Managing Organizational Competence Professor Rebecca Henderson MIT Sloan School of Management
Download ReportTranscript Managing Organizational Competence Professor Rebecca Henderson MIT Sloan School of Management
Managing Organizational Competence Professor Rebecca Henderson MIT Sloan School of Management Phone: (617) 253-6618, Email: [email protected], http://www.mit.edu/people/rhenders/home.html A Pause for Reflection: What was the single most important idea you took away from yesterday’s discussion? How will it be useful to you when you return to work? The last of three key questions... How will we Create value? How will we How will we Deliver value? Capture value? Transitions often challenge existing organizations severely Cumulate share of sales of photolithographic alignment equipment, 1962-1986, by generation Cobilt Kasper Canon Contact 44 17 P-Elmer GCA Nikon Total 61 Proximity Scanner S&R (1) <1 8 7 67 21 9 75 78 10 55 99+ 81 S&R (2) <1 12 70 82+ But they also create major opportunity Corning glass – Cookware to optical fiber HP – Instrumentation to computers IBM – Mainframes to PCs to Services Eli Lilly – “Random” drug discovery to genetics and genomics The Issue How can one manage the core business and real growth simultaneously? Discontinuous Innovation as a strategic problem Genuine uncertainty – It’s not going to happen – certainly not now Cannibalization – It will compete with our current products Shifts in the customer base – Our current customers don’t want it Margin erosion – It will make less money Discontinuous Innovation as an organizational problem Time horizons & Incentives Fear of (individual) cannibalization Overload Competency Traps Discontinuous Innovation as a Strategic Problem New S curves may be hard to spot in advance Evaluating alternatives for next generation automobile propulsion systems (Joanne Woestman, SDM Thesis, 1999) Parameter Value Cost Efficiency Operating Cost Performance 0 to 60 time Top speed NVH Utility Range All weather reliability Capacity Refueling time Refueling convenience Safety Emissions Crashworthiness Evaporative Emissions Fuel Cells ICE Hybrids Electrics Bad Good Ok Good Ok Good Ok Ok Ok Bad Ok Ok Ok Ok Good Good Good Ok Good Good Ok Ok Ok Good Ok Bad Ok Ok Bad Good Good Ok Good Very good Good Ok Ok Good Very Good Bad Bad Ok Bad Bad Great Ok Ok Ok Ok Ok Good Ok Ok Great Ok Great The new opportunity doesn’t meet our current customer’s needs Managing customers at moments of discontinuity Who buys a technology when it is first introduced? Performance New technologies sell to: - New customers - With new needs - Often at lower margins Time The Innovator’s Dilemma: “Disruptive” technologies may threaten established firms Established technology Performance Mainstream customer needs Invasive Technology Niche customer needs Time Clay Christensen: The Innovator’s Dilemma The new opportunity doesn’t offer nearly the same margins and profit opportunity Uniqueness & Complementary Assets over the Life Cycle: Uniqueness Maturity Takeoff Ferment Complementary Assets Discontinuous Innovation as an Organizational Problem Discontinuous Innovation as an organizational problem Time horizons & Incentives Fear of (individual) cannibalization Overload Competency Traps Overload: Is This Your Project Pipeline? Overload can give you “worse before better” No longer term projects initiated + - Pressure to Fix short term problems Performance Gap - Time spent Fire fighting - Pressure to invest in longer term opportunities DELAY DELAY + Time spent in “next generation” projects Growth projects available Common expectations Average Performance Change Anticipated performance Historical performance Time The reality of “worse before better” Average Performance Anticipated performance The Reality Historical performance Time Competencies evolve over time, creating “competency traps” Performance Maturity Discontinuity Takeoff Ferment Time Change challenges every aspect of the organization Whole scale changes to structure and process are very disruptive: Two years of lost time? Leadership & Strategy Structure & Process Strong cultures & deeply rooted mental models are extraordinarily resistant to change Incentives Culture & Mental Models Individuals become Invested in old approaches Strategic/competitive problems may provide an excuse for inertia Existing incentives often work against significant change, and new incentives take time and work The Problem of Mental Models Mental models & the evolution of knowledge: The Era of Ferment: – A premium on flexible competence: deep integration across functions and boundaries Dominant design established -- enables… An Era of Incremental innovation – – – Allows the fragmentation of knowledge Component knowledge -- knowledge about the pieces Architectural knowledge -- knowledge about the relationship between the pieces -- about “what everybody else knows” Architectural knowledge becomes embedded in mental models... Information channels – Communication filters – “If I have a question about customer needs I can always call Fred..” “The only thing I need to worry about in this report is Section 8..” Problem solving strategies – “The easiest way to increase speed while reducing noise is to...” And in the Deep Structure of the Organization Leadership Formal Structure/Process Incentives/Political Structure Culture/Mental Models Where it is a source of STRENGTH! It allows the organization to get things done! – – – Minimizes “meeting time” Allows for clear responsibilities And quick response Embedded architectural knowledge is a key organizational competence And of weakness: Problems in recognition: – Denial Problems in response: – – Panic Overload & the recreation of old solutions The Organizational Challenge: Entrepreneurial