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Session 8: “Innovation and change”. Knut Haanæs Associate Professor Norwegian School of Management - BI. Strategy, structure, innovation and change. Exploration vs. exploitation. 3M case discussion. Summary. Questions for 3M case.
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Session 8: “Innovation and change” Knut Haanæs Associate Professor Norwegian School of Management - BI Knut Haanæs
Strategy, structure, innovation and change Exploration vs. exploitation 3M case discussion Summary Knut Haanæs
Questions for 3M case • Describe the evolution, and the main changes that take place, in 3M during the case period? • How would you characterize 3M's main sources of competitive advantage at the end of the case? • In your opinion, how sustanable are their current sources of competitive advantage? • Suggest a future strategy for 3M, taking into account their market situation, their core competencies, their internal culture and their vision and philosophy. Knut Haanæs
Strategy, structure, innovation and change Exploration vs. exploitation 3M case discussion Summary Knut Haanæs
A fundamental trade-off Increased innovation EXPLORATION EXPANSION “Best practice” kurve EXPLOITATION Increased efficiency Knut Haanæs
Problems with exploration • Time problem • Space problem (payoff not always in same place – or organization) Optimal level of exploration depends on time horizon. The longer the time perspective the more you should search (explore). Knut Haanæs
Problem with exploitation • Reinforcement - It is tempting to stick to present solutions, and the only way to build competence • Time problem - Over time change will make current solutions obsolete Knut Haanæs
Explore when... • Long time-horizon • Problems provide fast, reliable feed-back • Low risk of catastrophe from exploration • High probability of catastrophic failure with the status quo • Competencies to absorb knowledge and appropriate value • Rich search environment Knut Haanæs
Innovation requirements • Time • Long time perspective • Persistence • Willingness to take risks • Technical risks • Competence risk (does not fit in) • Market risk (appropriated by others) Knut Haanæs
EXPLOIT High Operational competition EXPAND Contractual competition EXPLORE Mobility of critical resources Entrepreneurial competition Time Low Industry development over time Kilde: Haanes og Fjeldstad Knut Haanæs
Search and environment • Both success and failure lead to search • Success-induced search is risky, more distant and with lower odds of success • Failure-induced search increases efficiency and decreases foolishness • Outcome depends on richness of search environment • In technologically young worlds, success leads to success • In technologically mature worlds, success leads to failure WE NEED TO BE FOOLISH ENOUGH TO LOOK AND LUCKY ENOUGH TO FIND SOMETHING!!! March (1994) Knut Haanæs
Confusions of adaptation • Most new ideas are bad ideas and increasingly so. • Good novel ideas are indistinguishable from crazy ones (in short term) • Persistence in pursuing new ideas is essential • Often inadequate persistence • Abandon new ideas too rapidly • Focus practice on the successful alternative (success trap) • Process of genius and craziness are related • Knowledge destroys creativity (which is on average a good idea) March (1994) Knut Haanæs
Project mix Derivatives Alliances Platforms Breakthrough R&D Source: Clark and Wheelwright (1993) Knut Haanæs
Strategy, structure, innovation and change Exploration vs. exploitation 3M case discussion Summary Knut Haanæs
Summary - Issues that we should (briefly) revisit! • The synergies and corporate strategy • The network form organization • …... Knut Haanæs
Does this look different today? Industry (competitive forces) TIME AND PROCESS Activities (value creation) Resources (competences) Knut Haanæs
