4.1: Culture

4.1.1: Defining Organizational Culture

Organizational culture can be defined as the collective behavior of people within an organization and the meanings behind their actions.

Learning Objective

Define culture and it’s conceptual development within the context of organizations and innovation

Key Points

Culture is inherently intangible, and a static definition of culture struggles to encapsulate the meaning and implications of its role in an organization.
One way to define culture is simply as the overarching mentality and expectation of behavior within the context of a given group (e.g., an organization, business, country, etc.).
Corporate culture is usually derived from the top down (i.e., upper management sets the tone) and comes in the form of expectation and consistency throughout the organization.
Culture can be manipulated and altered depending on leadership and members. Instilling positive culture that promotes effective employee behavior is a manager’s primary task.
While there are many models for and perspectives on defining culture within an organization, models such as Geert Hofstede’s, Edgar Schein’s and Gerry Johnson’s are useful in properly framing a comprehensive definition.

Key Term

culture: The beliefs, values, behavior, and material objects that constitute a people’s way of life.

Culture is inherently intangible, and a static definition of culture struggles to encapsulate the meaning and implications of its role in an organization. One way to define culture is simply as the overarching mentality and expectation of behavior within the context of a given group (e.g., an organization, business, country, etc.). Culture provides a guiding perspective on how individuals within that group should act, and what meaning can be derived from those actions. Expectation, traditions, value, ethics, vision, and mission can all both communicate and reinforce a given group culture. Above all else, culture must be shared internally; otherwise it loses its form.

Culture in Business

Corporate culture is usually derived from the top down (i.e., upper management sets the tone) and comes in the form of expectation and consistency throughout the organization. All employees and managers must uphold these cultural expectations to generate a working environment that correlates to cultural expectations. The shared assumptions should be implicit in behavior and explicit in the mission, vision and ethics statements of the organization. Consistency between expectation and action is key here.

People working at Wikimedia

Even small things, such as the way an office space is set up, can set the tone for organizational culture.

Culture and Adaptability

Culture can be manipulated and altered, depending on leadership and members. Let’s take the simple example of a car dealership. Selling cars is usually a commission business, where the salesperson is a central success factor. Many car dealerships find that competition is an effective cultural component and embed that into the organization. This is easily accomplished with the right tools. A car dealership owner may hire specifically for competitiveness, making it clear that this is the type of individual they want to hire. The owner can create high variable salary and low fixed salary so that high performers are much more highly prized and rewarded than ineffective salespeople. The owner could give out awards at the end of each quarter to the most successful salesperson. The list could go on and on, but the important consideration here is how strategy and culture can be intertwined to evolve together.

Perspectives on Culture

Culture is a deeply important element of organizations and societies that is studied extensively in a variety of disciplines. This has generated more definitions of culture and how to go about empirically measuring it than could be touched upon in one overview. However, a few important perspectives for a business manager include:

Hofstede’s Cultural Dimensions Theory – Postulates that cultural differences to be aware of include different perspectives on power distance, masculinity (vs. femininity), individualism (vs. collectivism), avoidance of uncertainty, long-term orientation, and indulgence.
Schein’s Cognitive Levels of Organizational Culture – Edgar Schein believes that culture can be viewed most simply via artifacts (e.g., facilities, dress code, etc.), more acutely through values (e.g., focus on quality, loyalty or other central values) and most complexly through tacit assumptions (i.e., unspoken rules of behavior and other intangible expectations that are very difficult to observe and measure).
Gerry Johnson’s Cultural Web – This includes the elements of culture, which is an important aspect of how we define it. Johnson underlines the paradigm, control system, organizational structure, power structure, symbols, stories, and myths as central determinants of what a given organizational culture stands for.

While each of these theories is complex, all together they help create a clearer picture of what exactly culture is and how it applies to managers and organizations.

4.1.2: The Impact of Culture on an Organization

Culture is a malleable component of an organization that can adapt and evolve through influences to create value.

Learning Objective

Identify the central components of an organization or company that result from the influence cultural dispositions

Key Points

Culture, particularly in large organizations that have a great deal of momentum, can be difficult to influence or change.
Understanding how to change an organizational culture requires some insight into what creates culture in the first place and how altering those components may impact meaningful cultural development.
Some examples of organizational facets that influence culture are mission and vision statements, control systems, organizational structures, power hierarchies, symbols, routines, and internal stories and myths.
When integrating culture change, it is important to update mission and vision statements, ensure buy-in from upper management, update control systems and power hierarchies, hire people representative of the desired culture (and remove those who are not), and update the corporate ethos.

Key Terms

paradigm: A system of assumptions, concepts, values, and practices that constitutes a way of viewing reality.
joint venture: A cooperative partnership between two individuals or businesses in which profits and risks are shared.
inertia: The property of a body that resists any change to its uniform motion; equivalent to its mass. Figuratively, in a person, unwillingness to change.

Culture, particularly in large organizations that have a great deal of internal momentum, can be difficult to influence or change. The size of an organization and the strength of its culture are the biggest contributors to cultural inertia. Big and strong organizational cultures will have a powerful tendency to continue moving in the direction they are already moving (momentum). Therefore, managers must understand not only how to create culture, but also how to change it when necessary to ensure a positive, efficient and ethical culture.

Cultural Factors

Understanding how to change an organizational culture requires some insight into what creates culture in the first place and how altering those components may impact meaningful cultural development. Gerry Johnson’s cultural web offers great clarity about how an organizational culture responds to and reflects influencing factors. These include:

The paradigm: The mission statement, vision, ethics statement, and other overt definitions of culture.
Control systems: The processes in place to monitor what is going on, such as an employee handbook.
Organizational structures: This comes down to the hierarchy, or who reports to whom and why.
Power structures: Similar to the organizational structure above, this pertains to who has the power to make decisions.
Symbols: Most organizations have brand images and other symbols which represent what the culture stands for (logos, etc.).
Rituals and routines: In the business setting this is simply the way in which group interactions are organized. One example is the weekly staff meeting.
Stories and myths: CEOs and other figureheads often have stories or legends associated with them; this generates culture through idolatry.

While these are only a few of the elements of culture, they capture a wide variety of components that managers can use to influence and change the general cultural predisposition.

Implementing Culture Change

Cummings and Worley identify a useful way to frame the stages or steps in integrating broad organizational change through cultural reform in six stages, which correlates well with the factors identified above. These stages include:

Ensure clarity in the strategic vision. This means making sure that the mission statement, vision statement and overall strategy work together to create one strong culture statement. The vision in particular must describe the new culture forcefully and persuasively.
Ensure buy-in from the top down. This means communicating (and often determining) specific aspects of needed culture change at the upper managerial level.
Lead by example. Top management needs to exhibit the kinds of values and behaviors that they want to see in the rest of the company.
Identify areas in the organizational structure and control systems which require updates to conform with the new or adapted culture. This includes altering employee handbooks, compensation strategies, hierarchy, decision-making authority and other central components of structure.
Follow through on the mandate. Terminating employees who do not conform to the desired culture is difficult. But it allows you to bring in new talent that aligns better with your desired culture. Ensuring proper emphasis on the new culture in training materials is useful in this process.
Finally, ensure that the ethical and legal implications of the adapted culture are understood, planned for and in line with corporate ethics.

Joint ventures and mergers and acquisitions usually require large cultural changes. When different cultures come together it is wise to expect some degree of culture-clash and differences of opinion. Managers, particularly upper management, must be aware of the implications of cultural change, the facets of organizational culture and the steps involved in altering it. While this model describes a long process that is generally more applicable to large cultural overhauls, the general strategy is useful for managers leading meaningful cultural change at all levels.

4.1.3: Types of Organizational Culture

While there is no single “type” of organizational culture, some common models provide a useful framework for managers.

Learning Objective

Differentiate between varying organizational culture tendencies, specifically within the context of Hofstede’s cultural dimensions theory

Key Points

While there are many ways to divide and define culture into “types,” Geert Hofstede, Edgar Schein, and Charles Handy provide three basic theoretical frameworks.
Hofstede postulates six dimensions of culture based on a study conducted at IBM offices in 50 different countries. These include power distance, uncertainty avoidance, individualism (vs. collectivism), masculinity (v.s femininity), long-term orientation, and restraint.
Edgar Schein organizes culture into three types: artifacts (tangible cultural displays), values, and assumptions.
Charles Handy identifies four types of organizational culture: power, role, task, and person. Each type of culture has strong implications on types of organizational structure.

Key Terms

normative: Of, pertaining to, or using a norm or standard.
cultural: Of or pertaining to culture.

Several methods have been used to classify organizational culture. While there is no single “type” of organizational culture, and cultures can vary widely from one organization to the next, commonalities do exist, and some researchers have developed models to describe different indicators of organizational cultures. We will briefly discuss the details of three influential models on organizational cultures.

Hofstede’s Cultural Dimensions

While there are several types of cultural and organizational theory models, Hofstede’s cultural dimensions theory is one of the most cited and referenced. Hofstede looked for global differences in culture across 100,000 IBM employees in 50 countries in an effort to determine the defining characteristics of global cultures in the workplace. With the rise of globalization, this is particularly relevant to organizational culture.

Through this process, he underlined observations that relate to six different cultural dimensions (originally there were five, but they have been updated in response to further research):

Power distance: Power distance is simply the degree to which an authority figure can exert power and how difficult it is for a subordinate to contradict them.
Uncertainty avoidance: Uncertainty avoidance describes an organization’s comfort level with risk-taking. As risk and return are largely correlative in the business environment, it is particularly important for organizations to instill a consistent level of comfort with taking risks.
Individualism vs. collectivism: This could best be described as the degree to which an organization integrates a group mentality and promotes a strong sense of community (as opposed to independence) within the organization.
Masculinity vs. femininity: This refers to the ways that behavior is characterized as “masculine” or “feminine” within an organization. For example, an aggressive and hyper-competitive culture is likely to be defined as masculine.
Long-Term Orientation: This is the degree to which an organization or culture plans pragmatically for the future or attempts to create short-term gains. How far out is strategy considered, and to what degree are longer-term goal incorporated into company strategy?
Indulgence vs. Restraint: This pertains to the amount (and ease) of spending and fulfillment of needs. For example, a restrained culture may have strict rules and regulations for tapping company resources.

Edgar Schein’s Cultural Model

Edgar Schein’s model underlines three types of culture within an organization, which, as a simpler model than Hofstede’s, is somewhat more generalized. Schein focuses on artifacts, values, and assumptions:

Schein’s model

Diagram of Schein’s organizational behavior model, which depicts the three central components of an organization’s culture: artifacts (visual symbols such as office dress code), values (company goals and standards), and assumptions (implicit, unacknowledged standards or biases).

Artifacts: The simplest perspective on culture is provided by the tangible artifacts that reveal specific cultural predispositions. How desks are situated, how people dress, how offices are decorated, etc., are examples of organizational artifacts.
Values: Values pertain largely to the ethics embedded in an organization. What does the organization stand for? This is usually openly communicated with the public and demonstrated internally by employees. An example might be a non-profit organization trying to mitigate poverty. The values of charity, understanding, empowerment, and empathy would be deeply ingrained within the organization.
Assumptions: The final type of culture, according to Schein, is much more difficult to deduce through observation alone. These are tacit assumptions that infect the way in which communication occurs and individuals behave. They are often unconscious, yet hugely important. In many ways, this correlates with Hofstede’s cultural dimensions. For example, a culture of avoiding risk wherever possible may be an assumption which employees act upon without realizing it, and without receiving any directives to do so. High power distance could be another, where employees intuit that they should show a high degree of deference to their superiors without being specifically told to do so.