Drive, Freedom from the “old ways” Startups Successful growth unites entrepreneurial insight with effective coordination B as U Control & Coordination In summary: “I see”, he said, “you’re suggesting that we invest millions of dollars in a market that may or may not exist but that is certainly smaller than our existing market, to develop a product that customers may or may not want, using a business model that will almost certainly give us lower margins than our existing product lines. You’re warning us that we’ll run into serious organizational problems as we make this investment, and our current business is screaming for resources. Tell me again just why we should make this investment?” - Divisional Manager, Telecommunications Equipment Provider What can be done? Make sure you’ve fixed (or are at least aware of) the strategic problem How will we create and capture value over time? Performance Maturity Discontinuity Takeoff Ferment Time Address the organizational challenges What can be done? Lead: – Build the “ambidextrous” senior team, communicate the strategy, allocate resources – grapple with “worse before better” Structure: – Explore transitional and intermediate forms Incent: – Explain “just what’s in this for me?” Build: – Lay the foundations for a new culture, new expectations What can be done? Lead: – – – – Develop a clear strategy Generate energy Build an “ambidextrous” senior team Make decisions: deal with worse before better Develop a clear strategy How will we Create value? How will we How will we Deliver value? Capture value? Generate Energy Position the discontinuity as an urgent threat: – Flirt with bankruptcy – Make vivid the idea that the firm might flirt with bankruptcy Position the discontinuity as an opportunity – Generate some small successes: build enthusiasm and “infect” the organization – Leap boldly into the future Build an Ambidextrous Senior Team Ambidextrous senior teams must manage – both more mature, operationally focused businesses – and higher growth, emerging businesses High performing senior teams show: – High conflict, high respect decision making capabilities – High levels of trust and truth telling – The ability to manage divergent incentive systems and career paths Coupled with processes that support the divergent management of quite different business units – E.g. Resource allocation processes that allow for different time horizons, milestones, rates of return Make Decisions 100% Average Value-Added Time on 80% Engineering Tasks 60% 40% 20% 0% 1 2 3 Source: IBM Development Efficiency Study 4 5 6 Number of Projects per Engineer Deal with “worse before better” Average Performance Anticipated performance The Reality Historical performance Time What can be done? Lead: Structure: – Implement appropriately – Choose the right people – Manage linkages Balance entrepreneurial energy and coordination Entrepreneurial Energy Startups Successful disruptive innovation unites entrepreneurial insight with effective coordination B as U Control & Coordination Choose a structure that fits the firm’s strategic positioning and skills Entrepreneurial Energy Acquire/ Partner Joint venture/ alliance Internal venture Build inside existing unit Control & Coordination Manage it using every lever that you have Entrepreneurial Drive, Freedom from the “old ways” Acquire/ Partner ? Joint venture/ alliance Internal venture Build inside existing existing units unit Control & Coordination Exercise: Best Practice in Building Growth Choose one of the alternative organizational forms with which you have some experience: – – – – – Building growth inside an existing unit Separate division Spin off Joint venture Acquisition In retrospect, what are the critical factors that needed to be in place to make it successful? Acquisitions: Pros and Cons Pros – Brings in a new culture with an established set of skills – a “sure bet”? Cons – Is the market efficient? – Will the shareholders of the acquired firm capture all the value? – Should you worry about the winner’s curse? Will you pay too much? – Once acquired, will the new firm simply be assimilated into the existing firm? What can be done? Lead Structure: Incent – Explain “just what’s in this for me?” – Manage the balance between: • Individual outcomes and team/firm outcomes • “Objective” and “subjective” measures The incentive problem is an inherently difficult one… Entrepreneurial Drive, Freedom from the “old ways” Startups B as U Control & Coordination Using “high powered” incentives may reduce coordination Entrepreneurial Drive, Freedom from the “old ways” ? Acquire/ Partner Joint venture/ alliance Internal venture Build inside existing existing units unit Control & Coordination What can be done? Lead Structure Incent Transform the culture: – Build on core values – Practice thinking in new ways – Manage from the heart Summary Remember what you’re dealing with: “I see”, he said, “you’re suggesting that we invest millions of dollars in a market that may or may not exist but that is certainly smaller than our existing market, to develop a product that customers may or may not want, using a business model that will almost certainly give us lower margins than our existing product lines. You’re warning us that we’ll run into serious organizational problems as we make this investment, and our current business is screaming for resources. Tell me again just why we should make this investment?” - Divisional Manager, Telecommunications Equipment Provider Make sure you’ve fixed (or are at least aware of) the strategic problem Manage the organizational issues aggressively Entrepreneurial Drive, Freedom from the “old ways” ? Acquire Joint venture/ alliance Internal venture Build inside existing existing units unit Control & Coordination