Factors Affecting Creativity in Marketing Programs

(See Andrews and Smith 1996)

 Research on factors affecting new product success has consistently found that the primary
determinant of customer response is the degree to which the product provides meaningful benefits
relative to competing alternatives (Andrews and Smith 1996; Cooper 1986).

 Innovations in general provide unique and meaningful benefits to products and services (Day 1994,
p. 69; Rogers 1983, p. 134). Creativity or innovation is defined in terms of meaningful novelty of
some output (e.g., a painting, a chemical compound) relative to conventional practice in the domain
to which it belongs (e.g., abstract art, adhesives) (Hennessey and Amabile 1988).

 Thus, a creative product is that which evokes a meaningful difference from other competing
products in the product category. A creative marketing program (e.g., advertising) represents a
meaningful difference from marketing practices (e.g., media advertising) in a given product category
(Haberland and Dacin 1992).

 In relation to marketing mature products, innovative initiatives emerge from a formal or informal
marketing planning process undertaken by a product manager who works alone (often with informal
input from others) or plays the central role in a small team of several assistant product managers
(Lehmann and Winer 1994).

 Several factors affect creativity and innovation: a) individual factors; b) situational factors; c) and
motivational factors.

INDIVIDUAL FACTORS AFFECTING CREATIVITY:

1. Various problem-solving skills possessed by the product manager and his/her team. Creative
ideas often are the result of a process focused on solving a specific problem through combining
existing concepts in new ways (Osborne 1963). However, before a new idea is conceived, the
product manager should amass knowledge of the related and unrelated domains of interest
(Amabile 1983). This knowledge serves as the raw material from which new ideas are
synthesized.

2. In marketing, such knowledge would include product and brand trends, competing and substitute
products and brands, channel-knowledge, customer purchase and use knowledge (operating
micro-environment) and market-demographic trends, political/legal trends, technological trends
and economic trends (macroenvironment). Greater knowledge of the marketing environment
increases a product manager’s ability to analyze incoming data and extract useful information
(Alba and Hutchinson 1987), ask the right type of questions (Miyake and Norman 1979), and will
reduce the time-cost of acquiring new information. Will too much knowledge blind and stifle
creativity? It is not the quantity of information gathered that matters, but its quality and the way
it is organized; the latter trigger creativity.

3. Motivational Factors: These relate to the product manager’s level of intrinsic motivation (specific
to a task; Amabile 1983) and willingness to take risk in expending the effort and energy necessary
 to create and innovate. For instance, any creative solution involves a large number of ideas or
variations, and synthesizing them needs much effort, courage, focus, time, and talent. Risk of
failure of a marketing program related to its rejection by the top management or not being
attractive to prospective consumers. One should take the risk of failure, or being rejected and
opposed by peers or supervisors (Osborne 1963). Willingness to take risk is a key contributor to
creativity, because it provides motivation to entertain ideas that deviate from the status quo
(Amabile 1983) and to consider nontraditional ways to marketing.

4. Educational factors: The more diverse a product manager’s education (arts, philosophy,
economics, anthropology, psychology, business, …) and experience (sales, advertising, packaging,
promotion, pricing, designing, …), greater the creativity of the marketing program (Andrews and
Smith 1996).

SITUATIONAL FACTORS AFFECTING CREATIVITY:

1. Problem-solving style of the product manager: using a non-routine, or heuristic process – one that
departs from cookbook procedures – in solving problems, facilitates creativity. A formal,
programmed or algorithmic process (i.e., following a specified set of steps) may yield output that
is little different from the past. The creativity of a marketing program may be the best when
planning formalization process is moderate.

2. Interaction process involved: much depends upon the level and quality of interaction set up by
the product manager with people and other functional areas. The more a product manager
interacts with members of other functional areas (e.g., sales personnel, R&D, new product
designers), the greater the creativity of the marketing program.

3. The Time Pressure of Deadlines: the greater the time pressure (measured by brevity, variety,
fragmentation, fighting competitive fires) perceived by a product manager, the less the creativity
of the marketing program.

Architectural Innovation and Modular Corporate Forms

[This section is dependent upon Galunic and Eisenhardt 2001].

Innovation as the creation of value within changing markets is emerging. Although efficiency and control
in innovation management are important, dynamic capabilities within the organization that reflect
flexibility, creativity and timing are getting to be more important. Dynamic capabilities are
“organizational and strategic processes by which managers manipulate resources into new productive
assets in the context of changing markets” (Galunic and Eisenhardt 2001, p. 1229). Such dynamic
capabilities could include knowledge transfer, integrative capabilities, product innovation processes, and
other specific micro-processes and roles that form these capabilities. The corporate level processes by
which multi-business firms reconfigure their resources for higher productivity and profitability are also
called architectural innovations.

Galunic and Eisenhardt (2001) investigate how architectural innovations come about in firms: how the
modern corporation, as a dynamic and social community, modulates its corporate resources as markets
and other corporate players co-evolve. In particular, the authors view the corporation as a social
community, where dynamic capabilities are based on communal imperatives (such as encouraging the
weak, rewarding the loyal, rescuing the distressed, and being fair while tolerating competition and
conflict) rather than on purely economic reasoning (such as optimizing the technical fit between markets
and resources to ensure rent maximization).

The authors report results from their 18-month field interviews with a large multi-business Fortune 100
company pseudo-named Omni Corporation that was basically an electronic company that had wide
interests such as computer peripherals, computing-information technology (IT), and electronic
instruments. The unit of analysis was a charter gain experience by a focal division of the firm. A
“charter” is a product market domain in which a division actively participates and for which it is
responsible within the firm. Typical charter in Omni included: the hand-held computing charter, the high-
end printing charter, and the video and wideband charter. Omni frequently revisited its corporate
architecture as markets and divisions coevolved by reconfiguring divisional resources with old and new
charters. A “charter gain” occurred when a division obtained a product-market area of responsibility that
was either new to the corporation or transferred from another division. Data were collected through
interviews, questionnaires, observations, and company archives. Analysis began with detailed written
accounts and schematic representations of each charter gain process. Findings are grouped under various
heads.

How did Omni Gain New Charters? The authors found three patterns:

New Charter Opportunities: industry changes create new market, thus new charter, opportunities.
These are allocated to weak-to-modest divisions where there are many underutilized resources so
that constrained charter positions get a boost;

Charter Wars: Competition shifts within firm-divisions and outside the organization create charter
wars: here aggressive and fittest divisions and loyal corporate citizens get to be the winners,
leaving incentives for the weaker divisions to perform better. Charter wars also occur when rival
divisions successfully attack and capture charters from other divisions. In other words, these
charter wars gains are simply stories of “divisions becoming more fit in changing markets and so,
winning new turf” (Galunic and Eisenhardt 2001, p. 1236).

Charter Foster Homes: orphaned charters arisen from industry, market or competition changes,
but hitherto unattractive and unexploited, are either abandoned or allocated to strong divisions as
additional charters. Here, corporate influence of major executives was the key organization force
at work. While economic logic (e.g., opportunity and profit maximization, optimal resource
allocation for maximizing fit between divisional skills and track records and charter demands) was
regularly used, social logic (e.g., encouraging underprivileged divisions, retraining obsolete skills,
rescuing the distressed, rewards for cooperation and loyalty, recognizing steady performers) was
also evidenced. Often economic logic reinforced social logic and vice versa. Economic reasoning
alone was insufficient to predict how charter changes played out. The strong and opulent divisions
were encouraged to “let some scraps fall from their plate” to fellow languishing divisions.

New Charter for Opportunities within Omni Divisions

As industries and markets expand, emerge, converge, collide, and diverge, new charter opportunities
spring within firms. For example:

a) There occurred a gap between one Omni division that manufactured a high-end printing product
that catered to a very specialized and sophisticated customer base, and another fellow Omni division
that produced a low-end printing product to the small business segment. A niche emerged in the
middle that could combine the base technology that was common to both products to product
middle-end printing products that served a less customized and specialized segment of small to
 middle businesses or demanding household customers. There was “horizontal relatedness” between
these charters: that is, they represented complementary products within the same industry.

b) One Omni division was closely involved in the developing of a new imaging technology. The new
opportunity was to take this technology and merge it with a related technology, such as networking
technology, so that a new business could be developed. There was “vertical relatedness” between
these charters: that is, they represented complementary products between divisions or industries.

c) Another division was focused on a niche market: professional graphic design. Although initially this
was a lucrative and high-growth market, it soon got saturated with new market entrants, and quickly
became a large fish in a small pond. Combining this division with that of imaging technology within
Omni opened new vistas, especially to “trapped and languishing performers” who were skilled but
nevertheless desperately looked for growth.

Under all these and similar cases:

 A new charter was created, and subsequently allocated to another division based on both economic
and social logic. New charters were often assigned not to the high-performer, visibly over-privileged
divisions with their burgeoning empires, but their smaller neighbors. This equalization opportunity
creates its own corporate uplifting and cooperative morale and makes its own symbolic powerful
statement of fairness and distributive justice.

 Corporate entrepreneurs (executives) managing several divisions were first to recognize these
opportunities rather than divisional heads; obviously, the vision of the former was broad in
“managerial bandwidth.” Corporate entrepreneurs are not lost in divisional performance and
venture details, but constantly look for new growth areas and new technologies to cope with changing
markets and competitive pressure.

Unpacking Creativity
(See Unsworth, Kerrie (2001), “Unpacking Creativity,” AMR, 26:2, 289-97)

Two questions underlie engagement in the creative process: 1) why do people engage in creative
activity? 2) What is the initial state of the trigger? The first question involves the drivers for idea
generation. These drivers could be internal or self-determined, or external or market-determined
(e.g., job, R&D, customer need). The second question involves the degree of problem finding needed
at the starting point of the creative process. Some problems could be totally open, unformulated, and
unresolved whose solution needs to be invented or discovered, or the problems could be closed whose
solutions or method to solutions are known. From the external-internal, open-closed categories,
emerge four types (see below) of creativity types illustrated in Table 3. 10.

Response Creativity: externally driven and closely specified problem creativity. The individual has
least control over problem-solving choices. Individual autonomy is limited. The more external the
drive, the more external are constraints. In general, higher the constraints the lesser is creativity.
Creativity is focused on a closed problem and external constraint. Focus group creativity in
organizational setting is responsive creativity. Routine occupational creativity whereby researchers,
engineers, architects, scientists and other professions solve day-to-day customer or client problems
using given methods and procedures is also responsive creativity.

