ArticlePDF Available

Abstract

Management innovation — that is, the implementation of new management practices, processes and structures that represent a significant departure from current norms — has over time dramatically transformed the way many functions and activities work in organizations. Many of the practices, processes and structures that we see in modern business organizations were developed during the last 150 years by the creative efforts of management innovators. Those innovators have included well-known names like Alfred P. Sloan and Frederick Taylor, as well as numerous other unheralded individuals and small groups of people who all sought to improve the internal workings of organizations by trying something new.
University of Warwick institutional repository: http://go.warwick.ac.uk/wrap
This paper is made available online in accordance with
publisher policies. Please scroll down to view the document
itself. Please refer to the repository record for this item and our
policy information available from the repository home page for
further information.
To see the final version of this paper please visit the publisher’s website.
Access to the published version may require a subscription.
Author(s): Julian Birkinshaw and Michael Mol
Article Title: How Management Innovation Happens
Year of publication: 2006
Link to published article:
http://sloanreview.mit.edu/the-magazine/2006-summer/47415/how-
management-innovation-happens/
Publisher statement: © 2006 The MIT Press. Birkinshaw, J.
and Mol, M. (2006). How Management Innovation Happens.
MIT Sloan Management Review, 47(4), pp. 81-88.
How Management
Innovation Happens
SUMMER 2006 VOL.47 NO.4
REPRINT NUMBER 47415
Julian Birkinshaw and Michael Mol
anagement innovation — that is, the implementation of new manage-
ment practices, processes and structures that represent a significant
departure from current norms — has over time dramatically transformed the
way many functions and activities work in organizations. Many of the prac-
tices, processes and structures that we see in modern business organizations
were developed during the last 150 years by the creative efforts of manage-
ment innovators. Those innovators have included well-known names like
Alfred P. Sloan and Frederick Taylor, as well as numerous other unheralded
individuals and small groups of people who all sought to improve the inter-
nal workings of organizations by trying something new.
Consider how our ability to manage the consistency of manufacturing
processes has evolved: from Ford Motor’s introduction of the moving assem-
bly line in 1913 and Western Electric’s invention of statistical quality control
in 1924, through the quality revolution begun by Toyota Motor and other
Japanese companies in 1945 and on to such recent innovations as the ISO
quality standards and Motorola’s Six Sigma methodology, which were both
introduced in 1987.1Similarly, the ability to keep control of a company’s
finances has changed substantially over the centuries, through such innova-
tions as discounted cash-flow analysis, capital budgeting and, more recently,
activity-based costing. Even the foundation stones of the modern business
organization were at some point created by inventive and farsighted individ-
uals: Luca Pacioli popularized double-entry bookkeeping in 1494, and the
limited liability company was created in 1856.2
A historical perspective is useful because it reminds us that nothing about
our current ways of working is inviolable. There are management innovations
under way all the time in organizations. Many fail, some work — and only a
few make history. Over time, the most valuable innovations are imitated by
other organizations and are diffused across entire industries and countries.
Some management innovations, including Toyota Motor Corp.’s lean produc-
tion system and Procter & Gamble Co.’s brand management model, gave the
pioneering companies lasting competitive advantage. Others, such as Materi-
als Requirement Planning and investment portfolio analysis, created broader-
Illustration: © James Endicott/images.com
How Management
Innovation Happens
Julian Birkinshaw is a professor of strategic and international management at the
London Business School and a senior fellow of the Advanced Institute of Management
Research, or AIM. Michael Mol is a research fellow in strategic and international man-
agement at the London Business School and a senior lecturer in strategic manage-
ment at the University of Reading, United Kingdom. They can be reached at
jbirkinshaw@london.edu and mmol@london.edu.
Few companies
understand how such
innovation occurs —
and how to encourage
it. To foster new
management ideas and
techniques, companies
first need to understand
the four typical stages
in the management
innovation process.
Julian Birkinshaw and
Michael Mol
M
SUMMER 2006 MIT SLOAN MANAGEMENT REVIEW 81
based productivity and societal benefits. Indeed, taken as a whole,
the process of management innovation is probably as important
to economic and social progress as technological innovation.3
Ray Stata, the former CEO of Analog Devices Inc., a semicon-
ductor company based in Norwood, Massachusetts, argued that,
“at Analog Devices, and many other U.S. companies, product and
process innovation are not the main bottleneck to progress. The
bottleneck is management innovation. We have to ask ourselves,
as a company and a nation, are we investing enough in manage-
ment innovation?”4
But despite its importance, management innovation remains
poorly managed and poorly understood. Most companies have
no formal process for fostering management innovation. It is
typically left to occur in an ad hoc fashion, and successful man-
agement innovators frequently observe that they succeeded
“despite the system,” not because of it. Moreover, academic
research provides surprisingly little help. While studies of the
diffusion of existing management innovations are common,
there is very little literature on the origins of management inno-
vation and the generative processes through which it first takes
shape. A recent search of the Business Source Premier database
yielded some 12,774 peer-reviewed articles discussing “techno-
logical innovation” but only 114 focused on “management
innovation.” With only a few exceptions,5most of those 114
articles do not provide businesses with the tools to develop or
enhance their capacity for engaging in management innovation.
To address this deficiency, we embarked on a research study to
understand better how management innovation happens. We
first studied the histories of some famous cases of management
innovation, such as Alfred P. Sloan’s introduction of the multidi-
visional structure at General Motors Corp.6We then conducted
case study analyses of 11 recent cases of management innova-
tions, using a mixture of well-known and less-publicized exam-
ples and, in most cases, interviewing at least one of the
individuals responsible for implementing the innovations. (See
About the Research.”) We sought to understand the stages in the
management innovation process and identify the roles key indi-
viduals play in shaping and driving management innovations.
