Innovate or become extinct, time for Management 2.0

    Strategos
    Change

    Today’s main business challenge is no longer quality but continuous innovation. In a world of constant creative destruction, accelerated rate of change and globalisation, continuous innovation is a critical core competence of every company that wants to survive long term. Innovation is therefore the responsibility of the board and top management and can no longer be delegated and isolated within R & D or new product development functions. It is the responsibility of everyone in the company with the executive team as main champions. Only those companies that are capable to continuously reinvent not only their products but also their business and management models will be around decades from now (Gary Hamel,
    Sloan Management Review, 1998).

    However, management today is strongly influenced by management concepts developed during the industrial
    economy and are not well suited for an “innovation economy” in which competitive advantages are based on new value creation, rather than reduced costs and more output. There is a need for a new management concept that supports continuous innovation in this new economy.

    Based on leading research on successful companies in fast changing industries, together with unique research inside Google Inc., I believe there is new set of management principles for continuous innovation and long- term competitiveness. These six principles should be viewed as basic beliefs on how to best manage a business for continuous innovation. The principles are:

    1. Dynamic capabilities
    2. Continual renewal of the organization
    3. People-centric organization
    4. Ambidextrous organization
    5. Open and networked based organization
    6. Systemic approach

    Based on these six principles, leading companies like Google have developed best practices in leadership, corporate culture, structure and processes.

    However, most companies and organizations today do not use these principles when designing their management
    models. Most managers are still focused primarily on cost reduction, not growth through continuous innovation. Therefore managers today embed principles and practices for increased productivity and quality, principles that are quite different from the principles presented above.

    To make this comparison easier to understand, let’s take a look at the principles of Lean Manufacturing that is a well-known management concept today. As Lean Manufacturing is defined in
    slightly different ways, I choose the five principles of Lean thinking presented by Womack and Jones (1996). According to them the five Lean principles are:

    1. Identify customer and specify value
    2. Identify and map the value stream
    3. Create flow by eliminating waste
    4. Respond to customer pull
    5. Pursue perfection

    These are all sound management principles. It is important to understand who your customers are and specify
    the value that you create for them. It is also good to understand what actually contributes to this value internally in your organization as well as externally. However, the principles are based on basic beliefs such as the world and markets are stable (in which dynamic capabilities and continuous renewal are not
    high priorities) and that the current business model is more or less static.
    These principles are also based on beliefs that we should direct our attention to our current customers and eliminate all activities that do not create value for these customers, and then aim for perfection of these
    processes.

    The Lean principles and the principles for continuous innovation are based on different beliefs. The basic difference is that the Lean principles are based on beliefs about market and business logic stability and in this scenario it makes sense to focus on improving what you have to maximum perfection. The new
    principles for continuous innovation are based on a belief that market and business logic will change continuously and that the main challenge is to continuously renew the business, driven by changes in the environment.
    This has to be managed in parallel with high productivity and quality that could be viewed as a hygiene factor for any business.

    In order to be competitive in the long term, it is time to start thinking of continuous innovation as a business critical core competence and implement key management principles supporting continuous innovation. Some companies have already implemented practices based on these principles, such as Google. Now it is time for your company to act on the need for principles for continuous innovation.

    Annika Steiber,
    Director Strategos