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Management innovation principles

Innovative management practices that work are integrated in the socio-cultural fabric of how an organization works and integration is a very time-consuming process that is hard to control by managers, let alone imitate.

Notwithstanding its relative inimitability in practice, we can distil a number of generic management innovation principles adopted by leading innovators to lead in 21st century innovation dynamics. Management innovators shift away from traditional principles on

  • the desired organizational structure of innovation;

  • how to control innovation processes;

  • how to reward innovation;

  • and what type of people to recruit to foster innovation.

Firms like Google, Rocket Internet and Zara, but also P&G and other established companies, shift away from rigid, hierarchical control to embrace a flatter structure in which organizational boundaries are fuzzier than in the past and amenable to task-oriented, cross-disciplinary team formation. Of course, structure and control still are necessary, but much less so than in the past.

Instead of focusing on how to standardize innovation processes as much as possible (eliminating variation) and controlling processes top-down, an increasing number of firms are learning to embrace creativity (enhancing variety of innovation processes) and horizontal cooperation. That is, although standardization will always remain important for established innovation processes, firms like Lego and BMW do both. They indeed combine standardization of established innovation products and processes and creative, open management practices for disruptive, radical or business model innovations.

In terms of rewarding desired employee behaviour, obtaining task autonomy and recognition of achievements by peers is becoming more important at the detriment of traditional finance and hierarchy-based reward systems. Firms such as Deloitte, IBM, PwC and General Electric are changing their evaluation and reward systems comprehensively in this direction.

Finally, while specific skills are still needed, recruitment based on the capacity to generate idea, sponsor and orchestrate other people’s innovation efforts is becoming more popular. This trend is emerging in as diverse industries as advertising, banking, Internet software… and the public administration sector.

Real-life examples

Video game developer Valve Corporation embodies all these trends. Valve does not have any managers, it works on a strictly peer-to-peer employee basis. Employees self-organize and choose to work on the projects they prefer. Employees’ wages are based on peer evaluations, not yearly management assessments. To fuel self-organization, Valve only hires people with « freedom » traits. People who love autonomy and are brilliant enough not to need a boss to guide them. Valve released an employee manual for new recruits. Please have a look at it, it makes for fascinating reading. You can download it here.

Similarly, telecommunications firms Huawei and retail firm Tesco regularly recruit and promote people with “freedom” and “autonomous achievement” traits. For instance, Tesco’s ascendancy to one of the world’s leading retailers by 2010 was built on more than a decade of recruiting and promoting employees who could solve intractable problems (such as in what locations to invest) through unconventional competences (for instance a Big Data retail site research unit). Recruitment candidates at Tesco were explicitly tested on their ability to challenge conventional wisdoms and their willingness to withstand conformist pressures (Johnson et al., 2012).

Management practices : from traditional to innovating

  Traditional organization Innovating organization
Structure Bureaucratic - Specialization and division of labor, hierarchical control, defined organizational boundaries Flat - Organization without hierarchical control, task-oriented project teams, fuzzy organizational boundaries
Processes Top-down control and emphasis on eliminating variation Loose controls to foster idea generation and emphasis on enhancing variation
Reward systems Financial compensation and promotion up the hierarchy Autonomy and recognition
People Recruitment and selection based on the needs of the organization structure for specific skills: functional and staff specialists, general managers, and operatives Key need is for idea generators who combine required technical knowledge with creative personality traits. Managers must act as sponsors and orchestrators.

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This article is from the free online course:

Innovation Strategy: Challenging the Usual Suspects

Université Libre de Bruxelles