The Management Innovation Process
The research began with a simple hypothesis: that management
innovation occurs in a way similar to the well-understood
process for technological innovation. We expected to observe
individuals pulling together ideas and resources in novel ways,
championing those ideas inside their organization, building
coalitions of senior executives to support their ideas and using
political skills to overcome internal resistance to the innova-
tion.7We did, indeed, observe all those things, but there were
also two important points of difference that made management
innovation a distinct process in its own right.
The first was a much more significant role for external
change agents than is usually seen in technological innovation.
These individuals were a mix of academics, consultants, man-
agement gurus and ex-employees. They often provided the ini-
tial inspiration for a management innovation, and they
frequently helped to shape and legitimize the innovation as it
took hold. These external agents rarely if ever actually devel-
oped the new practices per se, but they offered important inputs
to both the process of experimentation and to the subsequent
stage of validation. The management innovation process there-
fore had a highly interactive quality. It typically took place on
the fringes of the organization rather than in the core, and
through the relationship between managers and external
change agents, who together managed to bridge the gap
between concept and implementation.
The second point of difference was a more diffuse and grad-
ual process than is typically seen in technological innovation.
Most management innovations took several years to implement,
and in some cases it was impossible to say with any precision
when the innovation actually took place. To some degree that
can also be the case with technological innovations, but the sub-
tle nature of the process was particularly apparent in the man-
agement innovations we studied.
Why these differences? The answer lies in the fundamental
distinction between what each type of innovation creates. For
the most part, technological innovations are discrete knowledge
assets that can be codified, since they consist of some physical
process or product and can be replicated with relative ease. Man-
agement innovations, on the other hand, are more likely to be
specific to the system in which they were created, which is usu-
ally a highly complex social system with many different actors
and relationships. Management innovations are also relatively
tacit in nature, as evidenced by the need for outside experts like
consultants to implement the innovations as they diffuse across
many organizations.8As a result, management innovations are
harder than technology innovations to justify prior to imple-
mentation and harder to evaluate afterward. It is therefore not
surprising that the management innovation process ends up
being relatively gradual and that external agents are often
brought in to justify, shape and legitimize the activity.
Our research revealed a management innovation model
with four main stages, with different roles played by internal
and external actors at each stage. (See “The Management Inno-
vation Process,” p. 85.) The four stages are, (1) dissatisfaction
with the status quo, (2) inspiration from other sources, (3)
invention, and (4) internal and external validation.
Stage One: Dissatisfaction With the Status Quo
In the cases we studied, the internal problem that management
innovation addressed was always some level of dissatisfaction
82 MIT SLOAN MANAGEMENT REVIEW SUMMER 2006
SUMMER 2006 MIT SLOAN MANAGEMENT REVIEW 83
with the status quo within the company. The level of dissatis-
faction varied, ranging from a nagging operational problem to
a strategic threat to an impending crisis.
Consider the crisis-driven end of the spectrum first. Litton
Interconnection Products was a factory in Glenrothes, Scotland,
engaged in the assembly of back-plane systems for computers. In
1991, George Black was brought in by the U.S. parent company to
turn around the factory. As he explained, “We were a company
This research was conducted in two phases. First, we conducted a
detailed historical analysis of major management innovations —
cases such as General Motor Corp’s creation of the multidivisional
organization and Procter & Gamble Co.’s invention of brand man-
agement, both in the 1920s. This historical analysis of more than
100 management innovations that occurred over 130 years
allowed us to put together some initial ideas about the factors
contributing to management innovation. Then, in the second
stage of the research, we conducted detailed case study analyses
of 11 recent management innovations. (See list below.) These
cases were selected to cover a range of countries, industries and
types of innovations. For each case, we read the existing accounts
available through public sources, and then, for most of the cases,
we conducted interviews with one or more of the key innovators.
By comparing the insights from these case studies, we were able
to identify the common themes that form the basis for this article.
About the Research
Company Year Management Innovation Key Innovator
Innovation
Introduced
Analog Devices 1987
United States
Skandia 1991–2
Sweden
Partners for 1994–6
Change
United Kingdom
Oticon 1991
Denmark
Hewlett-Packard 1991
United States
Wellington 1988–9
Insurance
Canada
Litton 1991
Interconnection
Products
United Kingdom
Shell 1996
Holland,
United Kingdom
Sun Microsystems 1995
United States
Motorola 1987
United States
GlaxoSmithKline 2000
United Kingdom
Balanced Scorecard for monitoring financial and nonfinancial
performance measures
Skandia Navigator and measurement of intellectual capital
Flexible employment/pay model for consulting
“Spaghetti organization” — removal of formal hierarchy and job
descriptions
Global account management structure for sales organization
“Wellington Revolution” — radical decentralization of activities
Business cell structure for manufacturing and selling products
“Gamechanger” — venture capital funding model for new
business development
Development of “ecosystem” of software vendors
“Six Sigma” quality control methodology
“Centres of Excellence for Drug Discovery”
Art Schneiderman
Leif Edvinsson,
Bjorn Wolrathl
Tim Connolly,
Mark Smith
Lars Kolind
Alan Nonnenberg
Murray Wallace
George Black
Tim Warren,
Leo Roodhart
George Paolini
Bill Smith,
Mikel Harry
Tachi Yamada,
Allan Baxter
Recent Management Innovations Studied
84 MIT SLOAN MANAGEMENT REVIEW SUMMER 2006
going nowhere, doing assembly work no different from the work
of dozens of larger, more efficient competitors. So we thought:
‘What should we do?’And the answer we came up with was to be
different — to provide a new service to our customers, and a new
way of working. It was deliberately contrarian, and somewhat
risky, but we did not have much to lose.
