Innovation Guideline Paper
University of Phoenix
OI 463 The Innovative Organization
September 1, 2008
When it comes to rules, every company needs some type of direction on what to expect from upper management down to the employees on innovation needs. This report introduces seven different guidelines of innovation (exert strong leadership on strategy and portfolio, integration into business mentality, align with strategy, manage creativity and value capture, neutralize organizational antibodies, establish networks, and use metrics and incentives) that companies need to focus on to make a growing and thriving organization succeed in this competitive global society, along with the samples of how each guideline effects the Siemens Corporation.
Innovation Guideline Paper
In the book Making Innovation Work (Davila et al., 2006), the authors say that a key to successful innovation is for the CEO of a company to perform a periodic health check to determine exactly what part of the organization needs attention. In order to achieve results within a limited time frame and resources requires the ability to focus on the parts of the innovation effort that need the most attention. What is surprising is how few companies have effective diagnostics for the overall innovation activities. Without solid innovation diagnostics, managers have a hard time knowing where to begin, and when the innovative process can become entangled making the task of separating the symptoms of the problems from the root cause. In addition, without periodic diagnostics, a sense of complacency builds lack of focus on maintaining the right mix of innovation. While conducting research, the authors located a short list (known as the Seven Innovation Rules) of the most important aspects of innovation in which senior management should examine.
1. Exert strong leadership on the innovation strategy and portfolio decisions: Managers need a clear direction from the top of the organization and saturates down to employees in order to motivate, support, and reward the activities that encourage innovation (Davila et al., 2006). Siemens offers management training programs that teach managers how to leverage effectively and develop the talents of its employees across the entire spectrum of similarities and differences (Siemens, 2008).
2. Integrate innovation into the company’s basic business mentality: Innovation is not a magic trick on special occasions or a “nice to have” element, but an integral part of the way a company operates every day and is essential to the continuation of the organization. Innovation encompasses two established activities – technological (research and development) or new product development and is strategic (defining the business model) (Davila et al., 2006).
Since 1847, Siemens offers technological advancements in information and Communication (telegraphy, telecommunications and microelectronics), power (power plants, circuit breakers, and gas turbines), transportation (electric railway, subway, and electromagnetic levitation with the Transrapid), healthcare (x-ray apparatus, echocardiography, and cardiac pacemaker), lighting (various lamps), and household appliances (washing machine, television, and dishwasher). For over 150 years Siemens has been a technology powerhouse in electronics. The factors that drive the company’s success include a clear portfolio policy, long-range financial planning, an international setup and strong employee orientation.
3. Align the amount and type of innovation to the company’s business: Innovation may or may not be the key to success for the overall business strategy; management has to determine the types and amounts of innovation needed to support the business strategy and more is not necessarily better. A company’s business strategy is focused on winning innovation is a fundamental element of long-term success. The importance of innovation depends on timing of the last innovation, the nature of the competition, and the overall business strategy. The CEO and senior management team decides which innovation strategy best fits the external competitive and market situation and the company’s internal condition is the responsibility (Davila et al., 2006).
Since 1847 Siemens has always been an innovative company; but in the 1940s and during the final years of World War II, numerous plants and factories in Berlin and other major cities were destroyed by Allied air raids. To prevent further losses, manufacturing was moved to alternative places and regions not affected by the air war. The goal was to secure continued production of important war-related and everyday goods. Siemens was operating almost 400 alternative or relocated manufacturing plants at the end of 1944 and in early 1945. Germany’s political, military and economic collapse led to the closure of Siemens’ plants in Berlin on April 20, 1945. By the time the war came to an end, the greater part of Siemens’ buildings and industrial installations had been destroyed.