Expected Creativity: externally driven but open self-discovered problem creativity. The individual
has some control over problem-solving choices. Individual autonomy is less limited. Creating
artwork such as paintings, sculptures, poems, melodies, harmony, aesthetics, collages and the like
belong to this realm of expected creativity. The artist is externally (e.g. demand, money, project)
driven but has many avenues to seek solution.
 Contributory Creativity: internally (self-determined) driven activity along clearly formulated
problems. Is contributory, since most responses involve helping behaviors. Examples: an employee
volunteering to solve another employee’s problem; corporations volunteering to solve community
problems; cause-related marketing; all volunteering. This is the zone of incremental innovation.

Proactive Creativity: internally (self-determined) driven activity along new, open and freshly
discovered problems. It is proactive in the sense problems are foreseen rather than reacted to. This is
the most productive zone of creativity. Market and technological breakthroughs occur here, as do
radical innovations. Taking personal initiatives are instances of proactive creativity. “Taking charge”
is more innovative activity geared toward implementation. If the problem is only discovered, but not
studied, then much problem (market and environment) scanning needs to be done in proactive
creativity.

These are four types of creativity, and not levels of creativity. When focusing on levels, the
dimensions (internal-external, closed-open) may not be “orthogonal” to each other; indeed, at a more
abstract level any two dimensions may be driven by a third common factor. For example, internal-
driven closed problem could be source by a common external constraint. Further, no problem is
entirely open or closed; no need in entirely internal or external. Hence, the four types of creativity
are four differential continua rather than exclusive zones.

All four types can help new product design and development. NPD is responsive if the designer was
given explicit specifications and methodologies. NPD is expected if the specifications were not
formulated. NPD is contributory if the problem was specified but not within the designer’s role. Finally,
NPD can be proactive if internally determined problem solutions are found for unformulated customer
problems. Hence, the situational context in which creativity occurs must be considered (Amabile 1996;
Ford 1996).

Creativity is concerned with the generation of new ideas, whereas innovation concerns also the
implementation of new ideas. Creativity also looks into the process and behavior of creativity, while
innovation is more outcome-focused. All four types of creativity need motivation (internal) and
incentives (external); but proactive activity needs most motivation and internal dynamism (e.g.,
curiosity, invention, discovery, creation). Constraints of time, cost, talent, energy, anxiety, dead lines,
labor and unions can constrain all four types of creativity, and mostly, these constraints can paralyze
proactive creativity.

Product-Centric Versus Consumer’s Experience-Centric Innovation

[This section is based on Prahalad and Ramaswamy 2003a and 2003b]

The rapid spread of cell phones and other mobile devices, Web sites and media channels are now enabling
consumers to have access to more information and entertainment at greater speed and lower cost than ever
before. But the IT technology explosion has not necessarily resulted in better consumer experiences.
However, globalization and ubiquitous connectivity are forcing companies to reexamine how they deliver
value to customers. The ability to reach out and touch customers anywhere, anytime, means that
companies must deliver not just competitive products but also unique, real-time customer experiences
shaped by the customer context of location, time, and event (Prahalad and Ramaswamy 2003a).

“The next practices of innovation must shift the focus away from products and services and onto
experience environments – supported by a network of companies and consumer communities – to co-
create unique value for individual customers” (Prahalad and Ramaswamy 2003b, p. 12). Technology
(e.g. digitization, biotechnology, smart materials) and major discontinuities in the competitive landscape
(e.g., deregulation, globalization, ubiquitous connectivity) have developed to allow immediate access to
an organization’s entire value-chain activities, especially through the Internet.

Twenty years ago, a still camera was different from a video camera; a television was different from a
computer; a telephone was different from postal mail. Today these different products and the different
industries that created them are converging. Today a telephone is also an email device, a text messenger,
an electronic organizer, a handheld computer and a camera. A portable laptop computer can be a
television, a radio, a email device, a text messenger, a faxing machine, an electronic organizer, a
telephone, an electronic typewriter and word processor, an online shopping window, a computing device,
a storage device, an entertainment console, and many other things. The distinctions between these
products, the industries they represent, and even the channels they are distributed by, are all blurring.
Similar convergence is taking place in the healthcare and financial services industries. This development
makes consumers informed, connected, active, and seeking lasting experiences beyond mere customer
satisfaction. Innovation must respond to this consumer change and demand.

How do we create customer value in this convergent digitized world? Product-centric companies believe
that they create value by product variety – this, in turn, leads to a product-centric innovation. While
creating product variety is easier today, competing effectively for value through product variety is not.
Value will increasingly have to be co-created with consumers, and innovation must be focused on the co-
creation experiences of consumers (Prahalad and Ramaswamy 2000).

 Consider the OnStar in the field of telematics, widely launched by GMC in 2002 – one aspect of
which provides mobile information and services to auto drivers and passengers. Because the OnStar
is integrated with the vehicle, it has access to all the internal sensors and can continuously monitor the
vehicle functions and provide assistance when needed, guided by the satellite data. When a customer
locks herself out of her car, OnStar can open the door remotely. When a car’s airbag is deployed,
OnStar can not only detect the accident but also can assess its severity; when a car is stolen, OnStar
can help the police track it down; when a subscriber has an accident, the OnStar service representative
contacts the local emergency service and dispatches a police car or ambulance to the scene.
Currently, GMC is considering of reconfiguring OnStar so that it can provide services beyond those
of safety and security to those of information, entertainment and convenience. For instance, it can
direct you to the nearest and best restaurant by nationality (e.g., Chinese, Italian), by status (5 versus
4 stars), by availability (e.g., short versus long wait) and, accordingly, make reservations for you.
The driver merely has to press a button in the dashboard, and a call center operator will respond. This
is a good case of “experience innovation” (Prahalad and Ramaswamy 2003).

 Consider a cardiac patient who needs a pace maker that monitors and manages heart rhythm and
performance. While this a great value to the patient, what is an added value is if the performance of
the heart was remotely monitored and any significant deviations altered both the doctor and the
patient (including the spouse) simultaneously. If the patient was out of town, then his primary
physician could suggest the doctor and the hospital he should immediately report to, and the primary
physician would simultaneously send all the relevant digitized medical records to the out-of-town
doctor so that diagnosis and treatment can be effectively coordinated. In all this value-chain process,
the value is not in the physical product (pacemaker), or in the communication and IT Network that
supports the value-chain process, or even in the skills-network of doctors, nurses, ambulances, and
the family. The value is in the co-creation experience that stems from the patient’s interaction with
all of these elements. That is, value-creation is defined by the experience of a specific consumer, at a
specific point in time and location, in the context of a specific event. The individual and his
interactions define both the experience and the value derived from it (Prahalad and Ramaswamy
2003).
Based on these and other similar experience innovations, Table 3.11 distinguishes between traditional
product- or company- centric innovations from consumer experience-centric innovations. “The ability to
imagine and combine technological capabilities to facilitate experiences will be a key success factor in
experience innovation, regardless of industry”(Prahalad and Ramaswamy 2003, p. 18). Take for instance,
generations ago the Sony Walkman broadened the consumer’s ability to enjoy high-quality stereo music
wherever the customer went. Now the digitization and compression of music files combined with the
miniaturization of storage capabilities and microprocessors have made entire music collections easily
portable.

Similarly, Apple’s original iPod provided instant access to over 1,000 songs in a pocket-sized package;
the newer version provides access to over 5,000 songs, as do similar competitive products. Both
miniaturization and portability are product-specific innovations. Now the electronics entertainment
companies must focus on experience-specific innovations. The number of songs, fast accessibility to the
songs, storage of songs is consumer-specific innovations. Further innovations should focus on consumer
experience. “A new technology is important consumers only when it increases their personal freedom,
makes life more convenient, or facilitates desires experiences” (Prahalad and Ramaswamy 2003, p. 19).
Accordingly, Sony is currently working to create the capacity for all its devices to be networked with one
another so that user interactions are enabled, and simultaneous user sharing of music files is facilitated.
The networking technology is central to experience innovation. In fact, interlinked music or text devices
can be embedded anywhere – in cars, phones, PDAs, PCs, home stereos, game consoles, televisions and
Walkmans. Apple’s new iMusic can network musicians, music libraries, devices and music enthusiasts
thus creating a rich experience environment for users in terms of personalized music, interaction, and
information, anywhere, and in any mode.

Another more recent technological capability is adaptive learning. For instance, Amazn.com computers
follow its customer’s purchases of books or CDs by content, themes, interests, purchase history,
seriousness versus entertainment, and accordingly suggest complimentary books or CDs as additional
shopping cart items or as possible items at the next purchase. The computers use adaptive learning to
counsel the customers. Similarly, TiVo’s intelligent digital video recorder stores a consumer’s personal
viewing history, analyzes his tastes and interests, and uses the results to evaluate the programming
available on the channels it can access. It then selects programs the consumer will probably like and
records them digitally as they are being broadcast for the consumer when he returns to the device – all
this without human intervention. This can progressively enrich consumer experience of a personalized
video channel.

The intent of experience innovation is not per se to improve upon the product or service, but to enable the
co-creation of an environment populated by companies, consumers and their networks. Personalized
experiences are the goal of experience innovation, and product-service innovations are means to that end.
From this viewpoint, a new technological; capability is meaningful to the extent it improves experiences
desired by the consumer.

The Role of Information Diffusion on Innovation

Innovation evolves over time and thus requires the use of knowledge in a dynamic setting. Market
knowledge diffusion is a function of information acquisition, which is shaped over time by the dynamics
of product diffusion and the firm’s previous innovation activities. In this context, Marinova (2004)
examines longitudinally (and cross-sectionally as previous literature did) the evolution of market
knowledge, innovation, and performance over time. Market knowledge diffusion is conceptualized as a
function of market knowledge level, change in market knowledge, and shared market knowledge among
strategic decision makers. If markets are constantly changing (Hunt and Morgan 1995), and if
innovation drives change and firm success (Schumpeter 1942), then market knowledge, change in
market knowledge, and shared market knowledge should enhance innovation effort.

Market knowledge: The two most salient features of a competitive market are customers and
competitors. Hence, market knowledge must relate to customers and competitors. A decision maker
who can correctly identify customer preferences and competitor moves has market knowledge. Market
knowledge is necessary for determining the customer needs and wants of target markets and to satisfy
them better than the competition.

Market knowledge change: Magnitude of knowledge change (absolute change, and not direction of
change) in relation to customers and competitors between two points in time. Change in market
knowledge may be viewed as adjustment to inaccuracies of current knowledge in relation to customers
and competitors compared with “objective” reality in the market and brought about by new information
or knowledge integration across different market aspects.