Black put in place a radical new design: a business-cell struc-
ture with each cell of employees dedicated to meeting the entire
needs of a single customer. Employees were trained in a broad
range of skills, from manufacturing to sales to service. The net
result was a dramatic improvement in customer responsiveness,
reduced cycle time and much lower staff turnover.
The most common source of dissatisfaction leading to inno-
vation is a strategic threat that has started to take shape through
changes in the business environment or the emergence of new
competitors. Consider the situation faced by GlaxoSmithKline
PLC, the U.K. pharmaceuticals giant, in 2000. Big pharmaceuti-
cal companies like GSK were suffering from declining produc-
tivity in their research and development activities, while at the
same time many biotechnology companies were becoming
remarkably successful, despite having only a fraction of the
resources of GSK. As Tachi Yamada, GSK’s global head of R&D,
observed: “Large pharmaceutical companies are very good
at the front end of drug discovery, which often involves capital-
intensive screening of compounds. They are also very good
at the later stages of drug development — running large clini-
cal trials. It is in the important middle ground of this process
— converting promising compounds into viable products —
where the flexibility and responsiveness of smaller biotech firms
is essential.9
Yamada’s solution was a radical restructuring of GSK’s drug
development operations into seven Centres of Excellence
designed to have biotechlike levels of flexibility and autonomy
while still benefiting from the scale of GSK’s global presence.
Although the real results of this innovation will not be known for
many more years, the early indicators are very promising.
A third type of dissatisfaction that can lead to innovation is
the nagging operational problem. This is best exemplified by
Motorola’s development of the Six Sigma methodology for con-
trolling the quality of a manufacturing operation. This innova-
tion can be traced back to the concept of zero defects proposed
by Motorola quality manager Bill Smith in 1985 and “the Six
Sigma Quality Program” that CEO Bob Galvin subsequently
initiated in January 1987. But the inspiration for Smith’s idea
was not a specific problem facing the company; instead, the
methodology was developed as part of an ongoing drive for
excellence in manufacturing quality that had been in place since
Galvin became CEO in 1981. Motorola, like many Western
companies at the time, was struggling to keep up with the qual-
ity levels produced by its Japanese competitors. Six Sigma was
revolutionary in its consequences for Motorola and for many
other companies, but it was evolutionary in its origins.
These three examples highlight the multifaceted nature of dis-
satisfaction. Dissatisfaction can be framed as a future threat, a
current problem or a means to escape a crisis. But the important
point is that management innovation is generally a response to
some form of challenge facing the organization. Unlike techno-
logical innovations, which are sometimes created in a laboratory
without much thought as to what problem they might solve,
management innovations tend to emerge through necessity.
Stage Two: Inspiration From Other Sources
While management innovators have a desire to make their com-
pany a better place, they also need inspiration, such as examples
of what has worked in other settings, analogies from different
social systems or unproven but alluring new ideas. Our research
did not suggest any particular patterns in the sources of new
ideas, but it revealed a breadth of thinking among management
innovators that allowed them to strike out on their own paths.
One source of inspiration was the ideas of management
thinkers and gurus. For example, in 1987, Murray Wallace was
the CEO of Wellington Insurance Co., at the time a troubled
insurance company located in London, Ontario. While ponder-
ing his options for revitalizing the company, Wallace picked up
Tom Peters’s new book “Thriving on Chaos.” Wallace translated
Peters’s broad manifesto for radical decentralization into an
operating model that became known within the company as the
“Wellington Revolution.” Wallace’s model helped Wellington
achieve a dramatic turnaround in growth and profitability.10
In some cases, organizations and social systems much further
afield were a source of inspiration. In the early 1990s, Oticon, a
hearing-aid company based in Copenhagen, Denmark, devel-
oped a radical organization model with no formal hierarchical
reporting relationships, a resource allocation system built around
self-organized project teams and an entirely open-plan physical
layout. This new model helped Oticon achieve dramatic increases
in profitability over the rest of the decade. Lars Kolind, the CEO
of Oticon and the architect of these changes, got his inspiration
for this organizational model from his deep involvement in the
Boy Scouts of America movement. As Kolind put it, “The Scout-
ing movement has a stronger volunteer aspect, and whenever
Scouts come together, they cooperate effectively together without
hierarchy. There is no game-playing, no intrigue; we are one fam-
ily brought together through common goals. My experiences in
Scouting led me to focus on defining a clear ‘meaning’ for Oticon
employees, something beyond just making money, and to build a
system that encouraged volunteerism and self-motivation.
More generally, many of the management innovators in the
study had unusual backgrounds or had worked in a wide variety of
different functional areas or countries. An interesting example is
Art Schneiderman, the
manager at Analog Devices
who in 1987 developed the
prototype for what became
known as the Balanced
Scorecard. Schneiderman
was strongly influenced by
Jay Forrester’s system
dynamics concepts during
his MBA training at MIT’s
Sloan School of Manage-
ment; then, before he joined
Analog Devices, he spent six
years as a strategy consultant
with Bain & Co., working on
quality management proj-
ects in Japan. This back-
ground gave Schneiderman
insight into continuous improvement techniques that were being
used in Japan, plus a systemwide perspective on the functioning of
the organization. So when he was asked by Analog Devices CEO
Ray Stata to develop a quality improvement process for the com-
pany’s manufacturing, Schneiderman quickly developed a set of
metrics that included both financial and nonfinancial compo-
nents.11
While very different, the examples of Wellington, Oticon and
Analog Devices all highlight a simple point: Inspiration for new
management innovation is unlikely to come from within a com-
pany’s current industry. Most companies get sucked into a pat-
tern of benchmarking and competitor-watching that leads to
highly convergent practices within an industry. By gaining inspi-
ration from other sources, the management innovators in these
three companies were able to develop something radically new to
their organizations.
