategies to improve productivity at its plants and business units. In 2003, in response to the need to further implement these activities throughout the whole company, Toyota announced a policy of introducing the Toyota Production System (TPS) as an extensive company-wide activity. Toyota established the following three points as its manufacturing policy. 1) Customer-focus: Manufacturing Products that provides value to the customer 2) The importance of customer values needs, quality, delivery, and price. 3) High value-added manufacturing that utilizes Fujitsu’s strengths. Development Process This system creates a mechanism that eliminates product stagnation, repeats operations so they become actions that create a flow, and visualizes conditions (distinguishes between normal and abnormal conditions) so that the problem points can be actualized. Furthermore, the search for and solution to the root cause of a problem and the complete elimination of waste create a perpetual cycle. This system is designed for producing what is needed in only the required quantity when it is needed. This system creates a mechanism that eliminates product stagnation, repeats operations so they become actions that create a flow, and visualizes conditions (distinguishes between normal and abnormal conditions) so that the problem points can be actualized. Furthermore, the search for and solution to the root cause of a problem and the complete elimination of waste create a perpetual cycle. This system places an emphasis on doing things thoroughly, and we came to understand that a revolution in consciousness is the most important factor for its execution. Complete elimination of waste: A revolution in consciousness is essential. Visualization: Actualization of problem points by distinguishing between normal and abnormal. Create a flow: Eliminate stagnation and make actions repetitive . Effective Implementation The main activities that we implemented prior to the introduction of outside consultants were as follows: 1) Consciousness-raising and education of employees using videos and texts 2) Instruction using displays such as personal targets, posters, activities news, and action item charts 3) Awards for excellent small-group activities ) Company-wide 2S activities: Sort and Straighten 5) Activities to minimize the surplus spaces between processes Even with these types of activities, the review of the procedures used to date and the participation of all the employees led to impressive results from two plants as described below. †¢At one plant, after one year of activities there was a 50% increase in productivity per person, a 45% reduction in space as a result of reducing the use of external warehouses and so forth, and a 50% reduction in the manufacturing lead time. At another plant, after six months there was a 60% increase in productivity per person and a 75% reduction in the manufacturing lead time on the model line. Enabling Organization Structures for innovation Organizational structure is one of the most important requirements for companies to innovate consistently. Companies have delved deep to develop structures which would support their business model and strategies which could ultimately support there. Following are the organizational structures/models of some successful organizations: †¢Ambidextrous Organizations Venture Boards †¢Innovation Councils †¢Cross Group Solutions Team †¢Thought Leader Resource Networks †¢Open Innovation Models †¢Innovation Communities of Practice †¢Shared Services Organizations Ambidextrous Organizations: The main objective of ambidextrous organizations is to monitor the core business of the organization but also to support and protect any new venture growing in the organization. Ambidextrous organizations have separate organizational units which have their own processes, cultures and structures that are specifically designed t o support innovation. These units not only have a separate innovation team and are a part of the large organization but are also set up to support new business launch. Venture Boards Organizations these days concentrate on pulling together the best thinking from both inside and outside the firm unlike the traditional advisory panel that provides insights into the current industry and market conditions. Venture boards are designed with the objective of discovering, evaluating and implementing new ideas identified both within and outside organization. The internal members define selection criteria for choosing the external members, define the portfolio of opportunities to review, and make final go/no-go decisions on strategic investments Innovation Councils Innovation Councils ensure that innovation-related activities in various parts of the organization are strategically aligned and coordinated, and are supported by appropriate processes and resources. An Innovation Council is a small, cross-functional governance body of senior managers that enables cross-business / function / geography decision making and coordination. Cross Group Solutions Teams Cross Group Solutions Teams are self-directed teams of individuals chosen from selected business units. They develop new opportunities by combining the competencies and capabilities of different businesses. Thought Leader Resource Networks A Thought Leader Resource Network is an external network of expert practitioners and thinkers that can accessed for identifying solutions to the defined problems. This network is formed by Thought Leaders of different companies, universities, consulting firms, research institutions, contract manufacturers, think tanks, and other organizations. These leaders are all internally connected to their own knowledge networks; which ultimately become part of the bigger external final networks. 6. Innovating with the External Alliances at PG All international countries these days have a target of 4-5% organic growth which translates into generating business of few billion dollars. Traditionally, when the competition wasn’t fierce, companies tried to innovated better by improving the collaboration between RD and marketing teams, tightening go-to market criteria, strengthening product portfolio management ,innovation outsourcing etc. They hired the best brains, built best research facilities, supported their RD by acquiring new licenses etc. PG a $ 25 billion company in 2000 also followed the above mentioned practices but by the end of 2002 their innovation budget had sky rocketed and their innovation success rated had stagnated at 25%. PG realized that their existing innovation model was not able to support the required organic growth rate. Today PG’s innovation success rate has more than doubled while the cost of innovation has reduced . PG has successfully launched 100 new products with the help of ideas from both inside and outside the organization. This turnaround was brought about by A. G. Lafley’s new innovation model called â€Å"Connect and Develop†. Connect and Develop: The three main criterions based on which the Connect and develop works is †¢Customer Needs †¢PG’s capabilities †¢External Proven Ideas The steps involved in CD are †¢Define the problem: Define the problem which needs to be solved and circulate it throughout the global networks of individuals and institutions to see if anyone has a readymade solution. Discover: Discovering a readymade problem by leveraging the global networks. †¢Evaluate: Evaluating the discovered solution and matching with the required product description. This also involves matching the capabilities available and capabilities required to develop the product in-house. †¢Launch: Launching the product as it is and measuring the success of the launch. †¢Co-create: Creating products with better features and launching of the same. †¢Collaborate: Collaborating with the inventor of the product for any future developments of new products. Conclusion Globalization, market variation, faster product introduction, faster product and service delivery are major factors forcing firms to use innovation as a core element. And companies have done this in different ways. These areas of control can be from strategic planning, product design, market focus, operational processes, organizational structure to working with external alliances. Apart from this companies which have specifically identified their area of expertise and core competency in innovation and additionally have found an optimum balance in the interactive use of management control systems have excelled.