Charles Handy’s Four Types of Culture

Charles Handy put forward a framework of four different types of culture that remains relevant today. His four types include:

Power culture: In this type of culture, there is usually a head honcho who makes rapid decisions and controls the organizational direction. This is most appropriate in smaller organizations, and require a strong sense of deference to the leader.
Role culture: Structure is defined and operations are predictable. Usually this creates a functional structure, where individuals know their job, report to their superiors (who have a similar skill set), and value efficiency and accuracy above all.
Task culture: Teams are formed to solve particular problems. Power is derived from membership in teams that have the expertise to execute a task. Due to the importance of given tasks, and the number of small teams in play, a matrix structure is common.
Person culture: In this type of culture, horizontal structures are most applicable. Each individual is seen as valuable and more important than the organization itself. This can be difficult to sustain, as the organization may suffer due to competing people and priorities.

While there are many other ways to divide and define culture, these three offer a good window into the literature surrounding cultural types.

4.1.4: Core Culture

Core culture is the underlying value that defines organizational identity through observable culture.

Learning Objective

Identify the general definition and characteristics of a healthy core culture, alongside how this translates into observable culture.

Key Points

Core and observable culture are two facets of the same organizational culture, with core culture being inward-facing and intrinsic and observable culture being more external and tangible (outward-facing).
In essence, core culture defines the values and assumptions of an organization, as described by Edgar Schein’s Model of Organizational Culture.
Core culture is made up of the intangible values and ethos that define an organization’s cultural framework. Observable culture is the external reflection of this cultural perspective.
Management is tasked with both the creation and consistent application of core culture at the organizational level.

Key Term

Core Culture: The underlying value that defines the organization’s identity through observable culture.

Core Culture and Observable Culture

Core and observable culture are two facets of the same organizational culture, with core culture being inward-facing and intrinsic and observable culture being more external and tangible (outward-facing). Core culture, as the name denotes, is the root of what observable culture will communicate to stakeholders. Core culture is more ideological and strategic, representing concepts such as vision (long-term agenda and values), while observable culture is more of a communications channel (i.e., stories, logos, symbols, branding, mission statement, and office environment).

Edgar Schein and Core Culture

One useful theoretical framework to consider when differentiating between core and observable culture is Edgar Schein’s Organizational Culture Model. This mode simply and efficiently illustrates the cultural facets of a given organization as an upside-down triangle.

Schein’s model of organizational culture

The broader base at the top of the inverted pyramid represents artifacts, the simplest and most physical (i.e., observable) elements of a given culture. This includes the way desks are situated in an office (collaborative or individualistic?), the colors and shapes used in the logo, the general dress code, etc.

The next level is values, which bridges the gap between observable and core culture. Values are explicitly and observably stated in organizational literature (i.e., the employee handbook and mission statement), but also implicitly executed in individual behaviors. While it is observable when the CEO makes a public statement for shareholders or when the promotional team writes a press release, it is also derived directly from discussions of what the core culture is. This is where observable culture begins to transform into core culture.

The final component identified by Schein is parallel with the concept of core culture: assumptions. The assumptions made by the individuals within an organization are so intimately tied to the core organizational culture that they are virtually unrecognizable. In many ways, one could equate core culture with an individual’s subconscious. While our subconscious so often drives our conscious behavior, we rarely realize it. Core culture has the same relationship with observable culture: core culture is created first, and ultimately drives the visible cultural aspects of the organization.

Creating Core Culture

Organizational culture, both observable and core, is created first at the managerial level. Leaders must define not only what it is they are working towards, but also how the organization will come to define itself during the process. The core culture created by leadership sets the tone for employee behavior and assumptions in the future.

Upper management must decide which values and ethos will constitute the core of the organizational culture, and then instill this internally, in their employees, and communicate it externally, to stakeholders (via observable culture). Management is tasked with both the creation and consistent application of core culture at the organizational level.

4.2: Shaping Organizational Culture

4.2.1: Building Organizational Culture

Managers are tasked with both creating and communicating a consistent organizational culture.

Learning Objective

Describe strategies used by managers to create and maintain a consistent organizational culture.

Key Points

The process of instilling culture into an organization involves communicating and integrating a broad cultural framework throughout the organizational process.
A strong culture is integral to long-term organizational sustainability and success; a primary responsibility of management is to both define and communicate this sense of shared organizational culture.
Organizational culture is often defined by the work environment that management creates (i.e., mission statement, organizational structure, rules, symbols, etc.).
Managers must be careful to instill the culture that is most conducive to both the strategy and objectives of the organization over the long term.

Key Terms

organizational culture: The collective behavior of the people who make up an organization, including values, visions, norms, working language, systems, symbols, beliefs, and habits.
culture: The beliefs, values, behavior, and material objects that constitute a people’s way of life.

Organizational culture refers to the collective behavior of the people who make up an organization; this includes their values, visions, norms, working language, systems, symbols, beliefs, and habits. Organizational culture affects the way people and groups interact with each other, with clients, and with stakeholders. A strong culture is integral to long-term organizational sustainability and success, and one of management’s primary responsibilities is to both define and communicate this sense of shared culture.

The process of ingraining culture into an organization is simply one of communicating and integrating a broad cultural framework throughout the organizational process. Central to this process is ensuring that each and every employee both understands and aligns with the values and direction of the broader organization. This creates a sense of community among employees and ensures that the broader objectives and mission of the organization are clear.

While there are a variety of cultural perspectives and many organizational elements within a culture, the initial process of instilling culture is relatively consistent from a managerial perspective. The creation of a given culture is often defined by management’s strategy for addressing the following issues:

The paradigm: Management determines both the mission and vision of the organization and sets a groundwork for the values that employees are expected to align with. Determining these factors and communicating them effectively are absolutely critical to successfully instilling organizational culture.
Control systems: An example of this may be an employee handbook where behavioral expectations are laid out explicitly (where possible) for employees to read and understand.
Organizational structures: The choice of an organizational structure has enormous cultural implications for openness of communication, organization of resources, and flow of information.
Power structures: Power and culture are often intertwined: the degree to which specific individuals are free (or not) to make decisions is indicative of the openness and fluidity of the organization.
Symbols: All strong brands associate with symbols (think logos). These are not randomly selected: symbols show which specific facets of an organizational culture management considers most important.
Rituals and routines: Routines are strong behavior modifiers that significantly impact the culture of a given organization. A looser and more open work environment (limited routines, high individual freedom) may create more innovation while heavily structured routines may create more efficiency and predictability.
Stories and myths: Finally, stories are powerful communicators of culture. Walmart uses Sam Walton’s founding as a powerful myth to promote efficiency and the desire to try new things and integrate various products and services. This is organizationally defining.

Cultural change in an organization

The feedback loop of cultural change in an organization involve people’s intentions to enable, engage, encourage, and exemplify the new desired behaviors; this in turn influences the frequency of behaviors. After enough reinforcement, those behaviors become the norm, which self-reinforces through increasing people’s exemplification of those behaviors.

Overall, managers must be aware of their role as cultural ambassadors and their responsibility in creating a context for successfully instilling organizational culture. For example, promoting a strong authoritarian hierarchy and strong innovation would be an oversight in the field of organizational culture from a management professional. Managers must be careful to instill the culture that is most conducive to both the strategy and objectives of the organization over the long term.

4.2.2: Communicating Organizational Culture

Management is tasked with both creating culture and accurately communicating it across the organization.

Learning Objective

Recognize the role of management in communicating and teaching organizational culture to employees and subordinates.

Key Points

Corporate culture is used to control, coordinate, and integrate company subsidiaries.
The role of the manager is essential to the successful communication of a given organizational culture because managers are figureheads and role models for how individuals in the organization should behave.
Organizations should strive for what is considered a “healthy” organizational culture to increase productivity, growth, efficiency, and to reduce counterproductive behavior and turnover of employees.

Key Term

organization: A group of people or other legal entities with an explicit purpose and written rules.

Corporate culture is used to control, coordinate, and integrate company subsidiaries. Culture runs deeper than this definition, however, because culture also represents the embedded values, traditions, beliefs, and behaviors of a given group. Culture is indicative not only of what individuals pursue and believe in, but also their behaviors, assumptions, and communications. As a result, culture is both complex to create and challenging to communicate and imbue within the organization.

Communicating Culture

The role of the manager is essential to the successful communication of a given organizational culture because managers are figureheads and role models for how individuals in the organization should behave. While it is too simplistic to say that culture is a top-down communicative process, there is relevance to the idea that culture generally begins with the founders of the organization and the values they emphasize in the organizational growth and hiring process.

Leaders have a number of tools and strategies at their disposal to communicate culture. Some of the most critical of these are structure, hierarchy, mission and vision statements, employee handbooks, hiring processes, and employee training and initiation. With many diverse tools for communicating culture comes the challenge of aligning each perspective for consistency of message: for instance, the employee training program must emphasize the same values as the mission statement and must match the executive mandate for organizational structure and design.

Communication is the core tool for managing this cultural integration, enabling executives to remind employees what the organization stands for and why it’s important. Holding company-wide quarterly meetings to emphasize objectives and strategy and sending out emails with key successes and developmental challenges are great ways to keep the conversation going.

The Role of HR

It is also critical to make the hiring process match and promote the culture by hiring talent that is consistent with cultural expectations and implementing training programs that effectively emphasize what the organization stands for and why. Human resource professionals are tasked with identifying candidates with culturally consistent perspectives and with underlining the importance of cultural considerations in interviews and on-boarding processes.

Organization triangle

This organization triangle illustrates the idea that structure, process, and the people involved all contribute to the culture of an organization.

4.2.3: Building a Culture of High Performance

A high-performing culture is a results-driven business culture focused on generating efficiency and completing objectives.

Learning Objective

Analyze the primary drivers and positive characteristics of a high-performing culture.

Key Points

Every business has its own culture. High-performance cultures are specifically focused on setting and accomplishing objectives with a high degree of efficiency and efficacy.
High-performing teams are an integral component of high-performance cultures.
A high-performing team is a group of people with complementary talents and skills. They are given clear roles and are committed to a common purpose. This enables synergy.
Culture is a combination of individual perspectives and the environment in which they operate. Business looking to create a high-performance culture must create an interdependent environment which empowers employee responsibility and decision-making.

Key Terms

SMART: Goal-setting criteria: Specific, Measurable, Attainable, Realistic, and Timely.
performing: The stage of group development when the the team is able to function as a unit, finding ways to get the job done smoothly and effectively without inappropriate conflict or supervision.
high-performing team: groups that are highly focused on their goals and that achieve superior business results.

Organizations need to be productive in order to achieve their goals. Over time, productivity can become a part of organizational culture, eventually becoming integrated into the company’s operations and processes. The business becomes known for its productivity, and high performance becomes second-nature for its employees. A high-performing culture is defined by a focus on generating and accomplishing objectives. There is a strong sense of both results-orientation and employee interdependence.

A High-Performing team

An effective way to achieve high-performing culture is to create high-performing teams. A high-performing team is best defined as a group of interdependent employees whose skills and personalities complement one another and lead to above-average operational results. High-performance teams are a central building block of high-performance culture, and they thrive in innovative and empowering environments.

Leadership in any team environment is critical to success, but leadership within a high-performance culture is often complex. While leadership is normally static in a hierarchical environment, high-performance teams benefit from shared leadership by utilizing the different talents and perspectives of each team member in the decision-making process. This creates a strong culture of shared leadership which in turn can generate above-average results and highly motivated employees who trust one another.

Culture is defined by creating its own consciousness in an organization, indicating shared norms and values. These shared values are central elements of the organization, as they generate buy-in and dedication from employees. These shared values create an expectation of success, both professional and personal, that can create high levels of trust and shared accountability. In short, shared values are key to creating strong team dynamics.

