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1 Management innovation (Innovation in organisational structures and management theme) Michael Mol – U. of Reading & visiting researcher, LBS Management.

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Presentation on theme: "1 Management innovation (Innovation in organisational structures and management theme) Michael Mol – U. of Reading & visiting researcher, LBS Management."— Presentation transcript:

1 1 Management innovation (Innovation in organisational structures and management theme) Michael Mol – U. of Reading & visiting researcher, LBS Management Innovation Lab Julian Birkinshaw – London Business School We find evidence in a wide range of industry sectors that the systematization of management innovations will be a critical success factor for 21st century companies. (Feigenbaum & Feigenbaum in Sloan Management Review, 2005)

2 2 What is a management innovation? The implementation of a new management practice, process or structure that significantly alters the way in which the work of management is performed and is intended to further organisational goals. PRINCIPLES PROCESSES PRACTICES STRUCTURES

3 3 Relevance For practice. The half-life of other types of innovation is shrinking. Firms may need to be innovative on multiple dimensions simultaneously. For practice. The half-life of other types of innovation is shrinking. Firms may need to be innovative on multiple dimensions simultaneously. For policies. Management innovation is a driver of economic growth. UK firms compete on their innovativeness. Management is an increasing part of what makes them stand out. Few countries have seriously tackled management innovation so far. For policies. Management innovation is a driver of economic growth. UK firms compete on their innovativeness. Management is an increasing part of what makes them stand out. Few countries have seriously tackled management innovation so far.

4 4 Aims of our research project 1. Analysis of the factors that explain the levels of management innovation (for the CIS3 survey.) 2. Analysis of the factors that explain the levels of management innovation (for the CIS4 survey.) 3. Analysis of the consistency of management innovation across the CIS3 and CIS4 surveys. 4. Analysis of the performance impact of management innovation, using CIS3 and ARD data. Recommendations.

5 5 Some background Three lines of inquiry in current literature: How do individual management innovations diffuse? How do individual management innovations diffuse? Historically, how were individual management innovations shaped? Historically, how were individual management innovations shaped? How is management innovation related to other forms of innovation, especially technological innovation? How is management innovation related to other forms of innovation, especially technological innovation?

6 6 Diffusion processes Diffusion speed and pattern of M-form (Teece, 1980; Palmer, Jennings, and Zhou, 1993), TQM (Zbaracki, 1998), ISO 9000 (Guler, Guillen and MacPherson, 2002) etc. Diffusion speed and pattern of M-form (Teece, 1980; Palmer, Jennings, and Zhou, 1993), TQM (Zbaracki, 1998), ISO 9000 (Guler, Guillen and MacPherson, 2002) etc. Various attempts at theorising, including fashion and fad (Abrahamson, 1996), bandwagoning (Abrahamson and Rosenkopf, 1993), neo-institutional approach (Staw and Epstein, 2000). Various attempts at theorising, including fashion and fad (Abrahamson, 1996), bandwagoning (Abrahamson and Rosenkopf, 1993), neo-institutional approach (Staw and Epstein, 2000).

7 7 Histories of creation Creation of M-form (Chandler, 1962), Activity-based costing (Cooper and Kaplan, 1988), Discounted Cash Flow (Pezet, 1997), Lean Production (Womack, Roos and Jones, 1990) etc. Creation of M-form (Chandler, 1962), Activity-based costing (Cooper and Kaplan, 1988), Discounted Cash Flow (Pezet, 1997), Lean Production (Womack, Roos and Jones, 1990) etc. Focus on individual innovations, not on comparisons or generalised understanding. Focus on individual innovations, not on comparisons or generalised understanding.

8 8 Types of innovation A few comparisons between various types of innovation (Damanpour and Evan, 1984; Alänge, Jacobsson, and Jarnehammar, 1998; Boer and During, 2001). A few comparisons between various types of innovation (Damanpour and Evan, 1984; Alänge, Jacobsson, and Jarnehammar, 1998; Boer and During, 2001). This literature focuses on symptomatic differences and not on a classification of management innovations or understanding of their antecedents. This literature focuses on symptomatic differences and not on a classification of management innovations or understanding of their antecedents.

9 9 Positioning our research project Our research does not provide an exact fit with any of these three streams because we are interested in: a) Management innovation as the phenomenon (not a specific innovation) b) The implementation of management innovation inside individual firms c) Its performance consequences

10 10 Conceptualisation What causes management innovation? We broadly follow the behavioral theory of the firm (Simon, March, Cyert), specifically the notion of problemistic search. Management innovation is implemented at the interface of problems and solutions.

11 11 Conceptualisation (continued) What are the performance consequences of management innovation? We see management innovation as possibly leading to differentiation in resources and capabilities, which in strategic management are seen as the cornerstone of competitive advantage.