Shared market knowledge: Is knowledge in terms of facts, concepts, and propositions simultaneously
diffused, shared and understood by multiple agents within the firm.

All three levels of knowledge impact innovation. Knowledge as accumulation of strategic information
increases the capacity of organizations to interpret new information, especially if the latter is related to
the accumulated knowledge. Hence, market knowledge has a positive effect on innovation effort.

The product is a variable tailored to changing needs of carefully selected customers. As the customer
changes, so must the product, and the organization that provides the product must have built-in
flexibility and adaptiven4ess (Webster 1997: 52). That is, enhancing innovation effort needs constant
monitoring of market condition changes in relation to customer preferences or competitors’ market
strategies and offerings. Hence, both the level of market knowledge, and the absolute positive change
from that knowledge are positively related to innovation effort.

Shared knowledge is organizational memory and organizational learning. Organizational interactions

generate unique patterns of shared knowledge. A high degree of shared market knowledge among key
decision makers intensifies the effect of knowledge on innovation effort. Inaccurate knowledge,
however, can hinder innovation activities, delay new product development, and even introduce wrong
products into the market place.

In conclusion, a firm that has a high level of accurate market knowledge of target customers and
competitors, grows continuously in that knowledge, and actively diffuses that knowledge among all
decision makers in the firm, is not poised for great innovation effort, but also for innovations that
improve sales, market share and profitability performance (Marinova 2004).
Management Innovation for Marketing Innovations
[Hamel (2006), “The Why, What and How of Management Innovation,” HBR, (February), 72-84].

Management Innovation can create long-lasting advantage under one or more of the following three
conditions:

 The innovation is based on a novel principle that challenges management orthodoxy: The radical
management principle at the heart of Toyota’s capacity for relentless improvement is that its first
line employees can be real problem solvers, innovators, and change agents and not merely cogs in a
soulless manufacturing system. While American auto companies relied on staff experts to generate
process improvements, Toyota gave every employee the skills, the tools, and the permission to solve
problems as they arose and to anticipate new problems before they occurred. Every year,
consequently, Toyota has been able to get more out of its ordinary employees than its American
competitors. Toyota’s real competitive advantage was not the undervalued yen, its docile workforce,
its lack of unions, its superior automation, or its Japanese culture as its American rivals have long
argued, but Toyota’s ability to harness the intellect of its ordinary first line employees.

 It is systemic, encompassing a range of processes and methods: It is difficult for rivals to replicate a
web of innovations spanning many management processes and practices. This was the advantage of
Whole Foods Market that had grown to 161 stores since 1981 and to $3.8 billion in sales, with the
highest profits per square foot in the retailing industry. John Mackey, the founder and CEO, has a
unique management philosophy: a community working together to create value for other people. At
the Whole Foods Market, the basic unit of analysis is not the store, but small teams that manage
departments such as fresh produce, prepared foods, and seafood. Bonuses are paid to teams and not
to individuals. Team members have access to comprehensive financial data, including the details of
every co-worker’s compensation. Executive salaries are capped: no corporate executive can draw a
salary more than 14 times the company average. About 94% of the stock options are distributed
among non-executives. Managers consult these teams on all store-level decisions and accord them a
degree of autonomy that is nearly unprecedented in retailing. Each team decides what to stock and
can veto new hires. What distinguishes Whole Foods Market is not one innovative management
process but a unique system of processes that rivals can emulate but not easily copy.

 It is part of an ongoing program of innovation, where progress compounds over time: GE’s leadership
advantage is not individual product or market breakthrough but the result of a long-standing and
unflagging commitment to improve the quality of its management stock – a commitment that
regularly spawns new management innovations and methods. Not every management innovation
creates competitive advantage. For every one that does, there could be dozens of other innovations
that do not. Hence, unflagging innovation is a safe bet. In the long run, the more you innovate, the
better your chances of market success.

The Process of Management Innovation

Hamel (2006:80) considers the following 12 business processes as the 21 st century’s most important or
noteworthy management innovations:

1. Scientific management (time and motion studies).

2. Cost accounting and variance analysis.
3. The commercial research library: the industrialization of science.
4. ROI analysis and capital budgeting.
5. Brand management.
6. Large-scale project management.
7. Divisionalization.
8. Leadership development.
 9. Industry consortia (multi-company collaborative structures).
10. Radical decentralization (self-organization).
11. Formalized strategic analysis.
12. Employee-driven problem solving.

Each of these management innovations verify three criteria: a) it is a marked departure from previous
management practice; b) it confers a competitive advantage on the pioneering company or companies,
and c) It can be found in some form in organizations today. Important management innovations that just
did not make this list include: business process reengineering, employee stock ownership plans, and
accounting management. More recent innovations that appear quite promising are knowledge
management, open source development, and internal markets. It may be too early to assess their lasting
impact on management practice.

Recently, scientists eager to understand the subatomic world have virtually abandoned the certainties of

Newtonian physics for the more ambiguous principles of quantum mechanics. It is no different with

management innovation. Novel problems demand novel principles. Modern management practice is

based on a set of century-old principles: specialization, standardization, planning and control, hierarchy,

and the primacy of extrinsic rewards. The task of management innovation is to uncover unconventional

principles that open up new possibilities for building new capabilities in one’s organization and for

crafting new leaders with enviable qualities.

This is what Dee Hock did in 1968, then a 38-year old banker in Seattle. The novel problem he faced

related to Visa, America’s fledgling credit card industry that had then splintered into a number of

incompatible, bank-specific franchising systems. The unprecedented problem was how to build a

system that would allow banks to cooperate in credit card branding and billing while still fiercely

competing for customers. He and a small team brain-stormed for months and drummed up the

following novel principles based on the principles of Jeffersonian democracy and biological systems:

a) Power and function in the system must be distributed to the maximum degree possible.
b) The system must be self-organizing.
c) Governance must be distributed.
d) The system must seamlessly blend both collaboration and competition.
e) The system must be infinitely malleable, yet extremely durable.
 f) The system must be owned cooperatively and equitably.

After inventing designing, testing a business system based on the above six principles, Hock’s team

generated the Visa, the world’s first nonstick, for-profit membership organization, whose basic product

is coordination and service. Table 3.12 compares the old and the new management innovations

principles, and their implications.

Whirlpool, the world’s largest manufacturer of household appliances, was a good example of serial

management innovation. In 1999, when Dave Whitwam was its CEO and chairman, he was frustrated by

chronically low levels of brand loyalty for Whirlpool’s appliance products. He instituted new

management innovation principles: “innovation from everyone, everywhere” was his major slogan. He

did not mind his company breaking rules for generating customer-pleasing innovations. He appointed

Nancy Snyder, an innovation czar, as corporate VP, who rallied her colleagues around what would

become a five-year quest to reinvent the company’s management processes. Key management

innovations included (Hamel 2006: 76):

 Making innovations a central topic in Whirlpool’s leadership development program.

 Substantial capital budgeting each year for very innovative projects.
 Every product development plan must include a sizable component of new-to-market innovation.
 Training more than 600 innovation mentors charged with encouraging innovation throughout the
company.
 Enrolling every salaried employee in an online course on business innovation.
 Establishing innovation as a large part of top management’s long-term bonus plan.
 Quarterly assessment of innovation outcomes of each business unit.
 Building an innovation portal that would give full access to all Whirlpool employees throughout the world.
 Developing a set of metrics to track and assess innovation inputs (e.g., number of engineering hours) to
innovation throughputs (e.g., number of new ideas entering the company’s innovation pipeline or portal)
to innovation outputs (distinctive products, premium pricing, and customer loyalty).

It took some time for Whirlpool to internalize and implement this innovation program with its novel

management innovation principles. The results were obvious. Jeff Fettig, current chairman of
Whirlpool, estimates that by 2007, the innovation program will add more than $500 million a year to the

company’s top line. In a world of accelerated change, continuous management innovation and strategic

renewal is the only insurance against irrelevance (Hamel 2006: 78). Change must also start at the top. It

takes a strong leader to change a big company. To lead change, you need a very clear agenda. People

are mostly against change, and with any change, there always be winners and losers. A good leader

makes change safe for all people concerned (Hamel 2006: 81). “No company can escape the fact that

with each passing year, the present is becoming a less reliable guide to the future” (Hamel 2006: 84).

How Operational Innovation Transformed Progressive

[See Hammer (2004), “Deep Change: How Operational Innovation can Transform your Company,”
HBR, (April), 84-95].

Progressive Insurance, an auto insurer based in Mayfield, Ohio grew from $1.3 billion sales in 1991 to
$9.5 billion by 2002, a sevenfold increase in 11 years! What could explain this envious performance
despite the fact that Progressive belonged to a 100-year old mature low-growth industry of auto
insurance? It did not diversify into new businesses, nor did it undertake mergers and acquisitions, nor
did it go global. For years Progressive did little advertising, did not generate a slew of new products, nor
did it grow as the expense of low margins, even when it set low prices. Yet the financial performance of
Progressive (measured by the industry metric of [(expenses + claims payouts)/ premiums] was around
96%, while the rest of the auto insurers scored 102%, running a 2% loss on their underwriting activities.
Progressive grew dramatically since 1991, and is now the third largest auto insurer in the USA. It
outperformed its competitors also in profitability.

The secret of Progressive was its operational innovations. Progressive realized that the key to its
profitability was customer retention because acquiring new customers through commission-based
agents was twice as expensive. And the key to customer retention is making sure customers have
rewarding interactions with the company. Hence, Progressive focused on streamlining claims; making
them more pleasant and effective for customers would win their loyalty. Moreover, by offering better
service at lower prices than its rivals, Progressive attracted competitors’ customers, and what enabled
Progressive to offer better service at lower prices was its operational innovation. The latter, as defined
previously, is invention and deployment of new ways of doing work. Progressive invented new ways of
filling orders, developing products, providing customer service, and the like. For instance, Progressive
reinvented claims processing to lower its costs and boost customer satisfaction and retention.
For most of its history, Progressive focused on high-risk drivers, a market that it captured and served
profitably with extremely precise pricing. Its operational innovation was called: Immediate Response
Claims Handling. A claimant can reach a Progressive representative by phone 24 hours a day, and the
representative then schedules a time when an adjuster will inspect the vehicle. The adjuster worked
nine to five from a mobile claims van, which enabled to examine the vehicle at an average within nine
hours, as also prepare an on-site estimate of the damages, and if possible, write a check on the spot,
while the rest of the industry took almost seven to ten days for the job. The shortened cycle time
dramatically reduced costs for Progressive in terms of:

a) The cost of storing a damaged vehicle.

b) Renting a replacement car for one day (around $28, roughly equal to the expected
underwriting profit on a six-month policy).
c) The company could handle more than 10,000 claims a day.
d) Improved ability to detect fraud (because it is easier to investigate an accident before the skid
marks wash away and witnesses leave the scene).
e) Lower operating costs (as claimants often accept less money if it is given sooner than later
with more hassle).