There are ten elements in particular that are important to successfully integrating high-performance teams within an organizational culture:

Participative leadership – Involve the entire team when making decisions, and rely on specialists only when applicable.
Effective decision making – Ensure that decision-making is both strategic and efficient. Group decision-making is often slowed when team dynamics are weak, which requires team-building to fix.
Open and clear communication – As always with group dynamics, communication is key to success. Ensure everyone is speaking and listening.
Valued diversity – Team synergy is lost when groupthink dominates the discussion. Instill open-mindedness and dispel social fears of disagreeing.
Mutual trust – Reliance upon one another, and trust in each other’s skills and capabilities, allows for less duplication of work and more overall synergy.
Managing conflict – Conflict is inevitable and not necessarily a bad thing. Deal with it calmly and without personal biases or emotions. Let the best ideas win.
Clear goals – SMART objectives are essential to high performance, just as understanding where one is going is essential to finding the best route.
Defined roles and responsibilities – Everyone should have a clear understanding of why they are on the team and what they are responsible for.
Coordinated relationships – Building strong team dynamics requires team members to understand each other and build strong relationships. Utilize ice-breaking activities and promote casual discussion to get this started.
Positive atmosphere – Wherever possible, make sure the general perspective is one of constructive commentary. Maintaining a positive outlook empowers communication and improves team spirit.

New York Yankees

A Great Team

4.3: Adapting and Innovating

4.3.1: Benefits of Innovation

Innovation may be linked to positive changes in efficiency, productivity, quality, competitiveness, and market share, among other factors.

Learning Objective

Identify the organizational benefits derived through enabling internal innovation

Key Points

Innovation is the development of customer value through solutions that meet new needs, unarticulated needs, or existing market needs in unique ways.
Innovative employees increase productivity by creating and executing new processes which in turn may increase competitive advantage and provide meaningful differentiation.
Managers who promote an innovative environment can see value through increased employee motivation, creativity, and autonomy; stronger teams; and strategic recommendations from the bottom up.
Clarity about and understanding of roles, increased responsibilities, strategic partnerships, senior management support, organizational restructuring, and investment in human resources can all enrich organizational culture and innovation.

Key Terms

innovation: A change in customs; something new and contrary to established customs, manners, or rites.
productivity: The rate at which goods or services are produced by a standard population of workers.
efficiency: The extent to which a resource, such as electricity, is used for the intended purpose; the ratio of useful work to energy expended.

Defining Innovation

Innovation is the development of customer value through solutions that meet new, undefined, or existing market needs in unique ways. Solutions may include new or more effective products, processes, services, technologies, or ideas that are more readily available to markets, governments, and society.

Innovation is easily confused with words like invention or improvement. They are, however, different terms. Innovation refers to coming up with a better idea or method, or integrating a new approach within a contextual model, while invention is more statically about creating something new. Innovation refers to to finding new ways to do things, while improvement is about doing the same thing more effectively.

Organizational Benefits of Innovation

From an organizational perspective, managers encourage innovation because of the value it can capture. Innovative employees increase productivity through by creating and executing new processes, which in turn may increase competitive advantage and provide meaningful differentiation. Innovative organizations are inherently more adaptable to the external environment; this allows them to react faster and more effectively to avoid risk and capture opportunities.

From a managerial perspective, innovative employees tend to be more motivated and involved in the organization. Empowering employees to innovate and improve their work processes provides a sense of autonomy that boosts job satisfaction. From a broader perspective, empowering employees to engage in broader organization-wide innovation creates a strong sense of teamwork and community and ensures that employees are actively aware of and invested in organizational objectives and strategy. Managers who promote an innovative environment can see value through increased employee motivation, creativity, and autonomy; stronger teams; and strategic recommendations from the bottom up.

Managers can accomplish this through providing top-down support to employees, providing clear roles and responsibilities while allowing individuals the freedom to pursue these as they see fit. Supporting the HR and IT departments so that they can provide training and tools for higher employee efficiency can contribute substantially to a culture of internal innovation. This requires open-minded and motivational leaders in managerial positions who are capable of steering employee efforts without diminishing employee creativity.

4.3.2: Characteristics of Innovative Organizations

According to recent research, companies that make a commitment to innovation are exceptional performers in their respective industries.

Learning Objective

Outline the critical success factors and characteristics of an adaptable and innovative organizational culture

Key Points

Being receptive to new business ideas means being receptive to the idea that mistakes are a necessary part of the process.
Everyone in the business needs to keep an open mind and develop the capacity to look at things with fresh eyes.
It is likely that some successful innovations will result from chance discoveries.
Managers must understand that employees too mired in routine work and too criticized for trying new methods will inherently fail to create innovations that may drive organizational growth.

Key Term

innovation: A change in customs; something new and contrary to established customs, manners, or rites.

Many business experts argue that companies that make a substantial commitment to innovation and entrench it deeply throughout their culture will perform exceptionally well. But how can innovation be facilitated within the organizational framework? The following are some examples of characteristics that lead to successful innovation.

Accept Mistakes as Part of the Process

A Minnesota Mining & Manufacturing researcher was looking for ways to improve the adhesives used in 3M tapes that he discovered an adhesive that formed itself into tiny spheres. At first, it seemed as though his work was a failure. However, the new adhesive was later used on Post-it notes—a great innovation and business success for the company. Being receptive to new business ideas means being receptive to mistakes as a necessary, and sometimes even crucial, part of the process.

Keep an Open Mind and Think Laterally

Possibilities for innovation exist everywhere. To realize them, everyone in the business needs to keep an open mind and develop the capacity to look at things with fresh eyes.

The classic example of a company that completely transformed itself as a result of lateral thinking is the Finnish company Nokia, whose original core business was wood pulp and logging. When the collapse of communism opened the Russian market to the west, Nokia’s core business was seriously threatened by cheaper imports from Russia’s seemingly limitless forests. In the deep recession of the early 1990s, Nokia’s management concluded that the only real competitive advantage they retained was a very efficient communications system developed in the 1970s that helped them keep in touch with their remote logging operations. That single realization transformed the company into one of the world’s most successful vendors of communications equipment.

Nokia cell phone

Nokia successfully transformed itself from a logging company to an electronic-communications company through innovation.

Managerial Implications

As is usually the case, these principles are easier said than done. Managers must carefully consider what type of work environment they project for their subordinates. Managers must understand that employees too mired in routine work and who are criticized for trying new methods will inherently fail to create innovations that may drive organizational growth. There is therefore a balancing act between enabling employees to try new things and take risks vs. ensuring that tasks are completed on time with reasonable success.

4.3.3: Types of Innovation

There are three main modes of innovation: entrepreneurial value-based, technology-based, and strategic-reflexive.

Learning Objective

Outline a categorical overview of the potential ways in which innovation can be pursued and identified.

Key Points

The entrepreneurial method of innovation is one in which change is initiated by an individual’s actions and drive to create a business venture of adaptation.
Technology-based functional innovation occurs when the development of new technology drives innovation.
The strategic-reflexive mode describes innovation that springs from individuals’ interactions with their organization’s common values and goals.
Other types of innovation include: incremental, architectural, generational, manufacturing, financial, and cumulative.

Key Term

innovation: A change in customs; something new and contrary to established customs, manners, or rites.

In business and economics, innovation is the catalyst to growth. Fuglsang and Sundbo (2005) suggest that there are three modes of innovation. The first is an entrepreneurial value-based method where change is initiated by an individual’s actions. The second is a technology-based functional mode in which the development of new technology drives innovation. The third is a strategic-reflexive mode in which innovation results from individual’s interactions with their organization’s set of common values and goals. The following graphic provides an example of the innovation process.

Innovation process

Innovation involves continuous improvement throughout phases of a development program. Phases can be iterative and recursive (meaning that they do not proceed linearly from one to the next; rather, earlier phases can be returned to for further improvement as needed). Such phases include market analysis and consumer research, which progress to design and prototyping, after which follow naming and packaging design and ultimately retail and production support.

Entrepreneurial Innovation

The innovation dimension of entrepreneurship refers to the pursuit of creative or novel solutions to challenges confronting a firm. These challenges can include developing new products and services or new administrative techniques and technologies for performing organizational functions (e.g., production, marketing, and sales and distribution).

Technological Innovation

Technological innovation takes place when companies try to gain a competitive advantage either by reducing costs or by introducing a new technology. Technological innovation has been a hot topic in recent years, particularly when coupled with the concept of disruptive innovation. Disruptive innovation is usually a technological advancement that renders previous products/services (or even entire industries) irrelevant. For example, the smartphone disrupted landlines, Netflix made Blockbuster obsolete, and mp3s have marginalized CD players.

Strategic Innovation

The strategic-reflexive mode of innovation is the most effective mode for change and innovation. While technological innovation is clear and easy to define, strategic innovation is inherently intangible and organizational in nature. Strategic innovation pertains to processes: how things are done as opposed to what the end product is. Strategic changes can be disruptive but are more often incremental. Incremental innovation is the idea that small changes, when effected in large volume, can rapidly transform the broader organization.

Walmart’s “Hub and Spoke” distribution model is a classic example of strategic innovation. Walmart succeeded thanks to process efficiency enabled via innovative operational paradigms and distribution strategies. By utilizing a maximum efficiency warehousing and distribution model, refined over and over again incrementally for improvement, Walmart has sustained a competitive advantage for decades.

Other Applications of Innovation

Generational innovation involves changes in subsystems linked together with existing linking mechanisms.
Architectural innovation involves changes in linkages between existing subsystems.
Incremental innovations improve price/performance advancement at a rate consistent with the existing technical trajectory. Radical innovations advance the price/performance frontier by much more than the existing rate of progress.
Manufacturing process innovation refers to all the activities required to invent and implement a new manufacturing process.
Cumulative innovation is any instance of something new being created from more than one source. Remixing music is a direct example of cumulative innovation.
Financial innovation has brought many new financial instruments with pay-offs or values depending on the prices of stocks. Examples include exchange-traded funds (ETFs) and equity swaps.

4.3.4: Speed of Innovation

Companies compete to adapt their products and services to incorporate new innovations first.

Learning Objective

Recognize the challenge inherent in adopting new ideas and the subsequent considerations pertaining to the speed of pursuing them.

Key Points

Speed of innovation can pose a major challenge for organizations responding to external change.
Profits depend on speed of innovation and the ability to attract customers. Big corporations used to dominate, but now industry leaders are often small, highly flexible groups that come up with great ideas, build trustworthy branding for themselves and their products, and market them effectively.
A first-mover in a given innovation captures the obvious advantage of tapping into a new market before the competition. This can also allow the first-mover to capture the new technology for its own brand.
First-movers encounter high fiscal risks in integrating a new product or services into their distribution, and failure often means sunk costs. Late-comers to the game can simply observe the success or failure of other competitors and make a more informed (and less risky) decision.

Key Terms

Cannibalization: The reduction of sales or market share for one of your own products by introducing another.
innovation: A change in customs; something new and contrary to established customs, manners, or rites.

The best ideas should implemented as quickly as possible—not just by the idea generator but also by others who have a different viewpoint. It is imperative that the idea is honed and refined while it is still fresh. For example, an idea for a new product might start out as a crude model built from polystyrene, foam, or cardboard that will evolve quickly into a more professional prototype.

Product Innovation Approach

Robert Reich observes that profits in the old economy came from economies of scale, i.e., long runs of almost identical products. Thus we had factories, assembly lines, and industries. Today, profits come from speed of innovation and the ability to attract and keep customers. Therefore, while the big winners in the old economy were big corporations, today’s big winners are often small, highly flexible groups that devise great ideas, develop trustworthy branding for themselves and their products, and market these effectively. The winning competitors are those who are first at providing lower prices and higher value through intermediaries of trustworthy brands. To keep the lead, however, these companies have to keep innovating lest they fall behind the competition.

The Benefit of Moving First

Speed of innovation poses a major challenge for organizations responding to external change. A high rate of change can be seen in the shortening of product life cycles, increased technological change, increased speed of innovation, and increased speed of diffusion of innovations. These are key challenges for organizations, as the profit generation of new ideas must fit into a slimmer chronological window—thus underlining the great value of being a first-mover.