12 12 Method (1) CIS3, CIS4 & ARD. CIS3, CIS4 & ARD. Wider innovation: implementation of advanced management techniques, implementation of new or significantly changed organisational structures, and significant changes to the firms marketing concepts / strategies. Wider innovation: implementation of advanced management techniques, implementation of new or significantly changed organisational structures, and significant changes to the firms marketing concepts / strategies. We do not use new or significantly changed corporate strategy much because it provides a poor conceptual fit – although we did check whether excluding it has an impact on results. We do not use new or significantly changed corporate strategy much because it provides a poor conceptual fit – although we did check whether excluding it has an impact on results.

13 13 Method (2) Between CIS3 and CIS4 there are some inconsistencies both in terms of how the wider innovation items are defined and how they are measured. Between CIS3 and CIS4 there are some inconsistencies both in terms of how the wider innovation items are defined and how they are measured. It appears as though UK firms are only half as innovative now as they were four years ago! It appears as though UK firms are only half as innovative now as they were four years ago! See table…. See table….

14 StrategyManagementOrganisationMarketingSum of 3Sum of 4 CIS 3.42 (.49).35 (.48).39 (.49).45 (.50)1.20 (1.25)1.62 (1.65) CIS 4.19 (.39).17 (.38).21 (.41).22 (.42).61 (.93).80 (1.21) Means for individual management innovation items, for three items combined and for four items combined, with standard deviations between brackets.

15 15 CIS3 – predicting innovation Dummies are used for whether or not a type of innovation had been implemented. Dummies are used for whether or not a type of innovation had been implemented. Thus our dependent variable takes on the values of 0, 1, 2, and 3. Thus our dependent variable takes on the values of 0, 1, 2, and 3. Ordered logit (with robust standard errors) is applied. Ordered logit (with robust standard errors) is applied. Industry dummies not shown anywhere. Industry dummies not shown anywhere. 3,635 firms across the range of industries. 3,635 firms across the range of industries.

16 CoefficientsStandard errorsCoefficientsStandard errors Firm size.25.02(***).17.02(***) Capital intensity.02.00(***) Export intensity (*) Degrees.01.00(***).01.00(***) Product innovation.93.07(***).38.08(***) Process innovation.73.07(***).27.08(***) Alliances.24.09(*) Innovation inhibitors.07.01(***) Organisational change.31.10(**) Market scope.15.04(***) Internal sources.31.06(***) Market sources.18.03(***) Professional sources.21.03(***) Wald chi (***) (***) Log pseudolikelihood Pseudo R

17 17 CIS4 – predicting innovation Unfortunately several of our predictor variables are no longer available, so the model is somewhat more limited. Unfortunately several of our predictor variables are no longer available, so the model is somewhat more limited. We add type of customer (new to CIS4) as a predictor variable. We add type of customer (new to CIS4) as a predictor variable. Number of firms is 11,328 here. Number of firms is 11,328 here.

18 CoefficientsStandard errorsCoefficientsStandard errors Firm size.18.01(***).18.01(***) Degrees.00.00(***).00.00(***) Product innovation.63.05(***).63.05(***) Process innovation.69.05(***).69.05(***) Alliances.48.06(***).48.06(***) Innovation inhibitors.05.01(***).05.01(***) Market scope.08.02(***).08.02(***) Internal sources.41.07(***).42.07(***) Market sources.13.03(***).13.03(***) Professional sources.15.02(***).15.02(***) Business customers Consumer customers Wald chi (***) (***) Log pseudolikelihood Pseudo R2 0.15

19 19 Intermezzo Our analysis has so far revealed small differences between CIS3 and CIS4 in terms of what predicts management innovation but big differences in absolute levels of innovation. Our analysis has so far revealed small differences between CIS3 and CIS4 in terms of what predicts management innovation but big differences in absolute levels of innovation. It turns out such differences are also substantial across countries. It turns out such differences are also substantial across countries. This table shows some numbers for CIS3 (from Eurostat, other innovation active firms only). This table shows some numbers for CIS3 (from Eurostat, other innovation active firms only).

20 CountryStrategyManagementOrganisationMarketing Belgium Denmark Germany Greece Spain France353415n/a Irelandn/a Italy Luxembourg The Netherlands Austria Portugal Finland Sweden United Kingdom Iceland Norway Average

21 21 Combining CIS3 and CIS4 If we merge CIS3 and CIS4 this allows us to investigate (in)consistencies across the surveys and also to potentially tackle problems of reverse causality. If we merge CIS3 and CIS4 this allows us to investigate (in)consistencies across the surveys and also to potentially tackle problems of reverse causality. This obviously reduces the sample (to depending on the analysis). This obviously reduces the sample (to depending on the analysis). We first run a simple correlation between management innovation in both surveys. We first run a simple correlation between management innovation in both surveys. Then we predict management innovation in CIS4 using only CIS3 predictor variables. Then we predict management innovation in CIS4 using only CIS3 predictor variables.