To supplement Immediate Response Claims Handling, Progressive allows customers to call an 800

number or visit its Website where customers can compare premium rates and other prices with three

local competitors. Progressive has also devised more scientific ways of assessing an applicants’ risk by

factoring in one’s credit ratings, driving records, and other relevant variables. This enables accurate

pricing which translates into increased underwriting profits. Apparently, customers who are joining

Progressive by the droves are beginning to appreciate the company’s fair and just policies and

procedures.

Innovations and Market Ecosystems

When a new innovation or new product’s adoption by one segment depends on its adoption by several

other segment participants, there has to be a system-wide switching of behaviors before change and

market success can take place. The traditional levers that one company uses to launch its products,

such as generating a new product and targeting unique customers with attractive promotions, cannot
ensure market success. For instance, back in 1888, Kodak’s tagline was “You press the button, we do

the rest.” By manufacturing cameras and film, as well as developing film rolls and making prints, and in

1891 by introducing cameras that users could reload themselves without using a dark room, and still

later by developing inexpensive cameras and ensuring the widespread availability of film, Kodak single-

handedly market-controlled the entire film camera industry and ensured its great success.

By contrast, many players were involved in the market success of digital photography. While Sony,

Kodak, Nikon and Minolta lead the digital camera market, many supporting networking systems were

needed to supply complementary products such as:

a) Emulsion film manufacturers like Kodak and Fuji.

b) Printers like HP for printing photographs.
c) PC manufacturers such as Dell and Apple for organizing digital pictures into albums and store them.
d) Software manufacturers like Microsoft for digital imaging, editing, creating, organizing and storing images
online, and Adobe to broaden the reach of these digital technologies.
e) Broadband communication companies that enabled transmission of digital images across continents.
f) Internet companies, like Shutterfly, offered digital image-processing services that consumers would pay for.
g) The manufacturers of cellular handsets, like Motorola and Sony Ericsson, differentiated their products
nearing maturity by expanding them to use digital imaging and editing.
h) Specialty retailers that sold cameras and accessories, and
i) Retail stores that sold film and developed prints.

Obviously, each of these supporting systems recognized its own market and profitability opportunities in

joining the foray of the digital camera industry. But the very fact that these companies independently

decided to support the digital cameras, they collectively allowed the market move swiftly from chemical

film photography to its digital future (Chakravorti 2004).

As a contrast, see also the case of High definition television (HDTV). It should have been a great success

by now, especially given that top electronics manufacturers such as Sony, Philips and Thompson had

invested billions of dollars in the development of TV sets with astonishingly high picture quality way
back in the 1990s. But the technology success was not followed by market success. Critical HDTV

complementary components were not ready for the market such as studio production equipment, signal

compression technologies, and broadcasting standards were not developed or adopted in time. In 2005,

more than a decade later, when the supporting infrastructure was finally market-ready, the pioneering

HDTV console manufacturers are facing a new environment of new formats and new rivals. The lesson

is: Innovation must be supported by innovation ecosystems – the collaborative arrangements through

which the firms combine their individual offerings into a coherent market-ready customer-friendly

solution (Adner 2006: 98). Similarly, offering Ferrari, an admirable engineering feat, in a world without

gasoline or highways does not create value for customers.

Similarly, consider the case of Movielink – a joint venture between MGM, Paramount, Sony, Universal

and Warner Brothers Studios. Movielink offers consumers videos on demand from its large assembled

movie library. But mere Movielink technology is not enough for market success. For Movielink to get

off ground, streaming media companies such as RealNetworks, Microsoft, and Apple have to develop

technologies to ensure the security of the digital movie files. Other companies must innovate

technologies to compress video into digital files that can be easily and quickly transmitted. Further,

Cable TV operators, like Time Warner and Comcast, must grant movielink access to their subscriber

homes. Also, manufacturers of set-top boxes (e.g., Philips, Sony) must develop devices that will allow

consumers to search, download and watch movies. Rival companies (e.g., JVC, Panasonic) that are

makers of VCR-DVD players and movie rental companies (e.g., Blockbuster) will resist the idea as eroding

their market and market share. PC and Video game console manufacturers will see Movielink as a threat

to their product – home entertainment portals. Meanwhile, governments as regulators will be

concerned about the antitrust implications of the Movielink consortium. Internet-based upstarts will cut

into the market enabling customers to freely exchange digital movie files, as Napster and others did with
music files. Finally, consumers will have to change the ways in which they buy, rent, and watch movies

(Chakravorti 2004). In short, for Movielink to succeed it would need an entire ecosystem of

complementary technologies, products, markets and networks to move forward in tandem.

By tapping the most powerful parties in the network, innovators can reach virtually everyone in the

network: customers, suppliers of complementary products, local governments, international

governments, supporting network communicating, computing and storing systems, and the like. The

consequences of the strategy an innovator chooses will depend upon the initial responses and counter-

responses of other players. It is rather impossible for executives to identify their best strategies for

bringing an innovation to the market without first anticipating and analyzing all the potential responses

of complementary players (Chakravorti 2004: 63).

A network innovation’s market success is conditioned on its network market equilibrium. The Nobel

Prize winner, John Nash, defined market equilibrium as a situation every player in a market believes that

he or she is making the best possible choices and that every other player is doing the same. Market

equilibrium lends stability to the expectations of the players, validates their choices and reinforces their

behavior. Market disequilibrium, on the other hand, destabilizes expectations and choices of the

players and introduces uncertainty and risk in decision making. In this connection, Chakravorti (2004:

63) prescribes three tests for market equilibrium: 1) Is the Innovation a “best choice” for consumers? If

so, the behavior of the consumers using the product will be stable. 2) Is the Innovation a “best choice”

for companies that that supply complementary or competing products? If so, the behavior of the

companies producing the product will be stable. 3) Can the innovator trust the behavior of the

consumers and companies? If so, he or she can bank on the behavior and choices of consumers and

supporting companies.
Adobe’s Acrobat Portable Document Format software has emerged as the standard for the electronic

creation and sharing of documents in their original form. By 2002, Adobe sold 5 million Acrobat

“creator” programs, and users had downloaded 300 million Acrobat “reader” programs, making Acrobat

one of the world’s most widely used software applications. How did Adobe gain and sustain this market

leadership in an otherwise very competitive network market? Chakravorti (2004) has a three-part

explanation for this success in relation to market equilibrium.

a) It was the best choice for consumers. John Warnock, co-founder of Adobe, created Acrobat
software in 1993 to ease its intra-office problems. Warnock and his team realized that
computer users needed and created text, graphics, sound, color and image-processing programs
bit it was not easy to read them electronically. Each document needed a different software
application that had to be, in turn, compatible with the user’s computer system, before users
could read it. Adobe developed Acrobat software to reproduce the image of any document that
any user could read with a related application. Consumers found it easy to download the
Acrobat reader. They could now access a variety of documents produced in a different formats
that they could download frequently.

b) It was the best choice for companies. Content distribution channels preferred to offer content in
a widely used standard format such as Acrobat. Small software developers created tools and
capabilities around Acrobat as the latter was becoming the accepted standard. Large software
developers did not feel compelled to develop substitutes for Acrobat; instead, they allowed it to
be compatible with their own systems. Supporting a standardized format for electronic
documents resulted in a greater overall usage of their word-processing applications and
graphics software. Creators of content for mass audiences (e.g., online publishers, universities,
and government agencies) found Acrobat useful for its cost-effectiveness and distribution,
security, and accuracy. Specialized content creators (e.g., ad agencies, corporations) accepted
Acrobat as the standard for electronic communications and would create heir documents on
multiple platforms.

c) Adobe could trust its users and supporting companies. Since Adobe did not charge consumers
any money and publishers could not use the software to create content, Acrobat became
complementary, not competitive, to the software giants. Adobe soon signed an agreement with
Microsoft whereby the latter agreed to bundle Acrobat with its operating systems for the PCs.
Adobe allied with AOL to distribute its Acrobat reader to its millions of subscribers, and AOL, in
turn, was able to offer enhanced service. Google, the Internet’s most popular search engine,
agreed to “crawl” acrobat documents during searches; this provided visibility for Acrobat while
it enhanced Google’s reputation for conducting comprehensive searches. Adobe offered the
 reader program for free, which improved the reader user network and the motivation to use it.
That convinced content creators to use Acrobat, too. As more content became available in
Acrobat format, more readers were motivated to download the program. Adobe soon enjoyed
market equilibrium.

Wal-Mart and Microsoft have been great market successes in recent years. Their market dominance has
been attributed to various factors such as mission and vision, aggressive marketing practices, and the like.
But the success of these two very different companies derives from something larger than themselves:
their respective business ecosystems (Iansiti and Levien 2004: 69). Their loose ecosystem networks are
made of their suppliers, distributors, outsourcing firms, technology providers, makers of related products
and services, and a host of other organizations they affect (and are affected by) by their market offerings.
Unlike other companies that focus on their internal resources and capabilities, both Wal-Mart and
Microsoft have pursued strategies that not only aggressively further their own interests but also that of
their business ecosystems. They have done this by creating “platforms” of services, tolls and
technologies that other members of the ecosystem can use to enhance their own performance.

For instance, Wal-Mart’s procurement system offers its suppliers invaluable real-time information on
customer demand and preferences, which provides the suppliers with significant cost advantages over
their competitors. Such information can help the suppliers to match supply with demand across the entire
ecosystem, increasing productivity and responsiveness for both Wal-Mart and its suppliers. More than
half of Wal-Mart’s cost advantage in the retail grocery business results from how the company manages
its ecosystem of business partners (Iansiti and Levien 2004: 70). Microsoft’s tools and technologies
allow software companies to easily create programs for the widespread Windows operating system; these
programs, in turn, provide Microsoft with a steady stream of new Windows applications. In both cases,
these symbiotic relationships ultimately have benefited consumers – Wal-Mart gets quality goods at lower
prices and Microsoft derives a wide array of new competing features. Although Wal-Mart and Microsoft
are seemingly rough and tough on their supplier companies in the ecosystem, the complex
interdependencies among these companies have made their business networks unusually productive,
innovative, and enjoy sustainable competitive advantage. Each of their ecosystems today numbers
thousands of firms and millions of people giving all decided advantage over others (Iansiti and Levien
2004).