A first-mover in a given innovation captures the obvious advantage of tapping into a new market before its competitors. This also sometimes allows the first-mover to identify its brand with the new technology (i.e., saying “Google it” as shorthand for online search or calling any and all mp3 players an iPod). These branding hurdles must be tackled by any competitor following in the footsteps of the first-mover.

However, speed is not everything. First-movers encounter serious disadvantages, the most notable of which are freeloaders. First-movers also encounter high fiscal risks in integrating a new product or services into their distribution, and failure often means sunk costs. Latecomers to the game can simply observe the success or failure of other competitors and make more informed (and less risky) decisions about entering the market segment. Similarly, first movers must carefully consider cannibalization—where their new innovative products steal sales from their older products still on store shelves. Speedy innovation and moving first requires great foresight, planning, and managerial skill to execute effectively to minimize risks.

4.3.5: Sustainability Innovation

Sustainability innovation combines sustainability (endurance through renewal, maintenance, and sustenance) with innovation.

Learning Objective

Describe how organizational culture adds value by generating an innovative approach to sustainability issues

Key Points

Sustainopreneurship describes using creative organizing to solve problems related to sustainability to in turn create social and environmental sustainability as a strategic objective and purpose.
Solving sustainability-related problems is the be-all and end-all of sustainability entrepreneurship.
Passively heated houses, solar cells, organic food, fair trade products, hybrid cars, and car sharing are all examples of sustainability innovations.

Key Terms

sustainability: Configuring human activity so that societies are able to meet current needs while preserving biodiversity and natural ecosystems for future generations.
innovation: A change in customs; something new and contrary to established customs, manners, or rites.

Sustainability is the capacity to endure through renewal, maintenance, and sustenance (or nourishment), which is different than durability (the capacity to endure through resistance to change). Innovation is the creation of new value through the use of solutions that meet new, previously unknown, or existing needs in new ways. Innovation should be pursued with sustainability in mind as a critical strategic objective, as the integration of new business ideas with the broader community and environment is central to long-term success.

Sustainability Entrepreneurship

“Sustainopreneurship” describes using creative business organizing to solve problems related to sustainability to create social and environmental sustainability as a strategic objective and purpose, while at the same time respecting the boundaries set in order to maintain the life support systems of the process. In other words, it is “business with a cause,” where the world’s problems are turned into business opportunities for deploying sustainability innovations. Sustainopreneurship is entrepreneurship and innovation for sustainability.

This definition is highlighted by three distinguishing dimensions. The first is oriented towards “why” – a company’s purpose and motive in adopting sustainable entrepreneurship. The second and third reflect two dimensions of “how” the process is carried out.

Entrepreneurship consciously sets out to find or create innovations to solve sustainability-related problems.
Entrepreneurship moves solutions to market through creative organizing.
Entrepreneurship adds sustainability value while respecting life support systems.

Solving sustainability-related problems from the organizational frame is the be-all and end-all of sustainability entrepreneurship. This means that all three dimensions are simultaneously present in the process.

An example to provide context: Interface Global produces modular carpeting. Sustainability is the core operating mission and vision of the broader organization. Through greening their supply chain, minimizing water use, cutting electric costs, reducing fuel costs through better distribution, and a number of other innovative process improvements, Interface Global produces high quality carpets at a lower cost and smaller environmental footprint. The company created a sustainable business strategy through innovative thinking.

4.3.6: Social Innovation

Social innovation refers to new strategies, concepts, ideas, and organizations that meet societal needs of all kinds.

Learning Objective

Define social innovation and the potential positive outcomes of employing it within an organizational culture

Key Points

Social innovation can refer to social processes of innovation, such as open source methods and techniques.
Social innovation can also refer to innovations that have a social purpose, like microcredit or distance learning, and can be related to social entrepreneurship.
Social innovation can take place within the government sector, the for-profit sector, the nonprofit sector (also known as the third sector), or in the spaces between them.

Key Terms

social capital: The value created by interpersonal relationships with expected returns in the marketplace.
innovation: A change in customs; something new and contrary to established customs, manners, or rites.
social: Of or relating to society.

Example

Prominent social innovators include Bangladeshi Muhammad Yunus, the founder of Grameen Bank, which pioneered the concept of microcredit for supporting innovators in multiple developing countries in Asia, Africa, and Latin America.

Social innovation refers to new strategies, concepts, ideas, and organizations that extend and strengthen civil society or meet societal needs of all kinds—from working conditions and education to community development and health.

Organizations, both for for-profit and nonprofit, benefit enormously from incorporating social innovation into their operations. Giving back to to the community and empowering the individuals you work with and sell to (i.e., stakeholders) improves employee morale, grows wealth for potential customers, builds a strong brand, and underlines social responsibility and high ethical standards as central to the organizational character.

Example of a social innovation program

A health camp conducted for villagers as part of the Social Innovation Program at SOIL, in partnership with the Max India Foundation.

The term “social innovation” has overlapping meanings. Sometimes it refers to social processes of innovation like open-source methods and techniques. Other times it refers to innovations that have a social purpose, like microcredit or distance learning. The concept can also be related to social entrepreneurship (entrepreneurship is not necessarily innovative, but it can be a means of innovation). On occasion, it also overlaps with innovation in public policy and governance. Social innovation can take place within the government sector, the for-profit sector, the nonprofit sector (also known as the third sector), or in the spaces between them. Research has focused on the types of platforms needed to facilitate such cross-sector collaborative social innovation.

The Process of Social Innovation

Social innovation is often an effort of mental creativity that involves fluency and flexibility across a wide range of disciplines. The act of social innovation in a sector encompasses diverse disciplines within society. The social innovation theory of “connected difference” emphasizes three key dimensions of social innovation:

First, it usually produces new combinations or hybrids of existing elements, rather than wholly new.
Second, it cuts across organizational or disciplinary boundaries.
Last, it creates compelling new relationships between previously separate individuals and groups. Social innovation is currently gaining visibility within academia.

Examples of Social Innovation

There are many examples of social innovation making a meaningful difference across the globe—from huge organizations like the Bill and Melinda Gates Foundation funding multinational initiatives to small groups of community leaders collecting money to help buy new high school textbooks. Some specific examples include:

The University of Chicago sought to develop social innovations that would address and ameliorate the immense problems caused by poverty in a largely immigrant city around the turn of the 20th century.
Prominent social innovators include Bangladeshi Muhammad Yunus, the founder of Grameen Bank, who pioneered the concept of microcredit for supporting innovators in multiple developing countries in Asia, Africa, and Latin America.
Stephen Goldsmith, former Indianapolis mayor, engaged the private sector in providing many city services.

4.3.7: Commercializing Innovative Products

Commercialization is the process or cycle of introducing a new product or production method into the market.

Learning Objective

Examine the three key aspects of the commercialization process and outline the four key questions that must be answered prior to the commercialization of a new and innovative product

Key Points

The actual launch of a new product is the final stage of new product development. This is when the most money is spent for advertising, sales promotion, and other marketing efforts.
It is important to emphasize that the commercialization strategy and feasibility should have been considered and approved long before the actual execution of commercialization – as the time, efforts and development costs have already largely been incurred.
Organizations must consider who they are selling to and where they are selling when determining the most effective process for commercialization.
The primary target consumer group includes innovators, early adopters, heavy users, and opinion leaders. Their buy-in will ensure adoption by other consumers in the marketplace during the product growth period.

Key Terms

early adopter: A person who begins using a product or service at or around the time it becomes available.
commercialization: The act of positioning a product to make a profit.

Commercialization is often confused with sales, marketing, or business development. In the context of innovation, commercialization is the process of introducing a new product or service to the public market. Innovations are defined as new products or services that improve upon their predecessors, and the process of integrating them into the current market is a critical component of successfully bringing them to market. Great innovations are not always brought to market due to a lack of feasibility or poor planning. Long-term planning is crucial in the commercialization process because this is when the most money will be spent—on advertising, sales promotions, and other marketing efforts after the launch of a new product.

Product innovation approach

The Commercialization Process

The commercialization process has three key aspects:

Carefully select, based upon comprehensive market research, which products can be sustained financially in which markets for long-term success.
Planning for various phases and/or stages in the commercialization process is key. Consider geographic distribution, different demographics, etc.
Finally, identify and involve key stakeholders early, including consumers.

Key Strategic Questions

When bringing a product to market, a number of key strategic questions need to be answered satisfactorily long before substantial costs are incurred for commercialization. These questions are simple to ask but complex to answer, and business analysts and market researchers will spend a considerable amount of time approaching them via research models and careful financial consideration.

When: The company has to time introducing the product perfectly. If there is a risk of cannibalizing the sales of the company’s other products, if the product could benefit from further development, or if the economy is forecasted to improve in the near future, the product’s launch should be delayed. Similarly, many items are seasonal (e.g., fashion) and so should be timed appropriately to maximize revenue.
Where: The company has to decide where to launch its products. This can be in a single location, in one or several larger regions, or in a national or international market. This decision will be strongly influenced by the company’s resources; larger companies can reach broader geographic audiences. It is important to keep in mind where the early adopters will be and where competitive gaps may exist. In the global marketplace, this question is increasingly complex.
To whom: The primary target consumer group will have been identified earlier through research and test marketing. This primary consumer group will include innovators, early adopters, heavy users, and opinion leaders. Their buy-in will ensure adoption by other consumers in the marketplace during the product growth period.
How: The company has to decide on an action plan for introducing the product by implementing these decisions. It has to develop a viable marketing mix and create a respective marketing budget.

While these questions are key considerations in the commercialization process, remember that they should have been answered long before the commercialization stage. After all, if the need is not sufficiently widespread or the market not sufficiently developed, there is little reason to have pursued a given innovation in the first place.

4.3.8: Fostering Innovation

Offering employees challenges, freedom, resources, encouragement, and support can help them to innovate.

Learning Objective

Outline how to encourage creativity, participation and innovation through effective management

Key Points

People perform best when they are driven by inspiration and are encouraged to push their boundaries and think outside the box.
Teamwork enhances people’s strengths and lessens their individual weaknesses.
One of the most powerful tools for promoting employee creativity and innovation is recognition.
Ultimately, in developing a culture of innovation you want employees to feel comfortable experimenting and offering suggestions without fear of criticism or punishment for mistakes.

Key Terms

creativity: The quality or ability to create or invent something.
innovation: A change in customs; something new and contrary to established customs, manners, or rites.

Strategies capable of producing innovation require resources and energy; it is therefore necessary to discuss in your business plan the organizational structures and practices you will put in place to encourage and support innovation. Amabile (1998) points to six general categories of effective management practices that create a learning culture within an organization:

Providing employees with a challenge
Providing freedom to innovate
Providing the resources needed to create new ideas/products
Providing diversity of perspectives and backgrounds within groups
Providing supervisor encouragement
Providing organizational support

Innovation

Cartoon shows the challenge of translating innovation (designers) to economic success.

Create a Culture of Innovation

You will likely find that you need to generate hundreds of ideas to find ten good ones that will create value for your organization. This is part of the creative brainstorming process, and it should be encouraged. It should be the responsibility of every individual in the organization to come up with ideas, not just the founder or key staff. Here are some suggestions to encourage the flow of ideas.

Encourage Creativity

Encouraging creativity helps keep staff happy. If they think something is important and has the potential to create a financial payoff for the company, let them follow their idea. People perform best when they are driven by inspiration and encouraged to push their boundaries and think outside the box. But employees cannot do this when they are being micromanaged. Employees need to feel independent enough to own their innovative thinking and to pursue the ideas they are passionate about. In fact, if management effectively fosters a creative and open environment, innovation will happen naturally.

Encourage Participation

Teamwork enhances people’s strengths and mitigates their individual weaknesses. Effective teamwork also promotes the awareness that it is in everyone’s best interests to keep the business growing and improving. Creating a participation-based environment means creating smart teams, encouraging open dialogue, and minimizing authority. Criticism is productive and should be encouraged, but it must be used constructively.