4. Manage the natural tension between creativity and value capture: A company needs strength in creativity and profit; innovation requires processes, structures, and resources to manage significant levels of creativity (developing new concepts and ways of doing things) while executing (transforming creative concepts into commercial realities) (Davila et al., 2006). In April 1994, Siemens Medical Systems suffered about a $140 million decrease in sales as a result of suspended production at three manufacturing facilities which manufactured patient monitors, ultrasound equipment, radiation therapy devices, pacemakers, hearing aids and other devices were not manufactured in conformance with the FDA's Good Manufacturing Practices (GMPs). The FDA determined that Siemens did not adequately address consumer complaints and that the company's quality-assurance programs were inadequate (findarticles, 2008).
5. Neutralize organizational antibodies (resistance): Innovation necessitates change, and change stimulates explicit routines and cultural norms that act to block or negate change. When people have experienced success for a long time, there can be a tendency to become complacent and resist change. In order to innovate, senior management must create a culture that has the ability and the courage to change, explore, and innovate at the same time can be stable enough to deliver on its innovations. Part of an innovation-friendly culture is recognizing that what brought success in the past does not necessarily bring success today. This requires a culture that is open to questioning assumptions and to debating alternatives to the current approach to business. Managers must also understand that only by taking risks (preferably small risks where the cost of failure is low), closely observing results, learning from them, and trying again, can innovation occur (Davila et al., 2006).
In the 1900s, Siemens changed from a company dealing mainly with public customers in regulated markets to a global competitor increasingly due to pressure from the shareholders. To meet these new challenges effectively and efficiently, the company introduced programs that represented a radical change of approach, based on the strategic pillars of productivity, innovation and growth. The company had to optimize its business portfolio through divestments, acquisitions, the formation of new companies, and the founding of joint ventures.
6. Recognize that the basic unit (or fundamental building block) of innovation is a network that includes people and knowledge both inside (R&D, marketing, manufacturing) and outside (customers, suppliers, partners, and others) the organization: A successful organization excels at combining its internal resources with selected portions of the vast resources of the world’s capitalist economy. Innovation requires developing and maintaining this network as an open and collaborative force, which is no easy task considering the complexities of relationships, differing motivations, and differing objectives. Some companies choose to isolate innovation efforts from the organization to avoid its antibodies, through stand-alone departments or incubators. These approaches can be successful but only if they establish and maintain a rich network with the critical resources in the company and with outside partners. These stand-alone or incubator innovation initiatives often fail because, in an attempt to isolate the innovators from organizational antibodies, they sever critical links with key resources and ideas (Davila et al., 2006). Today, Siemens has 66,000 employees in the US and 400,000 persons working in 190 countries worldwide. Siemens builds and strengthens the world's infrastructure in everything from energy and transportation to healthcare and water technologies to communications and lighting (Siemens, 2008).
7. Create the right metrics and rewards for innovation: People react to positive and negative stimuli, and a company’s innovation is no exception. A manager will never achieve the level of innovation that is needed if people do not have the proper rewards to drive performance. Often these rewards focus on meeting budgets and avoiding risk. Rewards of this type cause managers to invest in safe products to prevent big loss but also little chance of a big profit; these rewards totally block whatever motivation there may exist to explore riskier paths. A badly designed measurement or reward system will mute the rest of the rules, even if optimally designed. The question then becomes: What should a company measure and what type of rewards would best motivate employees to get the innovation results that management needs? In some companies, the measurements are a big part of the problem (Davila et al., 2006). Siemens has a tendency of looking at the rewards system from the top downward; upper management receives praise and yearly bonus and the hourly wage-earner receives a small raise if the budget permits. If the company needs to downsize due to economic conditions, the hourly white-color and administrative workers are the first to exit the company.
Organizations need systems in place that provide the proper measurement, motivation, incentives, rewards to foster innovation that is aligned with the innovation strategy, and need to create an environment where taking risks on breakthrough innovations is recognized as valuable to the company. The first innovation rule is leadership since it is where a company needs to start, metrics and rewards is the seventh and last innovation rule since it closes the circle, and creates the motivational and behavioral links to all of the other innovation rules (Davila et al., 2006).
Davila, T, Epstein, M .J., & Shelton, R. (2006). Making Innovation Work. Upper Saddle River, NJ: Wharton School Publishing.