Concluding Remarks
In today’s competitive world, market superiority and position are fleeting at best. No company is immune
to competitive technological advances and volatile customer preferences, and the consequent pressures of
today’s marketplace. Especially, in the digital world of connectivity and speed, technological edges are
fleeting things, lasting 4-6 months, with product life spans or life cycles of less than 18 months. But
many forms of innovations beyond those that are “technological” can achieve market dominance. These
include: a) Creating new product-delivery methods to meet market requirements; b) creating customized
solutions for each customer; c) aggressive customer support and service; and d) market based cost and
pricing that still maintains margins. [The Dell Computer Co. is a prime example of non-technological
innovation that led to market dominance].

What should America do to regain its leadership in world creativity and innovativeness? Innovation
should be a non-partisan issue. Creative and innovative America should rise above any political
bickering, culture wars, and short-term economic or political agendas. The U. S. is impeding its own
progress when it makes scientific discovery (e.g., stem cell research) pass religious tests or when it
tightens visa restrictions unnecessarily. Everyone has a stake in keeping the country open to foreign
talent. While terrorism is a threat and homeland security is a priority, yet the arbitrary and sometimes
brash methods the U. S. has adopted in screening foreign talent may not be in the long-term interests of
the country. Overtime, terrorism is less a threat to the U. S. that the possibility that creative and talented
people will stop wanting to live within its borders (Florida 2004: 134).

American universities and corporations have long been the educators and innovators of the world. If this
engine stalls, it forebodes back for the America as well as for the rest of the world. America has a long
history of resourcefulness and creativity to draw on, and it has transformed itself many times before,
rebuilding itself many times before, rebuilding after the Great Depression and bouncing back after the
Asian manufacturing boom of the 1970s and 1980s (when Japanese auto companies leaped to global
prominence with manufacturing methods that made worker make continuous improvements in quality and
productivity). America should generously invest in research and development, in the same way it built
the canals, railroads and the expressway network to power industrial growth. According to the National
Science Foundation (NSF), corporate R&D funding dropped by nearly eight billion in 2002 – the largest
single-year decline since the 1950s. Many state governments are slashing higher education funding for
arts and culture while pumping millions into stadiums, convention centers and other brick-and-mortar
projects. These choices signal a profound failure to maintain an atmosphere of innovation in the U. S.
The U. S. must generously invest in its creative infrastructure for the future. Education reform, at its core,
must make schools into places that cultivate creativity.

Creativity is not a tangible asset like mineral deposits, something that can be hoarded or fought over, or
even bought or sold. America must begin to think of creativity as a “common good,” like liberty or
security. It is something essential that belongs to everyone and must always be nourished, renewed and
maintained. Else, it will slip away (Florida 2004: 136).

References

Brown, Tim (2008), “Design Thinking,” Harvard Business Review, (June), 85-92.

Coyne, Kevin P., Patricia Gorman Clifford and Renee Dye (2007), “Breakthrough Thinking from Inside
the Box,” Harvard Business Review, (December), 71-78.
 Table 3.1: Business Models: A Market Canvas for Generating Innovations
[See also Christensen, Anthony and Roth (2004), See What’s Next, 1-27].

Customer Characteristics Innovation Signals Examples

Group
They lack ability, buying New-market These innovations are Model T cars for low-income homes;
power, or access to use disruptive user-friendly: they Apartments or Town houses as
existing products. They innovations encourage and invite affordable housing; QuickBook for
either do not use them, or non-consumers to try book-keeping; Tax software for filing
Non- hire professionals to do these products. taxes; PCs for word-processing;
consumers these jobs for them. mobile phones in lieu of expensive
e.g., Traveling, house- landline phones; emails or fax for
improving, bookkeeping, transferring files; Home Depot for do-
tax-filing, word- it-yourself home improvements;
processing, checking vital Home Medical kit for vital diagnostics
signs, and the like.
Existing brand users who Sustaining New features, Continuous improvements in Intel
are frustrated with its up-market attributes and Pentium Series, Microsoft Windows
current limitations. They innovations benefits added to platforms, word-processing software,
are willing to pay existing products that mobile telephones, passenger cars with
premium prices for are important to GPS, luxury trucks (Hummer I, II,
added conveniences and existing customers III), home appliances, garden
Undershot enhancements. equipment, landscaping, snow
consumers removers, pain killers, health foods,
Customers reward healthcare products, beauty products,
companies with premium cosmetic surgery, financial products,
prices for providing and consumer and business privacy,
superior functionality, security, safety products.
reliability, convenience,
or customization.

Low-end New business models All deep discount stores such as

disruptive to serve least TJ Maxx, Value World,
Existing brand users who innovations demanding Burlington Coat Factory and
have stopped paying high among most customers. Gibraltar Trading Center.
premium prices for overshot MCI in relation to AT&T.
product expansions, customers Southwest Airlines in relation
updates and more mainline airlines.
sophisticated attributes. Displacing Modular innovations Western Union in money transfers.
Overshot They have no use or innovations that specialize on one Specialty stores such as Dell, Jeans,
consumers diminishing utility for or more functions; Gap, Toys R’Us, Blockbuster, Whole
these additional frills. they cash in on Foods Market and health foods.
Companies innovate faster modularity.
than customers’ lifestyles Downward Emergence of rules Credit Score companies rating buyers
can adapt them. migration of allowing producers to on simple rules such as length of stay
required skills generate simple in the last residence and in the last
products for lower job, annual income, and history of
skilled users bill-payments. All credit card
companies.
 Table 3.2: A Technological Evolution Canvas for Generating Innovations
[See Sood and Tellis (2005), “Technological Evolution and Radical Innovation,” Journal of Marketing, (July), 152-168].

Major Primary Technological Technology Technology Principle

Technology Dimension Performance Platform
Category Metric
Magnetic* Records data by passing a frequency-modulated
current through the magnetic head of the disk drive,
thus generating a magnetic field that magnetizes the
particles of the disk’s recording surface.
Desktop Storage Bytes per
Optical* Stores data using the laser modulation system;
Memory Capacity square inch
changes in reflectivity are used to store and retrieve
data.
Magnetic- Records data using the magnetic field modulation
optical* system, but it reads the data with a laser beam.

CRT+ Forms an image when electrons, fired from the

electron gun, converge to strike a screen coated with
phosphors of different colors
LCD+ Creates an image by passing light through molecular
structures of liquid crystals.
Display Screen Dots per square
Plasma+ Generates images by passing a high voltage through a
Monitors Resolution inch low-pressure, electrically neutral, highly ionized
atmosphere using the polarizing properties of light.
OLED# Generates light by combining positive and negative
(Organic light excitons (holes emitted by anodes) and electrons
emitting device) (emitted by cathodes) in a polymer dye using the
principles of electroluminescence.

Dot Matrix+ Creates an image by striking pins against an ink

ribbon to print closely spaced dots that form the
desired image.
Inkjet+ Forms images by spraying ionized ink at a sheet of
paper through micro-nozzles.
Desktop Print Pixels per
Laser+ Forms an image on a photosensitive surface using
Printers Resolution square inch electrostatic charges. It then transfers the image into a
paper using toners and heats the paper to make the
image permanent.
Thermal+ Forms images on paper by heating ink through
sublimation or phase change processes.

Copper/ Transmits data in the form of electrical energy as

Aluminum+ analog or digital signals.
Data Speed of Megabits per Fiber Optics+ Transmits data in the form of light pulses through a
Transfer Data second thin strand of glass using the principles of total
Transmission internal reflection.
Wireless* Encodes data in the form of a sine wave and transmits
it with radio waves using a transmitter-receiver
combination.

* The performance (measured by market utility for serving consumer needs) of these technologies follows an S curve: they have a slow
start and then a sudden growth spurt via a single inflection point.
+ The performance of these technologies did not follow the traditional S curve, but was better approximated as a multiple step function or
multiple S curves.
# The performance curve could not be estimated owing to lack of data points.
 Table 3.3: A Typology of Management Innovations as a Function of
Producer-Consumer Value Chains
Table 3.3A: A Typology of Management Innovations as a Function of
Producer Value Chain
Value Innovation Characteristics Management Innovation (MI)
Chain in: Strategies
Mission management Mission effectiveness
Vision management Vision communication and diffusion
Setting goals & objectives Targeting/assessing goals & objectives
Corporate Core business, core products, Monitoring core business & products
Planning Core competencies and standards mgmt Developing core competencies & standards
Resource allocation mgmt Resource allocation by MI success
Mergers and acquisitions mgmt Mergers and acquisitions for MI success
Market environment mgmt MI for capitalizing market environment
Product Category planning MI for Category planning
Planning Product line planning MI for product line extensions
Brand management MI for brand and community management
Prototype designing MI for prototype designing
Product Attributes designing MI for product attributes designing
Designing Benefits designing MI for customer benefits designing
Value designing MI for customer value enhancing
Talent identity management MI for talent identity management
Recruiting management MI for recruiting skills and talent
Producer HR management Employee development mgmt MI for personnel development
Value- Retention management MI for skills retention management
Chain Performance appraisal mgmt MI for performance appraisal mgmt
Promotions management MI for employee promotions management
Bonus/commissions mgmt MI for bonus/commissions mgmt
Centralized purchasing MI for centralized purchasing
Decentralized purchasing MI for decentralized procurement
Procurement Bargaining power mgmt MI for enhancing bargaining power
Supply chain mgmt MI for supply chain mgmt
Transportation management MI for optimizing transportation mgmt
Logistics management MI for logistics management
Materials Quality management MI for total quality management
Management Specifications management MI for OEM/ISO specifications mgmt
Unfinished goods JIT management MI for JIT inventory management
inventory Warehousing management MI for optimizing warehousing mgmt
management Wastage management MI for wastage reduction
Theft management MI for theft elimination
Process Efficiency management MI for material and parts efficiency mgmt
management Effectiveness management MI for production process management
EPA management MI for zero defects and emissions mgmt

Cash flow Payables management MI for optimal payables management

management Receivable management MI for optimal receivables management
Credit management MI for supplier/customer credit mgmt