Provide Recognition and Rewards

One of the most powerful tools for promoting employee creativity and innovation is recognition. People want to be recognized and rewarded for their ideas and initiatives, and it is a practice that can have tremendous payoff for the organization. Sometimes the recognition required may be as simple as mentioning a person’s effort in a newsletter. If a staff member comes up with a really creative idea, mention them in the company newsletter or on the news board even if their idea can’t be implemented immediately. Make it clear that compensation and promotions are tied to innovative thinking.

Enable Employee Innovation

You may have an innovative culture in your organization, but you also need to familiarize staff with some of the hallmarks of continuing innovation. For example, you could educate employees at regular training sessions on topics such as creativity, entrepreneurship, and teamwork. Each session might conclude with the assignment of an exercise to be performed over the next few working weeks that will consolidate lessons learned. Your aim here is to give employees a taste of innovation so they will embrace the process.

Other Motivators

Profit-sharing and bonuses
Days off
Extra vacation time

Encourage employees to take advantage of coffee breaks, lunch breaks, and taxi rides. Often great ideas that can lead to innovation will happen outside the places where we expect them to happen. If it’s hard to get staff together for common informal breaks, consider taking them out for an informal meal where you can encourage creative discussion about work. Also be sure to encourage laughter at meetings because laughter is an effective measure of how comfortable people feel about expressing themselves.

4.4: Technology and Innovation

4.4.1: Technology as a Driver and Enabler of Innovation

Technology is a powerful driver of both the evolution and proliferation of innovation.

Learning Objective

Examine the role of technology as a driver of competitive advantage and innovation in the business framework

Key Points

Innovation is a primary source of competitive advantage for companies in essentially all industries and environments and drives efficiency, productivity, and differentiation to fill a higher variety of needs.
Technology builds upon itself, enabling innovative approaches within the evolution of technology.
Technological hubs such as California’s Silicon Valley provide powerful resources that entrepreneurs and businesses can leverage in pursuing innovation.
Technological advances, particularly in communication and transportation, further innovation.
India, China, and the United States are all strong representations of how embracing technology leads to innovation, which in turn leads to economic growth.

Key Terms

Scalable: Able to change in size or to scale up.
innovation: The introduction of something new; the development of an original idea.
proliferate: To increase in number or spread rapidly.

Innovation is a primary source of competitive advantage for companies in essentially all industries and environments, and drives forward efficiency, higher productivity, and differentiation to fill a wide variety of needs. One particular perspective on economics isolates innovation as a core driving force, alongside knowledge, technology, and entrepreneurship. This theory of innovation economics notes that the neoclassical approach (monetary accumulation driving growth) overlooks the critical aspect of the appropriate knowledge and technological capabilities.

Scaling Technology

Technology in particular is a powerful driving force in innovative capacity, particularly as it pertains to both the evolution of innovations and the way they proliferate. Technology is innately scalable, demonstrating a consistent trend toward new innovations as a result of improving upon current ones. Product life cycles shows how economic returns go through a steep exponential growth phase and an eventual evening out, which motivates businesses to leverage technology to produce new innovations.

Technology Hubs

Technological Innovation Chart

This chart demonstrates the pattern of innovation over time. Note the overlapping trajectories of technologies: one product may dominate the market and grow at a high rate; the next (“emerging”) product may start low while the other product is dominant but in turn grow to dominate the market even more thoroughly than the first, as technology and production are refined and improved.

The proliferation of innovation pertains to two important factors of technology driving innovation: the creation of geographic hubs for technology and empowerment of knowledge exchange through communication and transportation. Places like California’s Silicon Valleya and Baden-Wurttenberg, Germany are strong examples of the value of technological hubs. The close proximity of various resources and collaborators in each hub stimulates a higher degree of innovative capacity.

Communication and cumulative knowledge in these technology hubs allows for these innovations to spread via technology to be implemented across the globe with relative immediacy. This spread of ideas can be built upon quickly and universally, creating the ability for innovation to be further expanded upon by different parties across the globe. Collaboration on a global scale as a result of technological progress has allowed for exponential levels of innovation.

Correlations Between Technology, Innovation, and Growth

Empirical evidence generates a positive correlation between technological innovation and economic performance. Between 1981 and 2004, India and China, developed a National Innovation System designed to invest heavily in R&D with a particular focus on patents and high-tech and service exports. During this timeframe, both countries experienced extremely high levels of GDP growth by linking the science sector with the business sector, importing technology, and creating incentives for innovation.

Additionally, the Council of Foreign Relations asserted that the U.S.’ s large share of the global market in the 1970s was likely a result of its aggressive investment in new technologies. These technological innovations generated are hypothesized to be a central driving force in the steady economic expansion of the U.S., allowing it to maintain it’s place as the world’s largest economy.

4.4.2: The Technology Life Cycle

The technology life cycle describes the costs and profits of a product from technological development to market maturity to decline.

Learning Objective

Categorize the four distinct stages in the technology life cycle and apply the five demographic consumer groups in the context of these stages

Key Points

The technology life cycle seeks to predict the adoption, acceptance, and eventual decline of new technological innovations.
Understanding and effectively estimating technology life cycle allows for a more accurate reading of whether and when research and development costs will be offset by profits.
The technology life cycle has four distinct stages: research and development, ascent, maturity, and decline.
The adoption of these technologies also has a life cycle with five chronological demographics: innovators, early adopters, early majority, late majority, and laggards.
By leveraging these models, businesses and institutions can exercise some foresight in ascertaining return on investment as their technologies mature.

Key Terms

demographic: A characteristic used to identify people within a statistical framework.
competitive advantage: Something that places a company or a person above the competition.
Foresight: The ability to accurately estimate future outcomes.

The technology life cycle (TLC) describes the costs and profits of a product from technological development phase to market maturity to eventual decline. Research and development (R&D) costs must be offset by profits once a product comes to market. Varying product lifespans mean that businesses must understand and accurately project returns on their R&D investments based on potential product longevity in the market.

Due to rapidly increasing rates of innovation, products such as electronics and pharmaceuticals in particular are vulnerable to shorter life cycles (when considered against such benchmarks as steel or paper). Thus TLC is focused primarily on the time and cost of development as it relates to the projected profits. TLC can be described as having four distinct stages:

Technology life cycle chart

This chart illustrates the stages in the technological life cycle.

Research and Development – During this stage, risks are taken to invest in technological innovations. By strategically directing R&D towards the most promising projects, companies and research institutions slowly work their way toward beta versions of new technologies.
Ascent Phase – This phase covers the timeframe from product invention to the point at which out-of-pocket costs are fully recovered. At this junction the goal is to see to the rapid growth and distribution of the invention and leverage the competitive advantage of having the newest and most effective product.
Maturity Stage – As the new innovation becomes accepted by the general population and competitors enter the market, supply begins to outstrip demand. During this stage, returns begin to slow as the concept becomes normalized.
Decline (or Decay) Phase – The final phase is when the utility and potential value to be captured in producing and selling the product begins dipping. This decline eventually reaches the point of a zero-sum game, where margins are no longer procured.

Product development and capitalizing on the new invention covers the business side of these R&D investments in technology. The other important consideration is the differentiation in consumer adoption of new technological innovations. These have also been distributed into phases which effectively summarize the demographic groups presented during each stage of TLC:

Technology adoption life cycle

This adoption chart highlights the way in which consumers embrace new products and services.

Innovators – These are risk-oriented, leading-edge minded individuals who are extremely interested in technological developments (often within a particular industry). Innovators are a fractional segment of the overall consumer population.
Early Adopters – A larger but still relatively small demographic, these individuals are generally risk-oriented and highly adaptable to new technology. Early adopters follow the innovators in embracing new products, and tend to be young and well-educated.
Early Majority – Much larger and more careful than the previous two groups, the early majority are open to new ideas but generally wait to see how they are received before investing.
Late Majority – Slightly conservative and risk-averse, the late majority is a large group of potential customers who need convincing before investing in something new.
Laggards – Extremely frugal, conservative, and often technology-averse, laggards are a small population of usually older and uneducated individuals who avoid risks and only invest in new ideas once they are extremely well-established.

Taking these two models into consideration, a business unit with a new product or service must consider the scale of investment in R&D, the projected life cycle the technology will likely maintain, and the way in which customers will adopt this product. By leveraging these models, businesses and institutions can exercise some foresight in ascertaining the returns on investment as their technologies mature.

4.4.3: Assessing an Organization’s Technological Needs

Assessing the internal technological assets and future needs of an organization prepares management for successful technology integration.

Learning Objective

Apply the four strategies of information gathering and introspection that allow for effective assessment of technology needs in an organization

Key Points

Companies must prioritize their ability to assess their technological needs, particularly as they may relate to achieving optimal efficiency and productivity.
Companies looking to stay ahead of the competition should gather data internally and externally to facilitate forecasting and the crafting of implementation technology strategies.
In addition to noting new technological advances, the assessment process is also heavily internal and necessitates that companies isolate their technological strengths and weaknesses.

Key Terms

productivity: The rate at which products and services are produced relative to a particular workforce.
forecasting: To estimate how a condition will be in the future.
introspection: Self-assessment, or an individual or company looking inward to measure certain strengths and weaknesses.

Remaining competitive and remaining technologically vigilant are virtually synonymous at this point in business development. Companies must prioritize their ability to assess their technological needs, particularly as they may relate to achieving optimal efficiency and productivity. There are various concepts that are typical of this managerial technology assessment strategy:

Technology Strategy – identifying the logic or role of technology within the company.
Technology Forecasting – identifying applicable technologies for the company, potentially through scouting.
Technology Roadmapping – ascertaining the trajectories of technological advancement and applying business or market needs to this assessment.
Technology Portfolios – accumulating all technologies relevant to products or operations to determine which are ideal for internal implementation.

All four of these strategies revolve both around information gathering and introspection into business operations and processes. All four can be improved upon through technological advances. Integrated planning in pursuit of optimization through new technologies keeps efficiency at or above competitive levels. This internal technology assessment also includes noting when and whether it is necessary to construct employee training programs for new technology.

Technology and Market Share

As successive groups of consumers adopt new technology a bell curve emerges – this is referred to as the innovation adoption life cycle (the blue bell curve on the above graphic). The percentages on the x-axis indicate the size of the populations (relative to the entire consumer group for a given good) in each segment. By keeping pace with technological innovation, and offering products early enough to capture the majority of the market, businesses can gain competitive advantage. If a business is too late to enter a newly emerged technological market, it can be quite difficult to attain a high percentage of the market share, as represented on the y-axis (which has often been claimed by other incumbents, as the intersecting yellow line on the graph indicates).

4.4.4: Understanding Current Trends in Technology

Understanding current technologies and trends allows a company to align and synchronize operations to optimize returns on innovation.

Learning Objective

Recognize the importance of keeping pace with current technologies and trends to retain competitive capacity and identify the four specific dimensions of business technology management (BTM)

Key Points

Business technology management (BTM) provides a bridge between previously established tools and standards within a business environment and the newer, more operationally efficient tools and standards technological progress provides.
Aligning technologies with current business initiatives and strategies is the most basic way for a business to remain competitive in the current technological climate.
Companies that can improve on alignment to synchronize the technological landscape internally (often through researching and developing innovations in-house) can achieve foresight and long-term benefits through forecasting future technological necessities.
BTM has four dimensions: process, organization, information, and technology.
Effectively employing these four dimensions of BTM provides companies the potential to project technological trends, and synchronize them with their strategies.

Key Terms

SBUs: Strategic Business Units; separate elements of a company, organized by similarity of processes and objectives.
Alignment: The process of adjusting a mechanism (or business) so that its parts act in concert.
Synchronization: The process of aligning all inputs to optimize output.

Businesses are tasked with the ongoing responsibility of keeping up with evolving technology trends to stay competitive. Trends in technology extend out like the branches of a tree: each new innovation creates the possibility for multiple new innovations. The field of business technology management (BTM) arose to provide businesses with the best approaches for assessing and implementing these varying technological advances into their strategies.

