Ch 10: organising for innovation (final exam)

Question 1

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?

Answer 1

1. The structure of an organization

2. The degree to which it uses formalized and standardised procedures

Question 2

What are benefits of large firms as innovators?

Answer 2

• 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

Question 3

What are disadvantages of large firms as innovators?

Answer 3

• 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

Question 4

What are benefits of small firms as innovators?

Answer 4

• Flexible and entrepreneurial

- motivated to choose projects carefully due to less resources, leading to higher success rates

Question 5

How have large firms found ways to make them feel/act like small firms?

Answer 5

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)

Question 6

What are the three key structural dimensions of a firm?

Answer 6

1. Centralization
2. Formalization
3. Standardization

Question 7

What is centralisation?

Answer 7

The degree to which decision-making authority is kept at top levels of management.

Question 8

What is decentralization?

Answer 8

The degree to which decision-making authority is pushed down to lower levels of the firm.

Question 9

What are benefits of decentralising R&D activities to the divisions?

Answer 9

• 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

Question 10

What are risks of decentralisation?

Answer 10

• 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.

Question 11

What are benefits of centralisation of R&D activities?

Answer 11

• 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

Question 12

What is formalisation?

Answer 12

The degree to which the firm utilizes rules, procedures, and written documentation to structure the behavior of individuals or groups within the organization.

Question 13

What is standardisation?

Answer 13

The degree to which activities are performed in a uniform manner.

Question 14

What are pro’s and con’s of formalisation?

Answer 14

+ 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

Question 15

What is mechanistic structure?

Answer 15

An organization structure characterized by a high degree of formalization and standardization, causing operations to be almost automatic or mechanical.

Question 16

What are pro’s and con’s of mechanistic structure?

Answer 16

+ 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

Question 17

What is an organic structure?

Answer 17

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.

Question 18

What are pro’s and con’s of organic structure?

Answer 18

• detriment of efficiency

+ better suitable for innovation; much arise from experimentation/improvisation

Question 19

Do large firms use more formalisation/standardization than small firms?

Answer 19

Yes, since more difficult to exercise direct managerial oversight. Eases coordination costs at expense of making firm more mechanistic

Question 20

What is an ambidextrous organization?

Answer 20

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.

Question 21

What is the goal of an ambidextrous organization?

Answer 21

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.

Question 22

Why can it be good to separate teams from each other (at least in early development stages)?

Answer 22

• 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.

Question 23

What is Skunk works?

Answer 23

NPD teams that operate nearly autonomously from the parent organization, with considerable decentralization of authority and little bureaucracy.

Question 24

What is an alternative method for balance between efficiency and flexibility?

Answer 24

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.

Question 25

What is modularity?

Answer 25

The degree to which a system’s components may be separated and recombined.

Question 26

What are benefits of making products modular?

Answer 26

• can exponentially increase number of possible configurations achievable from given set of inputs
• produce wide variety of product models just by changing which components are combined, while still achieving economies of scale and efficiency in individual components.
• cost-effective way to meet heterogeneous demands
• can upgrade components without replacing entire system

Question 27

Are modular systems centralised?

Answer 27

Less centralisation due to flexibility and reduced coordination between different developers

Question 28

How can organizations be made modular?

Answer 28

Through adoption of structures that enable loose coupling. Development and production activities achieve coordination through adherence to shared objectives and common standards. Components can be produced by highly autonomous divisions or independent firms.

Question 29

What are benefits of loosely coupled organisational structures?

Answer 29

• IT –> give access to innovation at lower cost; search suitable development partners, monitoring performance
• Less need for integration –> flexible R&D and production configurations
• Specialize in innovation aspects related to core competencies, while obtaining other activities through outsourcing/alliances

Question 30

What are disadvantages of loose coupling?

Answer 30

• Activities that require frequent exchange of tacit/complex knowledge need close integration than it can offer
• Integrated firms may have more efficient or less costly mechanisms for resolving conflict (top managers’ authority)

Question 31

What is a dilemma for multinational firms regarding innovation?