Production Production life-cycle mgmt MI for production life cycle mgmt

management Economies of scale mgmt MI for optimal scale economies mgmt
Six sigma quality mgmt MI for six sigma product quality mgmt
 Table 3.3B: A Typology of Management Innovations as a Function of
Consumer Value Chain
Value Innovation Characteristics Management Innovation
Chain in: (MI) Strategies
Product Product variety & assortment MI for product variety & assortment
Management mgmt
Brand quality and reputation MI for brand quality & reputation
mgmt
Packaging Sizing, labeling, package design MI for optimal sizing, labeling and
management packaging
Product bundling MI for attractive product bundles

Pricing Premium, penetration pricing MI for pricing and market penetration

management Product-price bundling MI for attractive product-price bundles

Promoting Promotional communications MI for clear and informative

management promotions
Promotional motivations MI for persuasive and compelling
motives

Retailing Store name and reputation MI for store reputation management

Consumer management Store safety, security and convenience MI for store safety, security &
Value- convenience
Chain
Finished goods Store shelf place and space MI for attractive shelf-configuration
inventory mgmt
management Inventory turnover MI for faster inventory turnovers
Overstock inventory clearance MI for clearing overstocked inventories

Selling Frontline sales representatives MI for frontline ambassadorship

management Customer problem solving skills MI for customer problems solving

Customer Customer complaints handling MI for complaints handling and redress

feedback mgmt Soliciting customer feedback MI for ongoing customer feedback

Customer Product guarantees and warranties MI for servicing guarantees and

support mgmt warranties
Product financing MI for product financing and collection
Product expansions and updates MI for product expansion/updates
mgmt
 Table 3.4: Management Innovation (MI) Types: Domain, Roles, Constraints and Results

MI Type MI Domain MI Role MI MI Results

Executive leadership and Business mission and Poor executive Precarious, uncertain,
charisma, strategic planning, vision statement, business leadership and and often speculative
Strategic capital budgeting, capital core values definition, charisma. Top-down expectations are
Innovation allocation, financial core customer approach. Upstream unrealized. For instance,
management, investments identification, addressing management. No most mergers and
management, mergers and shareholder concerns, exposure to real acquisitions are
acquisitions, long-term debt supervision, direction and operations. Mid-stream unsuccessful. Only 15%
management, equity decisions, annual results assessment. operations are success rate for strategic
debt-restructuring, and neglected as less innovations. Hence,
regulatory concerns. glamorous. poorly managed.
Procurement, ordering, Optimizing operations in Supplier availability If done well, operational
bargaining power via terms of maximum and credit. innovations can reap
centralized versus meaningful outputs per Materials quality and profits 85% of times via
decentralized purchasing, unit of factor inputs. quantity. saving supply and
supply-chain management, Optimal supply chain Levels of labor and production costs,
Operational materials management, relations. Optimal order personnel skills, increasing productivity,
Innovations inventory management, fulfillment cycle. Optimal dedication, and unions. achieving high
process management, time management. Total Wage-salary economies of scale, and
production management, quality management. administration. high compliance with
quality management, Zero defects and zero Working conditions OSHA, EPA, ISO 9000
new product development, emissions management. (OSHA compliance). and other standards, and
sizing, packaging, and labeling Optimizing new Wastage, pilfering, enhancing quality of
management. production and product hazard and EPA rules. products and services,
lifecycles.
Costing, FIFO, LIFO, Objective and transparent Accounting If done innovatively,
depreciation management, cost costing and cost irregularities. accounting innovations
Accounting allocations, receivables allocations. Optimal cash Doctoring accounts to can help management in
Innovations management, payables flow management via suit managerial cash flow optimization,
management, operation cycle receivables and payables objectives. cash budgeting and
and cash cycle management, management. Cash flow crisis and forecasting.
auditing, and pricing. insolvency.
Investments management, Optimizing shareholder Insider-trading When financial
securities management, value. violations. management innovations
supply-credit management, Optimizing financing Fudging and doctoring are creative and
Financial short-term debt management, decisions. financial statements to productive, financial
budget management, Optimizing investment suit managerial health (e.g., ROI, ROE,
Innovations budget forecasting, decisions. objectives or to please EPS) of the company can
cash flow management, Optimizing cash flow SEC. be managed, controlled
cash flow forecasting, management via debt, Creditor and supplier and predicted, with no
financial analysis reporting, securities and equity opportunism. financial crises.
and customer financing. management.
Market scanning, market Optimizing sales in units Industry and market Creative marketing
intelligence, competitor and dollars, markets and stagnation. innovations can expand
intelligence, new product target customers. Consumer apathy and and sustain high levels of
management, pricing, brand Maximizing market disloyalty. Competition salespeople frontline
management, brand share, profitability, ROS, dominance. Low ambassadorship, and
Marketing community management, ROM, ROQ and customer demand elasticity. hence, high customer
Innovations product bundling, price- satisfaction and loyalty. Changing consumer awareness, interest,
product bundling, discounts, Optimal customer lifestyles. search, satisfaction,
rebates and coupons relations management Forced product experience, advocacy
management, distribution, (CRM) and total obsolescence. and lifetime loyalty.
promotions, retailing, customer experience
customer service, customer (TCE).
support, customer satisfaction,
feedback, complaints handling
and redress management.
 Table 3.5: Critical Questions that can Drive Inventions and Innovations

Position in the Critical Question that can Drive Invention and Innovation Examples of
Value Chain Products/services that best
Responded to this
Question

Can you make the product/service heavier or lighter? SUVs, Geoprism;

Can you make the product/service more functional and durable? Blackberry, iTunes;
Can you make the product/service easier to use and maintain? Cell phones, swatches;
Can you make the product/service more repairable and dependable? Home Depot; Alarm clocks;
Can you make the product/service more safe and secure? Home alarms, car locks
Can you make the product/service less uncertain and risky? Mutual funds, insurances;
Upstream Can you make the product/service less ambiguous and confusing? Q-tips, toothpicks;
(e.g., materials, Can you make the product/service more legal and code compliant? Fast foods, new homes;
manufacturing, Can you make the product/service environmentally more friendly/ecological? Paper packaging, LEEDs
design, weight, and Can you make the product/service more efficient and effective? Hybrid cars, laptops;
functionality) Can you make the product/service more time and energy saving? Blenders, processors;
Can you make the product/service more unique and differentiated? PlayStations; X-Box;
Can you make the product/service more state-of-the art and high-tech? Dell computers; Komatsu;
Can you make the product/service more standardized and globalized? USPS, FedEx; McDonald;
Can you make the product/service more comprehensive and universal? CNN, BBC, Google;
Can you make the product/service more specialized and competent? Race cars, bio-machines;
Can you make the product/service more powerful and speedier? Lamborghini, Formula One;
Can you make the product/service more international and global in scope? Internet, Webinars;

Can you make the product/service bigger or smaller? Big vs. small cars;
Can you make the product/service prettier or more rugged? Cadillac vs. Hummer
Can you make the product/service bundle more attractive? Long distance services;
Can you make the product/service more challenging and sophisticated? Organizer calendars
Midstream Can you make the product/service more fashionable and upbeat? Somerset Collection
(e.g., sizing, Can you make the product/service more private and hidden? Rural mansions, escapes;
packaging, finishing, Can you make the product/service more efforts and anxiety saving? Most insurances
form, use, trendy) Can you make the product/service more experimentable and flexible? University curricula
Can you make the product/service more personalized and individualized? Healthcare benefits
Can you make the product/service less political and controversial? OTC drugs vs. Viagra
Can you make the product/service more local and ethnical? Goya Foods, Gloria Foods
Can you make the product/service more pristine and historical? Historic homes, memorabilia

Can you make the product/service more expensive or less? Haagen-Dazs vs. vanilla;
Can you make the product/service more available and affordable? Wal-Mart vs. Sachs;
Downstream Can you make the product/service-price bundle more compelling? Some travel packages
(e.g., pricing, price- Can you make the product/service more socially visible? Harley-Davidson designers;
product bundling, Can you make the product/service more extravagant and conspicuous? Hummer I and II; Rolex;
retailing, market- Can you make the product/service more socializing and bonding? family restaurants,
positioning, and Can you make the product/service more experiential, exciting & memorable? royal cruises;
promoting) Can you make the product/service more venerable and veteran? Charter/Cornerstone
Can you make the product/service more humanizing and spiritualizing? schools;
Can you make the product/service more moral and ethical? Landmark;
American Girl;
Sacred Scriptures;
Convent-based hospitals
 TABLE 3.6: PIONEER VERSUS LATE MOVER ADVANTAGE
[Source: Golder & Tellis 1993, “Pioneer Advantage: Marketing Logic or Marketing Legend,” Journal of Marketing
Research, 30 (May), p. 164-65]
PRODUCT PRODUCT PIONEER MARKET PIONEER CURRENT MARKET LEADER
CATEGORY*
1. VCR Ampex (1956) Ampex (1963) RCA/Matsushita (1977)
2. Microwave Ovens Raytheon (1946) Amana (1966) GE/Samsung (1979)
3. Dishwasher Crescent (1900) Crescent (1900) GE (1935)
4. Laundry Dryers Canton (1925) Canton (1925) Whirlpool (1950)
5. Fax machines Xerox (1964) Xerox (1964) Sharp (1982)
6. PC MITS (1975) MITS (1975), IBM (1984) Dell (1995)
7. Camcorder Sony, JVC (1982) Kodak/Matsushita (1984) RCA/Matsushita (1985)
8. Color TV Bell Labs (1929) RCA (1954) Sony (1992)
9. Wine Cooler California Cooler California Cooler (1981) Seagram, Bartles & Jaymes (1984)
(1979)
10. Liquid dishwashing Liquid Lux (1948) Liquid Lux (1948) Ivory Liquid (1957)
detergent
11. Laundry Detergent Reychler (1913) Dreft (1933) Tide (1946)
12. Disposable diapers Chux (1950) Chux (1950) P&G/Pampers & Luvs (1961)
13. Frozen dinners Swanson (1946) Swanson (1946) Stoufler (1956)
14. Light Beer Trommer’s Red Letter Trommer’s Red Letter Miller Lite (1975)
(1961) (1961)
15. Diet Cola Kirsch’s No-cal Cola (1952) Kirch’s No-cal Cola (1952) Diet Coke (1982)
16. Liquid Laundry Wisk (1956) Wisk (1956) Liquid Tide (1984)
Detergent
17. Dandruff Shampoo Fitch’s (1919) Fitch’s (1919) Head & Shoulders (1961)
18. Cereal Granula (1863) Granula (1863) Kellogg (1906)
19. Cameras Daguerrotype (1839) Daguerrotype (1839) Kodak (1888)?
20. Chocolate Whitman’s (1842) Whitman’s (1842) Hershey (1903)
21. Canned Milk Borden (1856) Borden (1860) Carnation (1899)
22. Chewing gum Black Jack (1871) Black Jack (1871) Wrigley (1892)
23. Flashlight Battery Bright Star (1909) Bright Star (1909) Eveready (1920)
24. Safety razors Star (1876) Star (1876) Gillette (1903)
25. Sewing machine Elias Howe (1842) 4 firms (1849) Singer (1851)
26. Soft drinks Vernors (1866) Vernors (1866) Coca-Cola (1886)
27. Tires Hartford (1895) Hartford (1895) Goodyear (1898)
28. Copy machines 3M Thermofax (1950) 3M Thermofax (1950) Xerox (1959)
29. Telephone Ries (1865), Gray (1876), Bell (1877) AT&T (Bell) 1877
Bell (1876)
30. Instant Photography Archer (1853) Dubroni (1864) Polaroid (1947), Digital Cameras
(2000)
31. Video games Magnavox Odyssey (1973) Magnavox Odyssey (1973) Nintendo (1985); Sony’s
PlayStations 1, 2 & Plus
32. Rubber Goodrich (1869) Goodrich (1869) Goodyear (1898)
33. Personal stereo Panasonic (1970) Panasonic (1970) Sony (1979); Bose (1985)
34. Canned fruit Libby, McNeill, Libby Libby, McNeill, Libby Del Monte (1891)
(1868) (1868)
* A product category is a group of close substitutes distinct from other product categories.
An inventor is the firm that develops patents or important technologies in a new product category;
 A product pioneer is the first firm to develop a working model or sample in a new product category.
A market pioneer is the first firm to sell in a new product category.
A market leader is the firm (brand) that has the dominant market share in a market.