BTM

Alignment

BTM provides a bridge between previously established tools and standards within a business environment and newer, more operationally efficient tools and standards in technology. BTM does this by creating a set of principles and guidelines for companies to follow as they pursue alignment. Alignment, in this respect, can be defined as how an institution’s technology supports and enables technology while avoiding constraints in direct relation to company strategies, objectives, and competition. When companies accomplish this in any given technological environment, they have attained BTM maturity relative to that time frame and industry.

Synchronization

Alignment is only the first step: the next step is synchronization. Like alignment, synchronization enables execution, but it also helps companies develop the capacity to anticipate and adapt future business models and strategies. This is generally accomplished by investing in research and development and staying ahead of the standard technologies by anticipating or even innovating past them. This business technology leadership role is long-term oriented and very effective in maintaining competitive advantages in any given industry, but it is particularly important for industries in the tech sectors.

Cycle of Research and Development

The Cycle of Research and Development moves through theorizing, to hypothesizing, to design, to implementation, to study, and back to theorizing to begin the cycle again.

Companies use four specific dimensions of BTM to achieve this understanding of current technologies and trends:

Process – Companies must execute a set of fluid and repeatable processes that can be consistently scaled up through evaluation.
Organization – Utilizing an organized business structure or corporate framework, often through strategic business units (SBUs), provides substantial value in centralizing processes and assessing needs.
Information – Scouting and assessing the current technological environment through extensive research teams is necessary to make the appropriate decisions (see “Sourcing Technology” and “Assessing Needs in Technology” within this Boundless segment).
Technology – Finally, improving upon these processes within SBUs via leveraging the appropriate data and information will drive strategic acquisition of beneficial technological improvements based upon current trends.

Taken together, these four dimensions applied to alignment and synchronization of new technology can help businesses keep up with or ever stay ahead of current technologies and trends. Companies can benefit from the intrinsic opportunities technological progress provides while offsetting the intrinsic risks of external technological development.

4.4.5: Sourcing Technology

Technology sourcing involves isolating and implementing new innovations within an existing business framework.

Learning Objective

Illustrate the varying cost structures, licensing, and scouting procedures involved with technology sourcing

Key Points

Sourcing new technology involves the scouting and researching of new technological potential and the eventual transfer of these technologies to a company.
Technology scouting is based around identifying new technologies, organizing and channeling data on these technologies, and assessing the ease and value of implementing them.
Companies capitalize on the successful scouting of a new technology by sourcing it from the appropriate party for their own use.
Tech transfer drawbacks primarily involve the cost of licensing patents and training employees to effectively use the new technology.
Some organizations, such as Sourceforge, Wikipedia, and Boundless, provide knowledge and technology for free in an open source strategy.

Key Terms

patent: A legal right to a particular innovation, protecting it from being copied or employed by another without consent or license.
Sourcing: The supply of resources needed by a particular company or individual.
Scouting: The act of seeking or searching.

Technology Sourcing Strategies

Technology sourcing, or the pursuit of implementing new technologies within a businesses strategic framework, involves isolating and applying new technologies to current models. Technology can be developed internally or isolated through technology scouting and then implemented through technology transfer. In deciding which approach is optimal for them, organizations must consider such factors as the advantage of being first to market, research and developments costs and capabilities, and market research and data gathering costs. Therefore the strategies behind sourcing technology can be complex, varying by industry, company size, economic strength, and the availability of easily implemented technology.

Technology Scouting

Technology scouting is essentially forecasting technological developments through information gathering. Technology scouts can either be internal employees or external consultants specifically designated to the task of researching developments in a particular technological field. This can be loosely referred to as a three-step process:

Identify emerging technologies.
Channel and organize new technological data within an organization.
Provide a corporate context to support or refute the acquisition of said technology.

When technology scouting isolates new developments that could potentially provide advantages for an incumbent, strategies to acquire or source this technology become a focal point. Technology transfer, and the commercialization of technological abilities, is an enormous market both in the U.S. and abroad. Though governments, universities, and open source websites (such as Sourceforge, Wikipedia, and Boundless) often provide knowledge and technological know-how free of charge, most often technology is not free.

Technology Sourcing Pros and Cons

In the Information Age knowledge is power, and more than ever companies are trying to protect their knowledge from competitors or freeloaders by using patents and trade secrets. Transfer of technology is therefore expensive, from licensing the patented technology to requesting training in new technological advances for staff. Despite the distinct advantages of staying ahead of the curve relative to technological capabilities, there are some drawbacks to tech transfer. One strong example of the drawbacks in technological transfer and sourcing can be illustrated by the image below.

Stages in technology development

Technology develops through a series of stages: basic technology research, research to prove feasibility, technology development, technology demonstration, system/subsystem development, and system test, launch & operations.

The first five levels of innovation, from basic research to technology demonstration, are often where investment begins pouring in, alongside the attempt to implement in order to stay competitive. As you may note, this is prior to the testing phases and therefore investors at this stage must accept the inherent risk of the new technology presenting significant hurdles to optimizing perceived potential or effective implementation. Early adopters and innovators suffer the risk of employing a new technology that has not been fully debugged, minimizing what should have been strong returns on investment (ROI). Technology scouts should therefore be highly circumspect and meticulous in their research processes, ensuring that new technological innovations will indeed provide what they promise.

4.5: Intrapreneurship

4.5.1: Defining Intrapreneurship

Intrapreneurship means behaving like an entrepreneur while working within a large organization.

Learning Objective

Define intrapreneurship as a means of enabling organizational change and the pursuit of an innovative culture

Key Points

The intrapreneur acts as an “inside entrepreneur” who focuses on innovation and creativity while operating within the goals and environment of an organization.
Intrapreneurs bring their ideas to the firm to generate new products, processes, or services and thereby act as a force for change within the organization. Intrapreneurship adds to the innovation potential of an organization.
In many ways, the benefits of intrepreneurship are difficult to forecast and thus difficult to justify. As a result, good managers must be long-term oriented and open-minded to implement entrepreneurship.

Key Terms

innovation: A change in customs; something new and contrary to established customs, manners, or rites.
entrepreneur: A person who organizes and operates a business venture and assumes much of the associated risk.

Intrapreneurship means behaving like an entrepreneur while working within a large organization. According to social scientist Joseph Schumpeter, introducing new technologies, increasing efficiency and productivity, and generating new products or services are all qualities characteristic of intrepreneurs.

Intrapreneurs and Corporate Management

Intrapreneurship is now known as the practice of a corporate management style that integrates risk-taking and innovation approaches. It also incorporates the reward and motivational techniques that are traditionally thought of as being the sole province of entrepreneurship.

The intrapreneur acts as an “inside entrepreneur” who focuses on innovation and creativity while operating within the goals and environment of an organization. Intrapreneurs bring their ideas to the firm to generate new products, processes, or services and thereby act as a force for change within the organization. Capturing a little of the dynamic nature of entrepreneurial management (trying things until successful, learning from failures, attempting to conserve resources, and so on) adds to the innovation potential of an otherwise static organization without exposing those employees to the risks or accountability normally associated with entrepreneurship.

Theory and Practice

Incorporating entrepreneurial concepts into traditional corporate environments is easy to promote in theory: capturing the innovative attitudes of small start-ups within the larger organizational context (i.e., with more resources) seems intuitive. In reality, entrepreneurship is often much easier to discuss in a classroom than to integrate into an actual organization. There are many reasons for this that generally boil down to simple issues of size and corporate inertia.

Companies are built on structures and hierarchies which in turn create a dependable and repeatable operational process. This process leads to value creation, and efficiency is always a focal point in operational contexts. When innovation and intrepreneurship enters this equation they are often seen as costs without tangible and definite benefits, and as lacking consistency and applicability to the current model. In many ways, the benefits of intrepreneurship are difficult to forecast and thus difficult to justify. As a result, good managers must be long-term oriented and open-minded in order to capture the benefits of instilling an intrepreneurial spirit.

4.5.2: Building Support for Intrapreneurship

Building internal support for intrepreneurship is a prerequisite to creating meaningful change in an organization.

Learning Objective

Justify the role of the intrapreneur, not only as an innovative thinker but also a strategic communicator capable of initiating change organizationally.

Key Points

An intrapreneur is tasked not only with creating a new and innovative concept but also with communicating the concept in a way that builds support for the new initiative.
One useful way to integrate stakeholders and speak the language of upper management is to numerically demonstrate that a new idea is financially and strategically feasible.
Building support by identifying and communicating with key stakeholders and decision-makers is essential to bringing change to an organization.
Intrapreneurs must also be willing to become change agents: people who act as catalysts for incorporating new ideas within the organization. Intrapreneurs, from this perspective, must display strong leadership and communication skills.

Key Term

comprehensive: Broadly or completely covering; including a large proportion of something.

Building support is important when you are bringing change to the organization. Employees bold enough to be intrepreneurs must recognize the challenge they are taking on from the organizational frame. Organizations have great momentum and are, in most cases, inherently resilient to change. This places a great strain on an innovative employee with an interesting idea because s/he is tasked not only with implementing the idea but also with communicating it to key decision-makers to gain approval.

Key Stakeholders

Intrapreneurs need to know who the key stakeholders are and how to capture their attention. For starters, upper management is often where the decision-making power lies. Having access to upper management, and understanding the strategic motivations behind their decisions, plays an integral role in building top-down support organizationally. Customers are also key stakeholders because their needs are the primary determinant of organizational trajectory. Recognizing what customers want and learning how to give it to them more effectively are integral to successful intrapreneurship.

One useful way to integrate stakeholders and speak the language of upper management is to numerically demonstrate that a new idea is financially and strategically feasible. A net present value (NPV) analysis factors in the total time it will take to initiate a new project, along with costs incurred and value generated over a given timeframe. This enables intrapreneurs a tool to communicate, in today’s dollars, how much a given new venture will cost compared with how much it will bring in (i.e., a profit margin).

Being a Change Agent

A change agent

Marissa Mayer was recruited from Google to be the Yahoo CEO so she could set and execute the strategy that might turn the company around.

Change agents know how to get people in an organization involved in solving their own problems. A change agent’s main strength is a comprehensive knowledge of human behavior supported by a number of intervention techniques. Understanding not only how to innovate but also how to operate as a catalyst for change is a useful characteristic for aspiring intrapreneurs. Building support is largely a social and behavioral challenge, and change agents understand how to communicate why a proposed change is important and how it is attainable.

4.6: Managing Change for Organizations

4.6.1: Managers as Leaders of Change

Leaders are in the unique role of not only designing change initiatives but also enacting and communicating them.

Learning Objective

Review the strategies leaders must use to lead change effectively

Key Points

Managing change requires more than simple planning; the significant human element of change resistance needs to be addressed to ensure success.
Leaders must define change strategy and communicate it effectively to shareholders, empower and support employees, and mitigate resistance to the change initiative.
Conner identifies six distinct leadership styles related to change: anti-change, rational, panacea, bolt-on, integrated, and continuous. Each leadership style represents a unique set of perceptions, attitudes, and behaviors regarding how organizational disruption should be addressed.
Conner also posited that the six leadership styles are related to two different types of organizational change: first-order change and second-order change. Different leadership styles are more effective in different situations.

Key Terms

leading: To conduct or direct with authority.
attribute: A characteristic or quality of a thing.

Managing change requires strong leadership and an understanding of how organizational change occurs. Leaders are in the unique role of not only designing change initiatives but enacting and communicating them to subordinates. Managing change requires more than simple planning: the significant human element of change resistance needs to be addressed to ensure success.