22 MeanStandard deviation CIS3CIS4 CIS CIS

23 CoefficientsStandard errors Firm size Capital intensity Export intensity Degrees.01.00() Product innovation Process innovation Alliances.78.26(**) Innovation inhibitors.04 Organisational change Market scope.43.14(**) Internal sources Market sources Professional sources.10 Wald chi (***) Log pseudolikelihood Pseudo R20.12

24 24 CIS3 – predicting performance We now link CIS3 data to ARD data. We now link CIS3 data to ARD data. Our performance measure is change in productivity, measured as sales per employee, between 2000 and Our performance measure is change in productivity, measured as sales per employee, between 2000 and Management innovation can indirectly effect both the efficiency with which employees perform tasks and the ability of the firm to sell products in the marketplace. Management innovation can indirectly effect both the efficiency with which employees perform tasks and the ability of the firm to sell products in the marketplace. This is an OLS regression on 1,048 firms. This is an OLS regression on 1,048 firms.

25 Standardized Beta t-value Constant4.01(***) Management innovation (***) Export intensity Capital intensity Degrees (*) Market scope Product innovation Process innovation Change Firm size (***) F-value 4.97(***) R 2.08Adjusted R 2.06

26 26 Different types of innovation Finally we seek to determine which sequence produces better predictions: management innovation before product & process innovation or vice versa. Finally we seek to determine which sequence produces better predictions: management innovation before product & process innovation or vice versa. To allow for comparable numbers, we run simple correlations. To allow for comparable numbers, we run simple correlations.

27 Product innovation CIS31 2 Process innovation CIS Management innovation CIS Product innovation CIS Process innovation CIS Management innovation CIS

28 28 What have we learned (1) Problemistic search teaches us something about how management innovation is implemented. It points to problems and solutions and the need to join these to be a management innovator. Problemistic search teaches us something about how management innovation is implemented. It points to problems and solutions and the need to join these to be a management innovator. The consistent positive correlation with other types of innovation supports the notion of innovative companies that engage in multiple types of innovation. The consistent positive correlation with other types of innovation supports the notion of innovative companies that engage in multiple types of innovation. Management innovation may well produce a positive performance effect. Management innovation may well produce a positive performance effect.

29 29 What have we learned (2) Knowledge intensive firms (with many graduates) are better at producing management innovation. Good news? Knowledge intensive firms (with many graduates) are better at producing management innovation. Good news? Inconsistencies between CIS3 and CIS4, as well as between countries, somewhat limit the usefulness of making comparisons but it at least seems that broadly the same factors continue to predict management innovation. Inconsistencies between CIS3 and CIS4, as well as between countries, somewhat limit the usefulness of making comparisons but it at least seems that broadly the same factors continue to predict management innovation. Alliances are now a positive predictor of management innovation. Does that imply alliances have become more effective? Alliances are now a positive predictor of management innovation. Does that imply alliances have become more effective?

30 30 Preliminary recommendations (1) We must get the message out that this type of innovation is important. This needs to become engrained in the repertoire of policy makers, business schools etc. We must get the message out that this type of innovation is important. This needs to become engrained in the repertoire of policy makers, business schools etc. At the same time more evidence that management innovation influences firm performance, and a deeper understanding of how it does so, is needed. At the same time more evidence that management innovation influences firm performance, and a deeper understanding of how it does so, is needed.

31 31 Preliminary recommendations (2) Need to inform firms of the factors that stimulate management innovation. Various channels are in place to do that (media, DTI, AIM etc.). Need to inform firms of the factors that stimulate management innovation. Various channels are in place to do that (media, DTI, AIM etc.). Of the factors discussed here, alliances, knowledge sources, and perhaps employment of trained graduates are the most manageable ones. Of the factors discussed here, alliances, knowledge sources, and perhaps employment of trained graduates are the most manageable ones.

32 32 Preliminary recommendations (3) Need to gain a deeper understanding of the process of management innovation in practice to complement these structural models. The LBS Management Innovation Lab (www.managementinnovationlab.com) is one of the means for doing that. Need to gain a deeper understanding of the process of management innovation in practice to complement these structural models. The LBS Management Innovation Lab (www.managementinnovationlab.com) is one of the means for doing that.www.managementinnovationlab.com This can provide policy makers and practitioners with a clearer view of which buttons to press at what time. This can provide policy makers and practitioners with a clearer view of which buttons to press at what time.


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