Problem Restructuring:
Employers may need to make changes in the workplace for a variety of reasons, such as:
 improved technology
 more productive business processes
 product changes
 loss of suppliers or markets
 a decision to contract out or sell some or all of the business.
Employers should take care that restructuring changes don’t create employment relationship problems.
The law requires employers to provide information to employees when they are considering changes that
will affect their jobs and to give them an opportunity to contribute to any decisions.
The more significant a proposed change is, the more likely it is that it cannot be imposed without the
employee’s agreement. Even where the employment agreement states that certain changes can be
introduced in the future, they should be introduced with early advice and discussion. Employees should
have an opportunity to comment before an employer makes a decision.
Restructuring a business may result in redundancies if positions are no longer required. An employer
must have a genuine work-related reason for a redundancy. More information on redundancies and
catering, cleaning.

Restructuring a Problem Company

12 ways to get your troubled business back on track
Your company is in trouble. Your orders are down, your customers don't pay, your employees are
scared, and the ATM consistently spits back your card at you with disdain. Certainly you'll have to
make some changes if you intend to survive. But what can you do?
Plenty, believe it or not. It may not seem like it now, but it's possible to dig yourself out of that hole
and even come back stronger--provided you're willing to commit yourself to making some
adjustments in the way you do business. We must warn you, this process is probably not going to be
terribly pleasant. But walk yourself through the following 12 steps, in no particular order, and it'll all
be worth it.
1. Find out how long you have to live.
You know it's all about the green. It doesn't matter a lick that you are close to profitability or have
thousands of satisfied customers if you run out of cash. So if you're not obsessed with your OOC
("out of cash") date, you should be. Write it backward on your bathroom mirror in red lipstick.
Improving your cash-flow position starts with awareness. George Mueller, 31, CEO of digital lighting
company Color Kinetics Inc. , is all too familiar with this concept: "At Color Kinetics," says Mueller,
who has grown his Boston-based company from two to 80 employees in just about four years, "the
CFO e-mails our exact OOC date to all senior management on a weekly basis, so that everyone is
aware."
2. Get paid.
Go to work on your working capital. Howard Anderson, senior managing director of venture capital
firm YankeeTek Ventures , says you should work on your accounts receivable every day. That's
right, every day. It sucks, yes, but if you don't, two things may happen: 1) Some other guy gets paid
first, or 2) Your customer goes out of business before paying you.
Mueller expands on the concept: "Bring the small-company aspect into it. Get your relationships to
drive the payment process. You need to be able to say, 'Look, we are just a small company, and we
need to be paid on time to work with you.' " In other words, work your contact, and stop dealing with
that accounts payable department in Ireland.
In addition, don't be afraid to ask for upfront payments, offer special discounts for a limited time on
accelerated payment and tighten up your credit policy. "Be careful about who you extend credit to,"
advises Anderson. At this point in the economy, you should have no reason to assume that the other
guy isn't having the same financial problems you are.
3. Negotiate everything.
You have to balance your moral obligation to your suppliers with your goal of staying alive. Your
major vendors constitute important relationships, particularly those that aren't easily replaced, and
you also have a reputation to uphold. (Remember, for most entrepreneurs, you are your business.)
However, your vendors would rather be paid later than never at all, and they would rather be paid 50
cents on the dollar now than 10 cents two years from now in bankruptcy court. You can negotiate
with your vendors, as long as you're forthright. Say, "Look, I can pay you X percent now, and if we
make it, I can pay you the rest later and we'll all win. Otherwise, you'll wind up getting a lot less."
4. Diet and exercise.
The key to survival, says Anderson, is to cut your burn rate. He recommends that you frame the
following motto and hang it on your wall: "Use it up, wear it out, make it do, or do without."
Mueller agrees that even if you are a relatively new company, you can do better on cost control.
"Frequently most people don't manage the expense line well enough," he says, "and that is the one
line you have complete control over."
Variable marketing costs and travel and expenses are the first line items to look at. Mueller
recommends asking your salespeople, "Do you really need to fly there this week? Can we send
fewer people to the trade show?"
If you have experienced staff on hand, they should know the benchmarks for appropriate costs in
your industry. "Once at Color Kinetics," explains Mueller, "our VP of manufacturing put out a notice
that all overnight shipments had to be signed off by senior management. I thought this was a far too
bureaucratic process at first, until I learned that our shipping costs where about three to four times
that of our competitors. The result was significant cost savings."
If you don't have these benchmarks available in-house, go out and get them. For instance, six years
ago, at age 31, Robert Kelly purchased Chicago-based skin care cosmetics wholesaler Phyto
Cosmetics. Because Kelly was new to the field, he approached industry experts to find out where to
get the most bang for his buck. "They told me which trade shows to go to and what returns to expect
from various marketing techniques."
5. Beat the streets.
You need to get as much revenue in the door as fast as you possibly can. Change your pricing
structure, increase shipping and handling charges, add an "administrative fee," look for new markets,
seek out extensions to existing markets--or all of the above.
Meet with your sales team 10 times a day. Mueller says you better make sure your sales team
knows what's important--the key accounts that will generate immediate cash and so forth--and get
them focused on collections as well. In fact, why not get the whole company involved? Says Mueller:
"Tell everybody to call five accounts. Everybody in the whole firm, start smilin' and dialin'. Give them
the quick and dirty sales process, and for the next two weeks you've quadrupled your sales force."
6. Get the whole company involved.
You'll be surprised at the ideas that come up if you take the time to discuss your current situation
with your employees. After all, they have a vested interest in your company's future as an ongoing
concern, and they can really highlight the inefficiencies in your organization. Plus, if they come up
with the idea, they'll be more willing to deal with the painful consequences. If it's your employees
who together decide they can do without unlimited KitKats, then instead of an ogre, you're a hero.
And instead of productivity suffering, it may actually increase

Elaborative Creativity:
Elaborative creativity is the innovative amplification of a core idea or principle. The difference is
between say, staff empowerment as a core belief and its amplification into personnel policies,
participative management structures, training programs, and so forth. Elaboration can become
innovative when it is creatively contextualized, that is, creatively fitted to the organization’s
situation rather than simply borrowed from elsewhere. It can become innovative when it is done
participatively, involving various viewpoints and much brainstorming, and the ideas are
creatively synthesized. It can become innovative when not just one but several powerful,
possibly partially conflicting ideas are fused together to form its basis, such as the ideas of
centralization and decentralization, control and authority, or internal entrepreneurship and
efficiency. Elaboration can also become innovative when it is periodically reviewed and
creatively modified to suit changing circumstances. And it can become innovative when it is
benchmarked, not with practices of the leading competitor, but the world’s best practitioners.
And not necessarily in the organization’s industry, but in any sector of activity, for then it may
reveal gaps that can be bridged only innovatively. When elaboration is made innovative in these
ways, it is difficult for others to copy it, and therefore such elaboration confers a competitive
advantage on the organization.

Elaboration - Why is this an important skill?

April 17, 2007 Posted in Creativity Research | by Dr. Kathy Goff

Elaboration is the ability to embellish ideas with details. It involves the

development and implementation of a new product, program or idea. Elaboration
involves planning:
- what must be done
- who is to do each task
- when it is to be done
- how it is to be done
- how much time it will take
- how much it is going to cost
Elaboration involves making the plan, telling the story, filling in the gaps, tying up loose
ends, orchestrating an event, coordinating a project, painting a picture, etc. It takes a
great deal of elaboration to sell an idea and gain its acceptance.
 TABLE 3.7: PIONEER ADVANTAGE: LONG LIVED MARKET
LEADERS
[Source: Golder & Tellis 1993, “Pioneer Advantage: Marketing Logic or Marketing Legend,”
Journal of Marketing Research, 30 (May), p. 165]

PRODUCT CATEGORY LONG-LIVED MARKET

LEADER
SEWING MACHINE Singer (1851)
BEER Anheuser-Busch (1852)
Single Malt Liquor Glenfidich (1850)
Blended Scotch JW Black Label (1820),
Chivas Regal (1825)
SHIRTS Manhattan (1857)
PAINT Sherwin Williams (1870)
SOAP Ivory (1879)
FLOUR Gold Medal (1880)
SOFT DRINKS Coca-Cola (1886)
BACON Swift (1887)
CAMERAS Kodak (1888)
CRACKERS Nabisco (1990)
TOILET TISSUE Scott (1890)
CANNED FRUIT Del Monte (1891)
CHEWING GUM Wrigley (1892)
TEA Lipton (1893)
SOUP Campbell (1897)
TIRES Goodyear (1898)
PAPER Hammermill 1898
CANNED MILK Carnation (1899)
CHOCOLATE Hershey (1903)
SAFETY RAZORS Gillette (1903)
CEREALS Kellogg (1906)
PIPE TOBACCO Prince Albert (1907)
VEGETABLE SHORTENING Crisco (1911)
MINT CANDY Life Saver (1913)
FLASHLIGHT BATTERIES Eveready (1920)
DISHWASHER GE (1935)
LAUNDRY DRYERS Whirlpool (1950)
LAUNDRY DETERGENT Tide (1946)
TOOTHPASTE Crest (1955)
 Table 3.8: Extended Innovations as Migrations to New Markets
Product Product Extensions as Migrations

Air Conditioners From businesses to home to car to portable?