Stage Three: Invention
In every case of management innovation we studied, we asked
about the “eureka moment” when the new practice, process or
structure was first dreamed up. But perhaps not surprisingly, the
“eureka moment”rarely materialized. The only exception was Art
Schneiderman’s invention of the Balanced Scorecard. As he
described it, “I was in charge of the monthly business meetings. I
would always put the nonfinancial performance measures first on
the agenda, followed by the financial measures, and Jerry Fish-
man, my boss, would switch them around. After several of these
meetings, Jerry called me into his office and said: ‘I understand
your motives and you understand mine. This game we’re playing
is not productive. You figure out a way to satisfy both of us, or
we’ll just do it my way.’”
Faced with that challenge, Schneiderman found inspiration a
few days later. While at home in the evening, he saw a television
commercial that emphasized how a certain type of candy was a
combination of two different products: peanut butter and
chocolate. As Schneiderman recalled, “Suddenly the light bulb
lit: Combine the financial and nonfinancial metrics as a single
agenda item. So I added a small number of key financials at the
top of the scorecard, and the problem was solved to everyone’s
satisfaction.12
Our research suggests that “eureka moments” such as that are
rare in management innovation. The management innovator
brings together the various elements of a problem (that is, dissat-
isfaction with the status quo) with the various elements of a solu-
tion (which typically involves some inspiration from outside,
plus a clear understanding of the internal situation and context).
However, the manner in which these elements are brought
together is usually iterative and gradual, rather than sudden.
While not able to identify a “eureka moment” per se, most
management innovators could point to a clear precipitating
event that provided them with a focal point around which to
coordinate their efforts. Consider the example of Skandia
Insurance Co. Ltd., a Swedish insurance company that grew
rapidly in the early 1990s through its highly successful life
insurance business. During this period, Skandia, which is based
in Stockholm, pioneered an approach to reporting the value of
intangible assets such as human capital to external stakeholders.
Leif Edvinsson was the primary architect of this management
innovation, and, when interviewed, he identified the reasons
why traditional accounting measures had become increasingly
irrelevant. He spoke of various people who had influenced his
thinking, from Dee Hock, the founder of Visa, to Bjorn Wol-
rath, the CEO of Skandia at that time. But the critical event,
from Edvinsson’s point of view, was the moment when Wolrath
SUMMER 2006 MIT SLOAN MANAGEMENT REVIEW 85
Management innovation typically occurs in a number of recognizable stages. The key central
phase, invention, is preceded by a combination of dissatisfaction with the status quo (inside
the company) and inspiration from others (typically outside the company). Invention is then
followed by a process of validation both inside and outside the company.
The Management Innovation Process
86 MIT SLOAN MANAGEMENT REVIEW SUMMER 2006
gave Edvinssson the title director
of intellectual capital. That act
legitimized Edvinsson’s ideas and
gave him a license to introduce
formally Skandia’s new Navigator
model for corporate perform-
ance measurement.13
Another example involving a
precipitating event took place at
Hewlett-Packard Co. In 1991, HP
developed a global account man-
agement structure to provide
services to the company’s inter-
national customers in a coordi-
nated fashion. That is now a
standard way of managing inter-
national customers, but at the
time it was unheard of in the
information technology sector.
The key individual behind the
innovation was Alan Nonnen-
berg, who had worked on three
continents and had experience
with HP’s major-account pro-
gram in the United States. The
defining event was that Nonnen-
berg was asked to lead the global
account management initiative.
He then worked through the
design and development of the new structure by applying what
he had learned from the U.S. major-account program to a
global template. As Nonnenberg explained, “We thought we
were being truly innovative, and we weren’t able to get any ideas
from other companies’ experiences. But I basically put my head
down and put the structure together and worked through
obstacles as they arose.
A small number of the innovations studied emerged through
largely serendipitous circumstances. For example, Sun Microsys-
tems Inc. created one of the first independent software developer
networks while preparing for the launch of Java in 1995. But
although the network proved enormously successful, within Sun
there had been little conscious thought ahead of time as to how
the developer community might evolve. “We had no idea of the
magnitude of what we were creating,” observed George Paolini,
the chief architect of the Java initiative.
Stage Four: Internal and External Validation
In one important respect, management innovation is like every
other form of innovation: It involves risk and uncertain returns,
and as a result it encounters resistance from people who do not
understand the potential benefits or feel they will lose out as a
result of the innovation. And it is impossible to predict accu-
rately whether any innovation’s benefits will exceed its costs
until the innovation has been tried. A critical stage in the
process, then, is for the management innovators to generate val-
idation for their new idea.
While validation from external parties is important, the more
crucial step, at least initially, is for the innovation to gain inter-
nal acceptance. Our research confirmed many of our expecta-
tions about the process of validation inside the organization: A
clear champion is needed to drive the innovation forward, a
respected senior executive sponsor helps enormously to give the
innovation credibility, and early victories are important because
they provide evidence that the innovation is sound. Indeed, as
noted earlier,management innovation is trickier to validate than
technological innovation, because management innovation is
less easily codified, requires the willing participation of many
people to be effective and often does not deliver results until sev-
eral years after implementation. The management innovator
may initially be a brilliant inventor, but it is important for that
inventor to then build a supportive coalition to carry the inven-
tion into the organization.