Leadership Strategies for Change

Successful change management is more likely if leaders:

Create a definable strategy – Define measurable stakeholder aims, create a business case for their achievement (and keep it continuously updated), monitor assumptions, risks, dependencies, costs, return on investment, and cultural issues affecting the progress of the associated work.
Communicate effectively – Explain to stakeholders why the change is being undertaken, what the benefits of successful implementation will be, and what how the change is being rolled out.
Empower employees – Devise an effective education, training, or skills upgrading scheme for the organization.
Counter resistance – Identify employee issues and align them to the overall strategic direction of the organization. Adapt the change initiative when necessary to mitigate discontentment.
Support employees – Provide personal counseling (if required) to alleviate any change-related fears.
Track progress – Monitor the implementation and fine-tuning as required.

These six components of change are the responsibility of management to create and implement.

The reengineering process

Change management is often termed a “re-engineering process.” This flowchart shows the reciprocal relationships involved in each step: the mission defines and is accomplished via work processes, which execute and are guided by decisions, which consider and are supported by information, which employs and are processed via technology.

Six Leadership Styles for Change

Conner (1998) identified six distinct leadership styles related to change: anti-change, rational, panacea, bolt-on, integrated, and continuous. Each leadership style “represents a unique set of perceptions, attitudes, and behaviors regarding how organizational disruption should be addressed.” Stopper (1999) characterizes each of Conner’s leadership styles in this way:

The anti-change leader – A leader embracing this style seeks to avoid change as much as possible. The message is, “Stay the course. Keep adjustments small. No need to change in any major way.”
The rational leader – This leader focuses on how to constrain and control change with logical planning and clearly defined steps.
The panacea leader – The panacea leader believes that the way to respond to pressure for change is to communicate and motivate. These leaders understand the resilience to change they are likely to encounter as well as the inevitability of change as organizations evolve. They tend to focus on fostering enthusiasm for change.
The bolt-on leader – This leader strives to regain control of a changing situation by attaching (bolting on) change management techniques to ad-hoc projects that are created in response to pressure for change. This manager is more concerned about helping others change than creating a strategy for the actual change itself.
The integrated leader – The integrated leader searches for ways to use the structure and discipline of what Harding and Rouse (2007) called “human due diligence” (the leadership practice of understanding the culture of an organization and the roles, capabilities, and attitudes of its people) as individual change projects are created and implemented. The concept is simply to combine, or integrate, human and cultural concerns with the strategy itself.
The continuous leader – The continuous leader works to create an agile and quick-responding organization that can quickly anticipate threats and seize opportunities as change initiatives are designed and implemented. Continuous leaders believe that to disruption is continuous, and adaptability a necessary organizational competency.

Conner says that these six leadership styles are related to two different types of organizational change: first-order change and second-order change. First-order change is incremental, piecemeal change. According to Conner, second-order change is “nonlinear in nature and reflects movement that is fundamentally different from anything seen before within the existing framework.”

Conner identifies the first four leadership styles as appropriate for managing first-order change. When an organization is engaging in discontinuous, transformational change, however, integrated and continuous leadership styles are more appropriate .

4.6.2: Types of Organizational Change

There are three main categories of change: business process re-engineering, technological change, and incremental change.

Learning Objective

Differentiate between business process re-engineering, technological change, and incremental change as the three main categories of organizational development

Key Points

Business process re-engineering focuses on the analysis and design of workflows and processes within an organization.
Technological change refers to the process of invention, innovation, and diffusion of technology or processes.
Incremental change means introducing many small, gradual changes to a project instead of a few large, rapid changes.

Key Terms

incremental: Occurring over a series of gradual increments, or small steps.
devise: To use one’s intellect to plan or design something.
incremental model: A method of product development where the model is designed, implemented, and tested incrementally (a little more is added each time) until the product is finished.

Change management is an approach to shifting or transitioning individuals, teams, and organizations from their current state to a desired future state. It is an organizational process aimed at helping stakeholders accept and embrace change in their business environment. In some project management contexts, change management refers to a project management process wherein changes to a project are formally introduced and approved.

Kotter defines change management as the utilization of basic structures and tools to control any organizational change effort. Change management’s goal is to maximize organizational benefit, minimize impacts on workers, and avoid distractions. There are different types of change an can organization face.

Business Process Re-Engineering

Business process re-engineering (BPR) is a business management strategy first pioneered in the early 1990s that focuses on the analysis and design of workflows and processes within an organization. BPR aims to help organizations fundamentally rethink how they do their work in order to dramatically improve customer service, cut operational costs, and become world-class competitors. In the mid-1990s, as many as 60% of the Fortune 500 companies claimed to have either initiated re-engineering efforts or begun planning for it.

BPR helps companies radically restructure their organizations by focusing on their business processes from the ground up. A business process is a set of logically related tasks performed to achieve a defined business outcome. Re-engineering emphasizes a holistic focus on business objectives and how processes relate to them, encouraging full-scale recreation of processes rather than iterative optimization of sub-processes.

Business process re-engineering is also known as business process redesign, business transformation, and business process change management.

Incremental Change

Incremental change is a method of introducing many small, gradual (and often unplanned) changes to a project instead of a few large, rapid (and extensively planned) changes. Wikipedia illustrates the concept by building an encyclopedia bit by bit. Another good example of incremental change is a manufacturing company making hundreds of small components that go into a larger product, like a car. Improving the manufacturing process of each of these integral components one at a time to cut costs and improve process efficiency overall is incremental change.

Technological Change

Technological change (TC) describes the overall process of invention, innovation, and diffusion of technology or processes. The term is synonymous with technological development, technological achievement, and technological progress. In essence, TC is the invention of a technology (or a process), the continuous process of improving a technology (which often makes it cheaper), and its diffusion throughout industry or society. In short, technological change is based on both better and more technology integrated into the framework of existing operational processes.

4.6.3: Inside and Outside Forces for Organizational Change

Inside forces include strategic and human resource changes, while outside forces include macroeconomic and technological change.

Learning Objective

Identify the internal and external pressures for change, which drive organizations to adapt and evolve

Key Points

Change management is an approach to shifting individuals, teams, and organizations to a desired future state. Examples of organizational change can include strategic, operational, and technological change that can come from inside or outside the organization.
Outside forces for change include macroeconomics, technological evolution, globalization, new legislation, and competitive dynamics.
Inside forces for change include intrapreneurship, new management and restructuring.
The first step in effective change management is being prepared, in a timely and knowledgeable fashion, for internal and external potentialities that may force organizational adaptation.

Key Term

macroeconomic: Relating to the entire economy, including the growth rate, money and credit, exchange rates, the total amount of goods and services produced, etc.

Change management is an approach to shifting or transitioning individuals, teams, and organizations from their existing state to a desired future state. Examples of organizational change can include strategic, operational, and technological changes coming from inside or outside the organization. Understanding key internal and external change catalysts is critical to successful change management for organizational leaders.

Outside Forces

While there are seemingly endless external considerations that can motivate an organization to change, a few common considerations should be constantly monitored. These include economic factors, competitive dynamics, new technology, globalization, and legislative changes:

Economics – The 2008 economic collapse is a strong example of why adaptability is important. As consumers tightened their belts, organizations had to either do the same and lower supply to match lowered demand, or come up with new goods to entice them. Migrating from one volume to another can financially challenging, and change strategies such as creating new affordable product lines or more efficient operational paradigms are key to changing for success.
Competition – Changes in the competitive landscape, such as new incumbents, mergers and acquisitions, new product offerings, and bankruptcies, can substantially impact a company’s strategy and operations. For example, if a competitor releases a new product that threatens to steal market share, an organization must be ready to change and adapt to retain their customer base.
Technology – Technological changes are a constant threat, and embracing new technologies ahead of the competition requires adaptability. When media went digital, adaptable companies found ways to evolve their operations to stay competitive. Many companies that could not evolve quickly failed.
Globalization – Capturing new global markets requires product, cultural, and communicative adaptability. Catering to new demographics and identifying opportunities and threats as they appear in the global market is integral to adapting for optimal value.
Legislation – New laws and legislation can dramatically change operations. Companies in industries that impact the environment must constantly strive to adapt to cleaner and more socially responsible operating methodologies. Failing to keep pace can result in substantial fines and financial detriments, not to mention negative branding.

Inside Forces

There are many inside forces to keep in mind as well, ranging from employee changes to cultural reform to operational challenges.Understanding where this change is coming from is the first step to timely and appropriate change management.

Management Change – New CEOs or other executive players can significantly impact strategy and corporate culture. Understanding the risks associated with hiring (or promoting for) new upper management is key to making a good decision on best fit.
Organizational Restructuring – Organizations may be required to significantly alter their existing structure to adapt to the development of new strategic business units, new product lines, or global expansion. Changing structure means disrupting hierarchies and communications, which must then be reintegrated. Employees must be trained on the change and the implications it will have for their everyday operations.
Intrapreneurship – New ideas come from inside the organization as well as outside the organization, and capitalizing on a great new idea will likely require some internal reconsideration. Integrating a new idea may require reallocation of resources, new hires and talent management, and new branding.

4.6.4: Common Targets of Organizational Change

Change management can be implemented to change an organization’s mission, strategy, structure, technology, or culture.

Learning Objective

Recognize and discuss the various components of an organization which may undergo change through the evolution and adaptation of organizational strategy and/or objectives

Key Points

Organizational change management should begin with a systematic diagnosis of the current situation in order to determine the organization’s need for and ability to change.
Prior to a cultural change initiative, a needs assessment should examine the current organizational culture and operations. The goal is a careful and objective consideration of what is working and what is not.
Areas of change include mission, strategy, operations, technology, culture, branding, employees, and work flows.
Change management should also make use of performance metrics, such as financial results, operational efficiency, leadership commitment, communication effectiveness, and the perceived need for change.

Key Terms

organization: A group of people or other legal entities with an explicit purpose and written rules.
change management: The controlled implementation of required changes to some system; includes version control and planned fallback.

When an organization requires changes to address counterproductive aspects of organizational culture, the process can be daunting. Cultural change is usually necessary to reduce employee turnover, influence employee behavior, make improvements to the company, refocus the company objectives, rescale the organization, provide better customer service, or achieve specific company goals and results. Cultural change can be impacted by a number of elements, including the external environment and industry competitors, changes in industry standards, technology changes, the size and nature of the workforce, and the organization’s history and management.

Assessing Change Needs

Prior to launching a cultural change initiative, a company should carry out a needs assessment to examine the existing organizational culture and operations. Careful and objective consideration of what is working and what is not, as well as what is parallel with the broader organizational objectives and what is not, are critical to success here.

Areas that need to change can be identified through interviews, focus groups, observation, and other methods of internal and external research. A company must clearly identify the existing culture and then design a change process to implement the desired culture.

Common Areas of Change

Common areas of organizational change include:

Mission
Strategy
Operational changes, including structure and hierarchies
Technology
Culture
Employees and/or management
Work flows (particularly relevant in manufacturing)
Branding

Organizational change management should begin with a systematic diagnosis of the existing situation in order to determine the organization’s need for and ability to change. The objectives, content, and process of change should be specified as part of the change management plan.

Change management processes can benefit from creative marketing to facilitate communication between change audiences and a deep social understanding of leadership styles and group dynamics. To track transformation projects, organizational change management should align group expectations, communicate, integrate teams, and manage and train people. Change management should also make use of performance metrics including financial results, operational efficiency, leadership commitment, communication effectiveness, and the perceived need for change in order to design appropriate strategies that make the change in organizational culture as smooth and as efficient as possible.

4.6.5: Organizational Development

Organizational development is a deliberately planned effort to increase an organization’s relevance and viability.

Learning Objective

Explain the role of organizational development in leadership and organizational change

Key Points

Organizational development (OD) is an ongoing, systematic process of implementing effective organizational change.
The purpose of organizational development is to address the evolving needs of successful organizations.
Organizational development is often facilitated with the assistance of a “catalyst” or “change agent” such as an effective or influential leader.
An important role of a leader is to analyze and assess the effectiveness of this developmental process and motivate the organization to achieve developmental targets.

Key Terms

viability: The ability to live or to succeed.
catalyst: Someone or something that encourages progress or change.