Audio tape From sound studio to home to car to portable; now invaded by CDs.
recorders
Calculators From office to home to portable to personal computers.
Computers From government to business or factory to home to portable.
Microprocessors From office desktop or factory floor to home to car to portable.
Fax machines From business to home to computer to mobile phones
VCRs From TV recording studio to home to portable.
Telephones From business to home to portable to car to notebook PC to mobile phones
Satellite systems From defense applications to business to home to car? To individuals?
Radios From post office to home to portable to car.
Movies From theater to home to work to physical fitness centers
Movie cameras From TV studio to home to portable to Internet clients.
Still picture cameras From studio to portable to notebook PC?.
Electric generators From utility companies to business to home to portable.
Electric motors From electric train to business to home to portable.
Medical From hospital to ambulatory units to home to portable to notebook PC?
diagnostic
equipment (e.g., blood pressure gages, blood sugar gages, kidney dialysis units, …)
Retailing From streets to flea markets to malls to direct marketing to
Internet marketing.
Books From libraries to business to home to computers to portable PCs
to CDs to Internet.
Music From music studios to radio stations to home to portable CDs to
notebook PCs.
Home cooked meals From homes to restaurant to fast foods to TV dinners to microwaves to?
Fitness equipment From health clubs to home to portable?
Formal education From schools/universities to homes to long-distance learning to
notebook PC?
Vacationing From homes to friends to hotels to resorts to overseas to Mars?
Sports From homes to schools to colleges to minor leagues to major leagues to?
Religious services From churches/synagogues to schools to homes to portable TV?
Weddings From churches to courts to commercial wedding chapels to homes to Parks
Birthing -delivery From homes to hospitals to clinics to ambulatory medicine to?
Child care From homes to baby sitters to professional day care to ambulatory centers?
Nursing the elderly From homes to assisted living to nursing homes to hospice care to?
Funeral services From homes to churches to funeral parlors to ?
Burial services From church cemeteries to public cemeteries to crematoria to homes?

Source: Expanded from Afuah Allan (1998), Innovation Management, Oxford University Press, p. 126.
Table 3.9: Hart’s (1986) Four States of Knowledge Illustrated:
Certainty, Risk, Uncertainty, and Ambiguity

Identification Knowledge of and relationships among identified

of all relevant variables?
variables?
YES NO

Certainty: Risk:
Exploit certainty by creation, Diminish risk by empirical
invention, causality, explanation, research, hypotheses, theory,
and control experimentation, prediction,
YES estimation, extrapolation, and
verification

Mostly in some parts of hard Mostly in economics, business,

sciences like mathematics, biomedics, athletics, social
physics, chemistry, biology, sciences, some parts of physics
botany and zoology and chemistry, and all of
behavioral sciences

Uncertainty: Ambiguity:
Combat uncertainty by discovery, Manage ambiguity by
innovation, venture, faith and hermeneutics, interpretation,
NO hope aesthetics, linguistics, and
philosophy

Mostly in political, religious, Mostly in arts, fine arts,

theological, organizational and cultural, philosophical, ethical
environmental sciences and moral sciences
 3.10: Matrix of Creativity Types
[See Unworth (2001), “Unpacking Creativity,” AMR]

Sources of Drivers for Engagement

Creativity
External Internal
(Market-determined (e.g., (Self-determined: e.g., cash flow
competition, technological problems, insolvency, lack of
obsolescence, new technologies, innovation, cost-over-runs,
new customer lifestyles, new revenue decline, employee
customer needs, new legal morale, slack, waste, apathy,
requirements, demands of corporate culture)
globalization).

Expected Proactive
Creativity: Creativity:
(Required solutions to (Volunteered solutions to
Open discovered problems). discovered problems.
(Unformulated, and
e.g., Unprompted suggestions).
unresolved
problems whose
Examples: Creating artwork; Examples: Day-light saving,
solution needs to be
Ethanol, natural gas, solar home generators, candle light,
invented or
systems, windmills, wave- reduced consumption as
discovered)
power as alternative sources of alternative solutions to energy
energy. crisis.

Problem
Type Responsive Contributory
Creativity: Creativity:
(Required solutions to (Volunteered solutions to
Closed Specified problems. specified problems.
(Problems whose e.g., Responses produced by e.g., Contribution by non-
solutions or method think tank). project member).
to solutions are
known) Examples: Batteries, Examples: Go to bed early;
flashlights, sun-roofs, family gathering under one
kerosene, diesel, … as light, candle-light dinners,
alternative sources of light. reduced wattage, … as
alternative sources of light.
 Table 3.11: Product-Centric versus Consumer-Experience
Centric Innovations
[Based on Prahalad and Ramaswamy (2003)]

Dimensions Product-Centric Consumer-Experience-

Innovation Centric Innovation

Focus of Company, products and processes Consumer experience environments

Innovation

Basis of Value Products and services Co-creation experiences

Process of Firms create value through support Consumers co-create experience based
Value-Creation systems such as suppliers, technology, on space, time, event, and communities
and employees. in conjunction with firms, networking
technologies and social communities.

Value- Supply-push and demand pull Experience-environment-pull co-

marketing strategies for firm’s offerings. creation strategies by the consumers
with firms and networking
strategy communities.

Purpose of Production and functionality of Co-Production and Co-Functionality

Technology- product-service features, attributes of consumer experiences.
and benefits.
Innovation

Mode of value- Technology and systems integration Consumer’s individual and social
production experience integration.
Focus of Supply Supports fulfillment of products and Individual and community experience
Chan services network supports co-construction of
personalized experiences.
Primary source Product space: Cost efficiency, quality Solutions space: Firms accumulated
of Competitive and product differentiation and experience to resolve consumer
variety problems. More importantly:
Advantage
Experience Space: The customers and
their social communities are the locus
and focus of innovation and advantage.
Typical Examples All company- and supply-chain- based New experience-based innovations
products, brands and services. such as OnStar, Pacemakers, LEGO
Robots.
 Table 3.12: Old versus New Management Innovation (MI) Principles
[See also Hamel (2006) “The Why, What, and How of Management Innovation,” HBR, (February), 72-84].

Best Industry
Old Management Innovation New Management Innovation Examples of New MI
Principles Limitations Principles Implications principles application

Speciali- It limits cross-boundary Cross-specialization across Integrated knowledge. Microsoft, GE,

zation learning that generates functions, competencies Integrated management. Intel, Sony, Kodak,
breakthrough ideas. and converging industries. Cross-functionality. Fuji, Toyota,
May ignore industry Inter-industry symbiosis. BMW
convergence Internal markets.
opportunities. Industry consortia.

Standar- It leads to unhealthy Customize, personalize and Modern technology eBay, Adobe,
dization affection for conformance. individualize your (Internet, email, Linux, Google,
It sees the new and the products and services. broadband) makes Yahoo!,
wacky as dangerous Treat your market as one customization and Amazon.com,
deviations from the norm. unique person. individualization easy MSN.com,
Tendency to commoditize Mass customize for scale and cost-effective. Travelocity.Com,
brands and services. economies. Open source Expedia.com,
development. Priceline.com.
Planning & It believes that the Transit from certain Turbulent, highly Visa, MasterCard,
Control environment is friendly , Newtonian physics to volatile and tech-driven Discover, GMAC,
stable and predictable. ambiguous Quantum environment is very Ford Credit,
Past conditions the future. mechanics that better uncertain, risky and BCBS, Costco,
Too much investment in reflects today’s volatile unpredictable. Wal-Mart
the past, and not in the environment. Hence, the new business
future.
system must be infinitely

malleable, yet extremely

durable.

Vertical Deference to hierarchy Horizontal hierarchy or The system must seamlessly McDonalds, Whole
Hierarchy and positional power Foods Market,
breeds bureaucracy and community empowerment. blend both collaboration and Home Depot, Best
reinforces outmoded Buy, Circuit City,
power structures and Power and function in the competition. Whirlpool, Habitat
belief systems. for Humanity,
Bureaucracy can smother system must be distributed toRadical decentralization. Wikipedia
the flames of innovation. Divisionalization.
the maximum degree possible. Customer co-option.
Customer involvement.
Governance must be

distributed.

Fight Fire-fighting competition Collaborate to compete. Strategic collaborative alliances Southwest Airlines,
Competition is a loss-loss or zero sum Starbucks, FedEx,
game. Disregard competition as between competitors for core UPS, Cirque du
Fighting competition may Soleil, Apple’s iPod
impair you to identify and irrelevant and explore new processes and core products, and iTunes, Sony’s
exploit new markets and Play-stations.
new business markets, new innovations, and but competition for end
opportunities.
 “new blue oceans” (Kim & products.

Mauborgne 2005).

Primacy of A disproportionate Primacy of intrinsic rewards. Employee stock ownership HP, Microsoft,
Extrinsic emphasis on monetary plans. Dell, Whole Foods
Rewards rewards can discount the Job experience is great. The Internal markets. Market, Saturn,
power of volunteerism Radical decentralization. Toyota, Credit
and self-organization as system must be self- Employee driven problem Unions
mechanisms for aligning solving.
individual effort. organizing.

The system must be

owned cooperatively and

equitably.
 Figure 3.1: The Innovation-Profit Chain

Nature of

Innovation:

Incremental,
Competences:
Radical,

Architectural,
Ability to design, Profits:
Complexity,
Corporate
Corporate integrate functions,
Environment: Tacitness,
build logistics,
Knowledge:
Life cycle phase market new ideas, From
manufacture new innovations
Resources Endowments:
products, … that lead to
Structure low cost
Technology
production,
Systems
Markets differentiatio
Patents, licenses,
People n,
copyrights,
Competition
Strategies location, Market
Nature of expansions,
Serendipity Skilled scientists,
Innovation: Segmentation
Company size,
,…
distribution
channels,
Incremental, Reputation, brand
Radical, names, …

Architectural,
Adapted from Afuah,Complexity,
Allan (1998), Innovation Management, Oxford, Oxford University Press,
p. 3.
Tacitness,

Life cycle phase