Answer 31

Much of the value creation potential is the opportunity to leverage technological innovation into multiple markets, but completely autonomous innovation activities risks forfeiting that opportunity.

Question 32

What are the four primary strategies used by multinationals to solve their innovation dilemma?

Answer 32

1. Center-for-global strategy
2. Local-for-local strategy
3. Locally leveraged strategy
4. Globally linked strategy

Question 33

What is the center-for-global strategy?

Answer 33

When all innovation activities are conducted at a central

hub and innovations are then diffused throughout the company.

Question 34

What are pro’s and con’s of the center-for-global strategy?

Answer 34

+ tight R&D coordination
+ specialisation and economies of scale without duplication of activities
+ develop & protect core competencies
+ ensure innovations are standardised and implemented throughout the company

• not responsive to diverse demands of different markets, and may not be adopted as intended

Question 35

When is center-for-global often used?

Answer 35

• Managers have strong desire to control evolution of the technology
• concerns about protection of proprietary technologies
• close coordination required, need to respond quickly & uniformly

Question 36

What is the local-for-local strategy?

Answer 36

When each division or subsidiary of the firm conducts its own R&D activities, tailored for the needs of the local market.

Question 37

When is the local-for-local strategy chosen and what problems can it have?

Answer 37

Chosen when divisions are very autonomous and markets are highly differentiated.

• Some activities may be redundant as many do the same thing
• Each division suffers from lack of scale in activities
• Some valuable innovations may not be diffused across the firm.

Question 38

What is the locally leveraged strategy?

Answer 38

When each division or subsidiary of the firm conducts its own R&D activities, but the firm attempts to leverage resulting innovations throughout the company.

Question 39

What are benefits of the locally leveraged strategy and when is it used?

Answer 39

• Take advantage of diverse ideas and resources created in local markets, while leveraging these innovations across the company.

One person may be responsible for deploying a successful brand in many markets, while maintaining consistency in the product’s image and positioning.

Effective if different markets have similar needs.

Question 40

What is the globally linked strategy?

Answer 40

Innovation activities are decentralized, but also centrally coordinated for the global needs of the corporation.

Question 41

What are pro’s and con’s of the globally linked strategy?

Answer 41

+ Takes advantage of resources and talent pools offered in different geographical markets, while globally coordinated to meet company-wide objectives + Attempts to diffuse learnings across the firm. Powerful method in integrating global resources

• Expensive in both time and money; requires intensive coordination.

Question 42

What is the difference between the locally leveraged and globally linked strategies?

Answer 42

The missions of the R&D divisions.

• Locally leveraged: R&D divisions largely independent of each other and work with the full scope of innovating for regional products. To ensure that the best innovations are leveraged across the firm, the company sets up integrating mechanisms to encourage sharing.
• Globally linked strategy: R&D divisions are decentralized but each play a different role in the global R&D strategy. They specialize in a particular development activity. Attempts to take advantage of diversity of resources and knowledge in foreign markets, while still linking each division through well-defined roles in the overall R&D strategy.

Question 43

What is the overall multinational firm objective?

Answer 43

To make centralized innovation activities more effective (better serve local markets), while making decentralized innovation activities more efficient (eliminating redundancies and exploiting synergies).

Question 44

How should multinational firms reach their objective?

Answer 44

Transnational approach; resources and capabilities that exist anywhere within the firm can be leveraged and deployed to exploit any opportunity that arises in any geographical market, by:

• Encouraging interdependence among divisions
• Utilizing integration mechanisms across divisions (rotating personnel, division-spanning teams), facilitating diffusion of knowledge.
• Balancing the organization’s identity between its national brands and its global image.

Question 45

What can be said to be the difference about capabilities in small and large firms?

Answer 45

• Small: investing and building new capabilities

- Large: leveraging existing capabilities

Question 46

What is an innovative structure characterised by?

Answer 46

• Unstructured
• Organic
• Decentralized
• Informal
• Horizontal coordination

Question 47

What are the four potential modes of organising?

Answer 47

• Sequential alternation
• Structural separation
• Spherical separation
• Cross-functional integration