Ch 10: organising for innovation (final exam) Flashcards
What are two things that can influence a firm’s likelihood of innovating, the effectiveness of the innovation projects and the speed of NPD processes?
- The structure of an organization
2. The degree to which it uses formalized and standardised procedures
What are benefits of large firms as innovators?
- Imperfect capital markets are; large firms better able to obtain financing for R&D projects.
- Firms with larger sales volume to spread fixed costs of R&D over would experience higher returns than firms with lower sales volume.
- Likely better developed complementary activities for efficient innovation
- Global reach of information/resources
- Reap economies of scale and learning curve advantages
- Can form coalitions to ensure coordination
What are disadvantages of large firms as innovators?
- Decreased R&D efficiency due to loss of managerial control
- Difficult for individuals to appropriate the returns of their efforts (diminishing incentives).
- Less nimble and responsive to change; bureaucratic inertia, high number of employees (communication), large fixed-asset bases, existing customer/supplier contracts
What are benefits of small firms as innovators?
- Flexible and entrepreneurial
- motivated to choose projects carefully due to less resources, leading to higher success rates
How have large firms found ways to make them feel/act like small firms?
In high-speed technological change, large firms disaggregate (separate) into networks of smaller, more specialised, autonomous divisions or independent firms.
- Eliminate functions/layers of management
–> flexible, loosely coupled network of alliances.
(network/virtual/modular organization)
What are the three key structural dimensions of a firm?
- Centralization
- Formalization
- Standardization
What is centralisation?
The degree to which decision-making authority is kept at top levels of management.
What is decentralization?
The degree to which decision-making authority is pushed down to lower levels of the firm.
What are benefits of decentralising R&D activities to the divisions?
- Enables development of product/processes that closely meet the particular division’s needs (fit operating structure and customer requirements)
- Possibility of diversity of knowledge and market contact in the divisions
- More quantities/varieties of projects for the firm, thus more failed projects, but less errors of omission
- May better respond to technological/environmental change, but struggle with cooperation for significant change
What are risks of decentralisation?
- many redundant activities may be performed in multiple divisions
- not realized the full potential of value creation of the technology in other divisions.
- forgoing economies of scale and learning curve effects.
What are benefits of centralisation of R&D activities?
- may maximize economies of scale
- enables greater division of labor among R&D specialists
- maximizing potential learning curve effects
- improve coherence of NPD efforts and avoid possibility that valuable technologies are underutilized throughout the organization.
- can make bold changes in overall direction due to tight command-control structure
What is formalisation?
The degree to which the firm utilizes rules, procedures, and written documentation to structure the behavior of individuals or groups within the organization.
What is standardisation?
The degree to which activities are performed in a uniform manner.
What are pro’s and con’s of formalisation?
+ Rules/procedures employed can facilitate standardization
+ regulate employee behaviour; clear expectations and decision making criteria
+ partly substitute managerial oversight (large firm function smoothly with fewer managers)
- Make the firm rigid; stifling employee creativity and innovation
What is mechanistic structure?
An organization structure characterized by a high degree of formalization and standardization, causing operations to be almost automatic or mechanical.
What are pro’s and con’s of mechanistic structure?
+ High operational efficiency, consistency and reliability
+ often high centralisation, but formalisation can substitute –> lower levels decide in line with management’s objectives
- unsuitable for fostering innovation
What is an organic structure?
An organization structure characterized by a low degree of formalization and standardization. Employees may not have well-defined job responsibilities and operations may be characterized by a high degree of variation.
What are pro’s and con’s of organic structure?
- detriment of efficiency
+ better suitable for innovation; much arise from experimentation/improvisation
Do large firms use more formalisation/standardization than small firms?
Yes, since more difficult to exercise direct managerial oversight. Eases coordination costs at expense of making firm more mechanistic
What is an ambidextrous organization?
The ability of an organization to behave almost as two different kinds of companies at once. Different divisions of the firm may have different structures and control systems, enabling them to have different cultures and patterns of operations.
What is the goal of an ambidextrous organization?
To collectively achieve both short-term efficiency and long-term innovation. Set up a separate R&D department (geographically or structurally) –> formalization/standardization in manufacturing and distribution, but none in the R&D.
Why can it be good to separate teams from each other (at least in early development stages)?
- Otherwise solutions may be too rapidly adopted by other teams, causing all to converge to same ideas instead of developing new creative approaches.
- can explore new alternatives, unfettered by demands of rest of organisation.
What is Skunk works?
NPD teams that operate nearly autonomously from the parent organization, with considerable decentralization of authority and little bureaucracy.
What is an alternative method for balance between efficiency and flexibility?
Adopting standardized manufacturing platforms or components that can then be mixed and matched in a modular production system. Enables standardization advantages at the component level, while achieving flexibility and variety at the end product level.