Lars Kolind’s experiences at Oticon were typical.14 Kolind’s
first task was to persuade the owners of the company that a radi-
cal change was necessary to confront the challenge posed by giant
competitors. He then embarked on a massive internal selling pro-
gram to explain the nature of his proposed changes to employees.
Inevitably, there were some employees who chose to leave because
they were not comfortable with Kolind’s changes, but most were
quick to see the benefits and became involved in implementing
what became known as Oticon’s “spaghetti organization.
Another distinctive feature of the management innovation
process is the importance of “external validation,” which is essen-
tially a stamp of approval from an independent observer, such as
an academic, a consultancy or a media organization. Again, the
reason external validation proved to be so important has to do
with the uncertain and ambiguous nature of most management
innovations. Lacking hard data to prove that a particular innova-
tion was working, senior executives in companies frequently
sought external validation as a means of increasing the level of
internal acceptance for the innovation. This process of validation
also typically increased the visibility of the innovation to com-
petitors or companies in other industries, which tended to rein-
force the innovation further. Our research identified four
common sources of external validation.
The first is the business school academic, who typically acts
as a thoughtful observer of the emerging management innova-
tion and who sees his or her role as codifying the practice in
question for use in research and classroom teaching. The best
example of this is probably the development of activity-based
Lacking hard data
to prove that a
particular
innovation was
working, senior
executives sought
external validation
as a means of
increasing the
level of internal
acceptance.
SUMMER 2006 MIT SLOAN MANAGEMENT REVIEW 87
costing and the Balanced Scorecard by Robert Kaplan and col-
leagues.15 As observed earlier,Schneiderman was the first person
to put a Balanced Scorecard into practice, but Kaplan wrote a
case study on Analog Devices in which Schneiderman’s “corpo-
rate scorecard” was featured, and Kaplan subsequently used the
example in a Harvard Business Review article. This process,
Kaplan argued, allowed Schneiderman’s innovation to become
more effective: The concept “had become codified, generalized
and shown to be applicable to a much larger audience than the
originating company.
A second common source of external validation is the con-
sulting organization that sees its role primarily in terms of codi-
fying and documenting the innovation so that it can then be used
in other settings. Six Sigma was successful inside Motorola, but it
only received external attention when Mikel Harry and Richard
Schroeder, two Motorola executives, created a specialized consul-
tancy operation to sell their methodology to other companies.16
Their immediate successes in Allied Signal and General Electric
led to widespread acceptance of the Six Sigma concept and a
rethinking of its importance inside Motorola.
The third source of external validation is media organiza-
tions, which see their role as broadcasting the story of the inno-
vation to a wide audience. For example, GSK’s Centres of
Excellence for Drug Discovery received significant media coverage
when they were announced, although very few details were pro-
vided about how they would work. In another case, General Foods
Corp.’s Quality of Work Life experiments in work-flow design at
the company’s dog food factory in Topeka, Kansas,became nation-
ally known following a Newsweek story about the innovations.17
Finally, external validation can also occur through industry
associations. HP’s global account management structure was ini-
tially validated through HP’s involvement in IT industry forums
where best practices were shared among competing companies. A
classic example of a management innovation that received this
type of external validation is Total Quality Control,later renamed
Total Quality Management. W.E. Deming and other quality
experts gave a series of lectures before the Japanese Union of Sci-
entists and Engineers in the early 1950s. Various member com-
panies of that union then started taking up TQM and sharing
their experiences.
These four sources of external validation are not mutually
exclusive, and some of the more widely known management
innovations receive validation from multiple sources. The
important point, though, is that external validation has a dual
role. It increases the likelihood that other companies will
attempt to adopt the innovation in question, but it also increases
the likelihood that the pioneer company will stick with the inno-
vation. For example, we asked Schneiderman what might have
happened to his “corporate scorecard” if he had never met
Robert Kaplan, and he acknowledged that the innovation might
have completely withered and died inside Analog Devices.
There are probably many management innovations that never
receive much attention from outside the organization. Some of
these innovations may be successful in their own right, but they
often remain unnamed and unrecognized even internally for the
benefits they provide. Other innovations may offer great promise
but atrophy after the innovator moves on to other challenges.
Accelerating the Process of Management Innovation
What can managers do to improve their company’s capacity for
management innovation? While our research suggests that com-
panies have traditionally pursued management innovation in an
ad hoc manner, the process could be made more systematic. Six
common themes emerged from the research that should serve as
useful pointers for a company that would like to direct its man-
agement innovation efforts more seriously.
Become a conscious management innovator. Most companies
set up some sort of innovation function to meet the need for
product and service innovation, whether in the form of a phys-
ical R&D lab or the assignment of a clear mandate for that type
of innovation to an individual in the organization. But how
many businesses have similar levels of awareness and dedicated
structures in place to foster management innovation? Selling the
importance of management innovation to the organization is a
crucial first step toward becoming a management innovator.
Create a questioning, problem-solving culture. When employ-
ees are faced with an unusual problem or challenge in the com-
pany, what is their typical reaction? Do they look the other way?
Do they resort to a standard solution that has already been
endorsed by competitors? Or do they look deeper into the prob-
lem, see the problem in new ways and start to hypothesize about
new ways of solving it? Only the latter path can lead the com-
pany toward management innovation, so encourage employees
to examine the unexplored and avoid easy answers.