Organization development (OD) is a deliberately planned effort to increase an organization’s relevance and viability. Vasudevan has referred to OD as a systemic learning and development strategy intended to change the basics of beliefs, attitudes, and relevance of an organization’s values and structure. This process helps the organization to better absorb disruptive technologies, market opportunities, and ensuing challenges and chaos. Essentially, organizational development is the framework for a change process that is designed to produce desirable and positive results for all stakeholders and the environment.

The Nature of Organizational Development

Organizational development is a lifelong, built-in mechanism to improve an organization internally. This is often done with the assistance of a “change agent” or “catalyst” who enables appropriate theories and techniques from applied behavioral sciences, anthropology, sociology, and phenomenology. The terms “change agent” and “catalyst” suggest a leader who is engaged in transformation leadership as opposed to management (management being a more incremental or efficiency-based change methodology).

A manager providing advice to a team

Organizational development is often facilitated with the assistance of a “catalyst” or “change agent” such as an influential manager.

Although behavioral science provided the basic foundation for the study and practice of OD, new and emerging fields of study have made their presence felt. Experts in systems thinking and organizational learning have also emerged as OD catalysts. These emergent perspectives view the organization as the holistic interplay of a number of systems, all of which impact the processes and outputs of the entire organization.

Applications of Organizational Development

The purpose of OD is to address the evolving needs of successful organizations. It represents a concerted collaboration of internal and external experts in the field to discover the processes an organization can use to become more effective.

Organizational development aims to improve an organization’s capacity to handle its internal and external functioning and relationships. This includes improving interpersonal and group processes; communication; the organization’s ability to cope with problems; decision-making processes; leadership styles; conflict and trust; and cooperation among organizational members.

Weisbord

Weisbord presents a six-box model for understanding—and thereby changing and improving—an organization:

Purposes: Are employees clear about the organization’s mission, purpose, and goals? Do they support the organization’s purpose?
Structure: How is the organization’s work divided? Is there an adequate fit between the purpose and the internal structure?
Relationships: What are the relationships between individuals, units, or departments that perform different tasks? What are the relationships between the people and the requirements of their jobs?
Rewards: For what actions does the organization formally reward or punish its members?
Leadership: Does leadership watch for “blips” among the other areas and maintain balance among them?
Helpful mechanisms: Do planning, control, budgeting, and other information systems help organization members accomplish their goal?

Lewin

Lewin’s description of the process of change involves three steps:

Unfreezing: Faced with a dilemma or issue, the individual or group becomes aware of a need to change.
Changing: The situation is diagnosed and new models of behavior are explored and tested.
Refreezing: Application of new behavior is evaluated, and if it proves to be reinforcing, the behavior is adopted.

Effectiveness of Organizational Development

The efficacy of organizational development is predicated on the adaptability of the organization and the overall successful integration of new ideas and strategies within an existing framework. Resistance to change is a fundamental organizational problem as all organizations have a degree of general inertia. This is further complicated by the difficulty in quantitatively measuring changes in areas that are generally intangible (i.e., culture).

To remedy this, organizations pursuing OD must set clear and measurable objectives prior to committing to a change initiative. An important role of the leader is to analyze and assess the effectiveness of this developmental process and motivate the organization to achieve developmental targets.

4.7: Managing Change for Employees

4.7.1: Phases of Organizational Change: Lewin

Kurt Lewin’s phases of change (unfreezing, change, and freezing) describe how people react and adapt to change.

Learning Objective

Explain Kurt Lewin’s Phases of Changes model, a three-stage process allowing for organizational change

Key Points

Kurt Lewin described change as a three-stage process that includes unfreezing, change, and freezing. Lewin emphasizes that change is not a series of individual processes but rather one that flows from one process to the next.
The first stage (unfreezing) involves overcoming inertia and dismantling the existing “mind set.” This involves getting over the initial defense mechanisms that people exhibit to avoid making a change.
In the second stage, the actual change occurs. This is typically a period of confusion and transition in which people are unsure about the change and what may happen in the future.
In the third stage (freezing), the new mindset of the change begins to become the standard, and people’s comfort levels return to normal.
Although some managers still use Lewin’s model, its most important contribution is the idea that change should be thought of as a process instead of as individual stages.

Key Terms

Defense Mechanisms: Psychological strategies (such as denial, repression, or rationalization) that are brought into play to avoid or adjust to uncomfortable situations.
Organizational Psychology: The scientific study of employees, workplaces, and organizations.

Change is a fundamental component of any organization looking to continuously improve and evolve. A few researchers and academics have determined how to best model and present methods of change for managing employees. Kurt Lewin was one of these academics and was known as one of the leaders of organizational psychology.

Kurt Lewin

Lewin was an influential behavioral and organizational psychologist who proposed the Phases of Change Model.

The Three Phases of Change

This early model developed by Lewin describes change as a three-stage process of unfreezing, change, and freezing. In this Phases of Change Model, Lewin emphasizes that change is not a series of individual processes but rather one that flows from one process to the next.

The first stage (unfreezing) involves overcoming inertia and dismantling the existing mind set. It involves getting over the initial defense mechanisms that people exhibit to avoid making a change. People eventually realize that change is necessary and urgent, and this realization allows them to move on to the next stage.

In the second stage, the actual change occurs. This is typically a period of confusion and transition in which people are unsure about the change and what may happen in the future. People are aware that the old ways are being challenged, but they do not yet have a clear picture as to what these ways will be replaced with. During this stage, an organization’s leaders need to focus on clearly communicating to employees the reasons for change and the steps needed to achieve it.

Lewin labeled the third and final stage freezing, though it may be useful to think of this stage as “refreezing.” During this stage, the new mindset of the change begins to become the standard, and people’s comfort levels return to normal. Many people criticize this component of Lewin’s model, arguing that there is never time for people to comfortably adapt to change in the fast-paced world of today.

Although some managers still use Lewin’s model, its most important contribution is the idea that change should be thought of as a process instead of individual stages. This is important for understanding how employees may react to change in the workplace and why some may adapt more quickly to change than others.

4.7.2: Strategies for Successful Organizational Change

To implement a successful change, managers should focus on communication, training, monitoring, and counseling for the workforce.

Learning Objective

Evaluate differing strategies for enabling changes within an organizational culture while mitigating resistance and issues

Key Points

Organizational change often elicits concern and discomfort among employees. Change is a human effort as much as it is a strategic one.
During an organizational change, it is essential for managers to communicate the reasons for the change as well as the process needed to make the change. This should include clear objectives and strategic implications.
Effective education and training is essential for employees to understand and adapt to a change in the workforce.
One of the most important steps in managing a successful change is to monitor how the change is playing out in the organization. Quantitative tools can be used to measure and assess effectiveness.

Key Terms

proactive change: The shifting or transitioning of individuals, teams, and organizations from a current state to a desired future state before being incited by an event.
reactive change: The shifting or transitioning of individuals, teams, and organizations from a current state to a desired future state in response to an event.

Understanding Change Management

When change is implemented in an organization, there is often resistance. This resistance often stems from people’s fear—of change in the work itself, of change in the process of completing work, or of the possibility that the change may result in the loss of their job. As a result, managers and organizational leaders should have a strategic approach to enabling change that ensures it is maximally effective in the organization.

Change management is the study of how to integrate changes without damaging the organizational culture or efficiency. At its core, change management is about knowing strategically what to change and how to manage the human element of this process. Change management is broken into 4 elements:

Recognize the changes in the broader business environment
Develop the necessary adjustments for the company’s needs
Train employees on the appropriate changes
Win the support of employees

Note that a central themes of change management revolve around training and supporting employees. This is a critical managerial responsibility for enabling change.

Key Enablers to Change

Transparency and Effective Communication

During an organizational change, it is essential for managers to communicate the reasons for the change as well as the process needed to make the change. For example, if management wants to implement a procedure that will help to improve the production of the workforce, but they require a lot of initial labor to get the new procedure up and running, they should communicate why the change in procedure is necessary. If staff understands why the change is taking place, they will be more likely to agree with the implementation and see the benefit.

Effective Education and Training

Education and training is essential for employees to understand and adapt to a change in the workforce. When a new process is put into place, employees will likely be unfamiliar with the process and how it will fit into their daily workflow. Training in this situation is necessary to help employees become familiar with the change and better adapt to it.

Personal Counseling

When a major change happens in the workplace, some employees may feel very uncomfortable about the change—especially the employees most affected by the change. For these employees it may be useful to have a program, most likely through human resources, that will help them adapt to the change.

Monitoring the Implementation

One of the most important steps in managing a successful change is to monitor how the change is playing out in the organization. This can be done by looking at historical data and examining how employees are performing with the change compared to how they were performing in the past. Additionally, management will want to monitor how the change is affecting the overall production process. If the change is not improving the process after the initial implementation, management may want to fine-tune the process to make sure that the change is successful.

Generic strategy

Maintaining focus on learning and growth (e.g., employee training), internal business processes (e.g., establishing partnerships), customer-oriented processes (e.g., inspiring loyalty), and financial concerns (e.g., maximizing shareholder value) is integral to successful change management.

4.7.3: Steps to Smooth Organizational Change: Kotter

Kotter’s model details a process where managers may initiate, direct, implement, and foster organizational change via employee engagement.

Learning Objective

Employ John Paul Kotter’s eight step model to outline steps toward smooth and efficient change in an organization

Key Points

John Paul Kotter is a former professor at the Harvard Business School and is regarded as an authority on leadership and change.
The eight stages of Kotter’s change model include: increase urgency, build the guiding team, get the vision right, communicate for buy-in, empower action, create short-term wins, don’t let up, and make change stick.
By following Kotter’s eight steps, managers can implement change and make it an integral part of the organization’s culture. This is accomplished by making sure that change sticks with the culture and becomes an expected part of the continued development of the organization.

Key Terms

vision: A clear, distinctive, and specific vision of the future, usually connected with a leader’s strategic advances for the organization.
Buy-in: Support; agreement; approval; blessing (in a secular sense). A sense of believability in the potential outcomes achieved through group process.

John Paul Kotter

John Paul Kotter (born 1947) is a former professor at the Harvard Business School, an acclaimed author, and Chief Innovation Officer at Kotter International. He is regarded as an authority on leadership and change. Kotter created the Eights Steps to Change Model that is currently the most widely-used framework for managing organizational change. In his observations, Kotter concluded that the organizations that are the most successful in implementing change go through the following series of eight steps.

The Eight Steps

1. Increase urgency: Managers must inspire people to move, make objectives real and relevant, and further their desire to make change happen. Getting momentum for change is key.

2. Build the guiding team: The company must get the right people in place as leaders with the right emotional commitment and understanding and the right mix of skills and levels.

3. Get the vision right: Managers must get the team to establish a simple vision and strategy and then focus on the emotional and creative aspects necessary to drive service and efficiency.

4. Communicate for buy-in: Involving as many people as possible, managers must communicate the essentials and appeal and respond to people’s needs. Additionally, they must remove clutter and streamline technological communications, making it efficient rather than overwhelming for employees.

5. Empower action: This step removes obstacles wherever possible, enables constructive feedback, and garners support from leaders—complete with motivational rewards that recognize progress and achievements.

6. Create short-term wins: Managers must set aims that are easy to achieve in manageable chunks. They must also manage the number of initiatives taking place at once and finish current stages before starting new ones.

Short-term wins

A step in Kotter’s model of change is to celebrate short-term wins while working toward an overall goal of change.

7. Don’t let up: Managers must foster and encourage determination, persistence, and ongoing progress reporting. This can be done by highlighting achieved and future milestones.

8. Make change stick: This step reinforces the value of successful change via recruitment, promotion, and new change leaders. The company should change a fundamental part of the culture during this step so people do not consider it as foreign.

By following these eight steps to successful change, managers can work to mitigate the risks associated with changes that employees do not like. In order to reduce potential organizational obstacles, managers have to make sure that all of their employees are on board with the change and are willing to assist with it.