Seek analogies and exemplars from different environments. If
the problem a company faces is one of increasing its resilience, it
could make sense to try to learn from highly resilient social sys-
tems, such as parliamentary democracies, cities or faith sys-
tems.18 If the problem is one of increasing the motivation of
employees, then look at the Scouting movement, open source
software or any number of other voluntary organizations. Expos-
ing employees to many different types of environments and dif-
ferent countries of operation is also invaluable as a means of
opening up their minds to new alternatives.
Build a capacity for low-risk experimentation. In one company
we have been working with, there is a sustained effort under way
88 MIT SLOAN MANAGEMENT REVIEW SUMMER 2006
to encourage individuals and teams to come up with manage-
ment innovations to tackle everyday problems with the existing
bureaucracy and processes. But to make this initiative work, the
company’s leaders realized they could not allow all the new ideas
to go “live” in the entire organization. So they opted for an exper-
imental model, in which each innovation could be tested with a
limited number of people and for a limited period of time. That
has ensured that ideas get a chance to be implemented, without
crippling the functioning of the whole organization.
Make use of external change agents to explore your new ideas.
While companies can and should manage the innovation
process themselves, there is value in selectively making use of
outsiders such as academics, consultants, media organizations
and management gurus. They fulfill three primary roles: They
represent a source of new ideas and analogies from different set-
tings, they can act as a sounding board for making sense of a
company’s emerging innovations and they can help to validate
what is accomplished.
Become a serial management innovator.The real success stories
in management innovation are not the companies that have
innovated once or twice. Instead, it is the companies with multi-
ple successes — the serial management innovators. GE is a serial
innovator, famous not just for management innovations such as
Work-Out and Boundarylessness but also much older innova-
tions such as strategic planning, executive development and the
commercialization of R&D.
Management innovation is ingrained in the GE culture as a
key driver of the company’s competitiveness. Toyota is also a
serial management innovator. It has continuously added ele-
ments to its lean production system, such as just in time,kanban,
target costing and parallel sourcing. Each of these elements
strengthened the existing lean production system and reinforced
Toyota’s long-lasting competitive advantage.
These six points are certainly not some kind of formula for
management innovation. The process of developing radical new
ways of working will always have some dose of luck and ran-
domness to it. However, managers can certainly tilt the odds in
their companies’ favor by keeping these ideas in mind.
History shows that management innovation has been a key
driver for competitive advantage for many companies. For
companies that invest in a capacity for pursuing management
innovation systematically, the potential returns can be rather
substantial.
ACKNOWLEDGMENTS
The authors would like to thank Gary Hamel for his helpful sugges-
tions in the preparation of this article.
REFERENCES
1. J. Folaron, “The Evolution of Six Sigma,” Six Sigma Forum Maga-
zine, August 2003, 38-44.
2. J. Micklethwait and A. Wooldridge, “The Company: A Short History
of a Revolutionary Idea” (New York: Random House, 2003).
3. This point was first made by economist Joseph Schumpeter. See
J. Schumpeter, “Capitalism, Socialism and Democracy” (New York:
Harper and Brothers, 1947).
4. R. Stata, “Organizational Learning — the Key to Management
Innovation,” Sloan Management Review 30, no. 3 (spring 1989):
63-74.
5. For one recent exception, see G. Hamel, “The Why, What and
How of Management Innovation,” Harvard Business Review 84 (Feb-
ruary 2006): 72-83.
6. A.D. Chandler, “Strategy and Structure: Chapters in the History of
the American Industrial Enterprise” (Cambridge, Massachusetts: MIT
Press, 1962).
7. R.M. Kanter, “The Change Masters” (New York: Simon and Schus-
ter, 1984).
8. These attributes of knowledge assets were first identified by Sid-
ney Winter. See S. Winter, “Knowledge and Competence as Strate-
gic Assets,” in “The Competitive Challenge: Strategies for Industrial
Innovation and Renewal,” ed. D.J. Teece (Cambridge, Massachu-
setts: Ballinger, 1987), 159-184.
9. R.S. Huckman and E.P. Strick, “GlaxoSmithKline: Reorganizing
Drug Discovery (A),” Harvard Business School case no. 9-605-074
(Boston: Harvard Business School Publishing, 2005).
10. J. Birkinshaw and M. Crossan, “Wellington Insurance (A),”
Richard Ivey School of Business case no. 9A93M001 (London,
Ontario: Ivey Publishing, 1993).
11. This story is recounted in detail on Schneiderman’s Web site,
www.schneiderman.com.
12. See www.schneiderman.com/Concepts/The_First_Balanced_
Scorecard/How_the_Scorecard_Became_Balanced.htm
13. L. Edvinsson and M.S. Malone, “Intellectual Capital: Realizing
Your Company’s True Value by Finding Its Hidden Brainpower” (New
York: Harper Business, 1997).
14. For a detailed critique and references to other studies of Oticon,
see N.J. Foss, “Selective Intervention and Internal Hybrids: Inter-
preting and Learning from the Rise and Decline of the Oticon
Spaghetti Organization,” Organization Science 14, no. 3 (2003):
331-349.
15. Kaplan describes both processes in detail in a 1998 article. See
R. Kaplan, “Innovation Action Research: Creating New Management
Theory and Practice,” Journal of Management Accounting Research
10 (1998): 89-118.
16. See C.W. Adams, P. Gupta and C.E. Wilson Jr., “Six Sigma
Deployment” (Burlington, Massachusetts: Butterworth-Heinemann,
2003).
17. For the GSK story, see Huckman, “GlaxoSmithKline.” For the
Topeka story, see D.A. Whitsett and L. Yorks, “Looking Back at
Topeka: General Foods and the Quality-of-Work-Life Experiment,”
California Management Review 25, no. 4 (1983): 93-109.
18. G. Hamel and L. Valikangas, “The Quest for Resilience,” Harvard
Business Review 81 (September 2003): 52-63.
Reprint 47415. For ordering information, see page 1.
Copyright ©Massachusetts Institute of Technology, 2006. All rights reserved.
PDFs Reprints Permission to Copy Back Issues
Electronic copies of MIT Sloan Management Review
articles as well as traditional reprints and back issues can
be purchased on our Web site:
www.sloanreview.mit.edu
or you may order through our Business Service Center
(9 a.m.-5 p.m. ET) at the phone numbers listed below.
To reproduce or transmit one or more MIT Sloan
Management Review articles by electronic or mechanical
means
(including photocopying or archiving in any
information storage or retrieval system)
requires written
permission.
To request permission, use our Web site
(
www.sloanreview.mit.edu
), call or e-mail:
Toll-free
in U.S. and Canada: 877-727-7170
International: 617-253-7170
e-mail: smrpermissions@mit.edu
To request a free copy of our article catalog,
please contact:
MIT Sloan Management Review
77 Massachusetts Ave., E60-100
Cambridge, MA 02139-4307
Toll-free
in U.S. and Canada: 877-727-7170
International: 617-253-7170
Fax: 617-258-9739
e-mail: smr-orders@mit.edu
Reproducedwithpermissionofthe copyrightowner.Further reproductionprohibitedwithout permission.
... A large number of authors point out the signifi cance and positive impact of innovation oriented activities on organization performance (Birkinshaw & Mol, 2006;Hervas-Oliver, Ripoll-Sempere, & Moll, 2016). Innovation in the area of management was most often viewed as developing new management practices (Birkinshaw & Mol, 2006;Damanpour, 2014) through changes in managers' scope and manner of work when setting goals, making decisions, coordinating activities and motivating staff (Van den Bosch, 2012). ...
... A large number of authors point out the signifi cance and positive impact of innovation oriented activities on organization performance (Birkinshaw & Mol, 2006;Hervas-Oliver, Ripoll-Sempere, & Moll, 2016). Innovation in the area of management was most often viewed as developing new management practices (Birkinshaw & Mol, 2006;Damanpour, 2014) through changes in managers' scope and manner of work when setting goals, making decisions, coordinating activities and motivating staff (Van den Bosch, 2012). Since managers are, with their manner of behaviour, the key internal agents of developing innovation in the area of management, we analysed them through the implementation of innovation oriented management functions and managerial roles. ...
... Organizations can adopt inspiration originating from both ends of the organizational hierarchy: Management Innovation (MI) originates near the top of the hierarchy and trickles down while Technological Innovation (TI) emerges near the bottom of the hierarchy and trickles up [25]. Technological innovation is the act of turning an idea for a new product, process or service into a reality [25]; management innovation, on the other hand, is usually recognized as the adoption of new management practices, processes, rules, methods, and structures with the aim of achieving organizational goals [71,72] and benefitting long-term performance promotion [70]. The interest in management innovation has been growing recently [73][74][75]. ...
... Although there is no direct evidence indicating the role of management innovation between organizational flexibility and enterprise competitiveness, previous studies provide useful information to sort out the underlying logic. Inspiration of management innovation is considered as originating from the top of the hierarchy [25] when it comes to non-technological areas, such as management practices, processes, rules, methods, and structures [71,72]. Leaders possessing flexibility would be more likely to play several different roles to meet the demand for rapid pace and diversity of activities in various contexts [57]. ...
Article
Full-text available
Organizational success heavily relies on the competitiveness of products and services under rapidly changing market conditions. This enterprise competitiveness becomes more critical for project-based enterprises as modernization of the Chinese construction industry creates greater challenges and uncertainty in construction operations, which determines the sustainable advantages of enterprises to a certain degree. Traditional wisdom focuses on cost efficiency, asset differentiation, and service performance to gain competitive advantages. This paper explores the influence of organizational flexibility and organizational innovation on enterprise competitiveness for Chinese construction organizations. A designed structured questionnaire was developed and conducted targeting the project-based enterprises in China’s construction industry and is accompanied by a structural equation modeling analysis. Results indicate a positive impact of organizational flexibility on enterprise competitiveness along with a mediation role of organizational innovation. The study concludes that new organizational strategies are required for Chinese project-based enterprises to maintain enterprise competitiveness in order to realize the sustainable development of enterprises.
... On the theoretical front, these alternative types of innovation may have properties quite different from that of technological innovation. For example, Birkinshaw and Mol (2006) point out that managerial innovation tends to entail more participation of external agents, and diffusion of new management practices often takes significantly longer time. Besides, Chen (2006) shows that the impact of marketing innovation can differ markedly from that of product and process innovations. ...
Article
Full-text available
This paper reviews the theoretical and empirical economic literature on the innovation effect of international trade. To this end, we focus on technological innovation that targets product characteristics. We highlight three main channels through which international trade can affect innovation by domestic firms: increasing market size, intensifying market competition and facilitating foreign sourcing. While the market size effect of trade on domestic innovation is found to be predominantly positive, the effects of market competition and foreign sourcing are ambiguous and can depend on a variety of factors. Moreover, the impact of trade on innovation is likely heterogeneous across firms.
... Although it is related indirectly to a firm's primary work activities, it is related more directly to changes in the way management performs its work (Damanpour, Szabat and Evan, 1989;Hamel, 2006;Černe et al., 2016). Management innovation is typically more diffuse and gradual than technological innovation, and more contingent upon actors and relationships within the organization's highly complex social system ( Birkinshaw and Mol, 2006). It is typically also less discrete and tangible, more organizationspecific, and more difficult to replicate than technological innovation (e.g., Hamel, 2006;Evangelista and Vezzani, 2010). ...
Article
Full-text available
Although research and development (R&D) is a key indicator of (technological) innovation, scholars have found mixed results regarding its effect on product innovation and firm performance. In this paper, we claim that variations in R&D effectiveness can be explained by changes in a firm’s social system, in particular in its management innovation. It is still unclear how management innovation influences R&D effectiveness in terms of product innovation. In this study, we address this theoretical and empirical gap in the innovation literature. Our theoretical arguments and findings from a large‐scale survey among Dutch firms show that R&D has a decreasingly positive relationship with product innovation, particularly for firms with low levels of management innovation. However, in firms with high levels of management innovation, this relationship becomes more J‐shaped, especially in small and medium‐sized firms. Our findings also appear to indicate that management innovation may be more important for competitive advantage than just R&D. Overall, our insights reveal that management innovation is a key moderator in explaining firms’ effectiveness in transforming R&D into successful product innovation.
... Innovation is not exclusively associated with creativity and the generation of new products and services, but also refers to new forms of management and processes [17,18]. One of the most widely used definitions of innovation is provided by the Oslo Manual [19], which defines it as "the introduction of a new or significantly improved product (good or service), of a process, of a new organizational or marketing method, in the internal practices of the company, the organization of the workplace or external relationships". ...
Article
Full-text available
Abstract: The objective of this research was to analyze the influence of the dimensions that enable the rating of service quality perceived by users of sport and health centers in the satisfaction they experience from the service received. In order to present the working hypothesis, a bibliographic review on the concept and dimensions of perceived service quality was carried out, as well as its relationship with satisfaction. The rating scale sports organizations (EPOD) was used as a measurement instrument. The application of a regression analysis was used to test the hypotheses. As a prior step, the measurement scales were validated and an exploratory factor analysis was applied to determine the structure of the variables considered. The regression models proposed show the joint influence of the dimensions used by the users to rate perceived service quality in their satisfaction. The results enabled us to observe that the dimensions considered in the model explained 75.7% of satisfaction, with the facilities and material, together with communication and activities, having the most significant influence on satisfaction. Meanwhile, dimensions that had less impact were the monitor and the staff. It is clear that there is a strong correlation between perceived quality and satisfaction with service. Keywords: quality; perceived quality of the service; rating scale sports organizations (EPOD); sport and health centers; satisfaction
Conference Paper
Full-text available
A primary quantitative study was conducted with the purpose of extracting information from the managers of contemporary organizations regarding innovation management. This study aimed at understanding the significance of innovation management from the perspectives of hotel managers. A pre-designed survey questionnaire was distributed among 50 hotel mangers that contained 20 questions related to the topic of the study. The findings of this study declare that in the current settings hotels cannot do without incorporating and managing innovation in their settings.
Article
Full-text available
RESUMO No contexto de alterações no cenário econômico e tecnológico do setor de serviços, é preciso que as organizações busquem formas de inovar para sobreviverem e se destacarem no mercado. Nesse sentido, a gestão da inovação destaca-se como área fundamental das organizações. Como meio de implantar a inovação nas empresas, destacam-se as metodologias de User Experience (UX) e Design de Serviços, que utilizam o Design Thinking (DT) como meio de desenvolvimento de seus processos. Pensando nisso, este artigo visa demonstrar a conexão entre a Gestão da Inovação e Design de Serviços. Para tanto, foi realizada uma pesquisa bibliográfica sobre os temas em questão (UX, DT, Gestão da Inovação e Design de Serviços). Por fim, foi proposto um modelo teórico analítico que faz a conexão dos conceitos supracitados. Palavras-chave: gestão da inovação, design de serviços, design thinking, user experience.
Article
Full-text available
Management scholars are focusing greater research attention on innovation within firms. Innovation is now viewed as critical for firms to maintain their competitiveness. In this paper our focus is to provide a management disciplinary perspective on innovation. In doing so we consider the purpose of innovation, some definitions of innovation and review some contemporary issues including management innovation, business model innovation, sources of innovation and open innovation. We then consider leadership, organizational culture and underground innovation before we conclude with some future research avenues. We suggest that management scholars should focus future research on innovation on managerial power dynamics, managerial support for underground innovation, managerial characteristics, experiences, leadership styles and behaviors of R&D managers and innovation failure.
Article
Infusing hierarchies with elements of market control has become a much-used way of simultaneously increasing entrepreneurialism and motivation in firms. However, this paper argues that such "internal hybrids," particularly in their radical forms, are inherently hard to successfully design and implement because of a fundamental incentive problem of establishing credible managerial commitments to not intervene in delegated decision making. This theme is developed and illustrated, using the case of the world-leading hearing aids producer, Oticon. In the beginning of the 1990s, Oticon became famous for its radical internal hybrid, the "spaghetti organization." Recent work has interpreted the spaghetti organization as a radical attempt to foster dynamic capabilities by organizational means, neglecting, however, that about a decade later the spaghetti organization has given way to a more traditional matrix organization. In contrast, an organizational economics interpretation of Oticon organizational changes is developed. This lens suggests that a strong liability of the spaghetti organization was the above incentive problem: Frequent managerial meddling with delegated rights led to a severe loss of motivation, and arguably caused the change to a more structured organization. Refutable implications are developed, and the discussion is broadened to more general issues of economic organization.
Article
The Topeka Pet Food Plant has been one of the most highly publicized examples of organizational innovation in recent times. However, some of the publicity associated with it has been highly misleading. The authors offer a careful reexamination of the development and operation of the plant, outline the role that publicity has played in its history, and discuss the use of case studies in general.