Chapter 10 Organizing for Innovation

Question 1

What are some of the advantages of being a large size firm?

Answer 1

(1) capital markets are imperfect, and large firms are better able to obtain financing for R&D projects, and

(2) firms with larger sales volume over which to spread the fixed
costs of R&D would experience higher returns than firms with lower sales volume.

3. Another advantage of size may arise in scale and learning effects. If large firms spend more on R&D in an absolute sense, they might also reap economies of scale and learning curve advantages in R&D—that is, they may get better and more efficient at it over
   time
4. Large firms are also in a better position to take on large or risky innovation projects than smaller firms.

Question 2

What are some of the disadvantages of small firms in comparison to larger firms?

Answer 2

1. as a firm grows, its R&D efficiency might decrease because of a loss of managerial control.6 That is, the bigger a firm gets the more difficult it can
   become to effectively monitor and motivate employees.
2. Large firms may also be less innovative because their size can make them less nimble and responsive to change
3. High numbers of employees, large fixed-asset bases, and a large base of existing customers or supplier contracts can also be sources of inertia, making it difficult for the
   firm to change course quickly.
4. Small firms are often considered more flexible and entrepreneurial than large firms.Wh

Question 3

What is one primary method to make large firms feel small?

Answer 3

One primary method is to break the overall firm into several smaller subunits, and then encourage an entrepreneurial culture within these subunits. Multiple studies have observed that in industries characterized by high-speed technological change, many large and hierarchical firms have been disaggregated (or “unbundled”) into networks of smaller, often more specialized,
autonomous divisions or independent firms.

Question 4

What are the key structural dimensions

Answer 4

1. centralization
2. formalization
3. standardization

Question 5

What is centralization / decentralization?

Answer 5

Centralization is the degree to which
decision-making authority is kept at top levels of management.

Decentralization is the degree to which decisionmaking authority is pushed down to lower levels of
the firm.

Question 6

What are the advantages of decentralizing R&D?

Answer 6

1. Decentralizing R&D activities to the divisions of the firm enables those divisions to develop new products or processes that
   closely meet their particular division’s needs
2. The decentralization of development projects also enables the firm to take advantage of
   the diversity of knowledge and market contacts that may exist in different divisions.

Question 7

What are the disadvantages of decentralizing R&D?

Answer 7

Many redundant R&D activities may be performed in multiple divisions, and the full potential of the technology to create value in other parts of the firm may not be realized.

Furthermore, having multiple R&D departments may cause each to forgo economies of scale and learning-
curve effects.

Question 8

What are the advantages of centralizing R&D?

Answer 8

if the firm centralizes R&D in a single department, it may maximize economies of scale in R&D, enabling greater division of labor among the R&D specialists and maximizing the potential for learning-curve effects through the development of multiple projects.

It also enables the central R&D department to manage the deployment of new technologies throughout the firm, improving the coherence of the firm’s new product development efforts and avoiding the possibility that valuable
new technologies are underutilized throughout the organization

Question 9

What is formalization?

Answer 9

The degree to which the firm utilizes rules, procedures, and written documentation to structure the behavior of individuals or groups within the
organization.

Formalization can substitute for some degree of managerial oversight, and thereby help large companies run smoothly with fewer managers.

Question 10

What is standardization?

Answer 10

Standardization is the degree to which activities in a firm are performed in a uniform manner.

The rules and procedures employed in formalization can facilitate the standardization of firm activities and help to regulate employee behavior by providing clear expectations of behavior and decision-­making
criteria.

Question 11

What are the downsides of formalization and standization?

Answer 11

If a firm codifies all of its activities with detailed procedures, it may stifle employee creativity. Employees may not
feel empowered or motivated to implement new solutions

by minimizing variation, standardization can limit the creativity and experimentation that leads to innovative ideas.

Question 12

What is a mechanistic structure?>

Answer 12

An organization structure characterized by a high degree of formalization and standardization, causing operations to be almost automatic or mechanical.W

Question 13

Why are mechanistic structures often deemed unsuitable?

Answer 13

Mechanistic structures, however, are often deemed unsuitable for fostering innovation. Mechanistic structures achieve efficiency by ensuring rigid adherence to stan-
dards and minimizing variation, potentially stifling creativity within the firm

Question 14

What are organic structures?

Answer 14

An organization structure characterized by a low degree of formalization and standardization. Employees may not have well-defined job responsibilities and operations may be characterized by a high degree of
variation.

Question 15

Why are organic structures better for innovation than mechanistic structures>

Answer 15

Because much innovation arises from experimentation and improvisation, organic structures are often thought to be better for
innovation despite their possible detriment to efficiency.

Question 16

What do many large firms do?

Answer 16

Large firms often make greater use of formalization and standardization because as the firm grows it becomes more difficult to exercise direct managerial oversight.

Formalization and standardization ease coordination costs, at the expense of making the firm more mechanistic.

Many large firms attempt to overcome some of this rigidity and inertia by decentralizing authority, enabling divisions of the
firm to behave more like small companies.

Question 17

What is an ambidextrous organization?

Answer 17

The ability of an organization to behave almost as two different kinds of companies at once. Different divisions of the firm may have different structures and control systems, enabling them to have different cultures and patterns of
operations.

Question 18

How can an ambidextrous organization achieve both short-term efficiency and long-term innovation?

Answer 18

Such firms might utilize mechanistic structures in some portions of the firm and organic structures in others. This is one of the rationales for setting up an R&D division that is highly distinct (either geographically or structurally) from the rest of the organization; a firm can use high levels of formalization and standardization in its manufacturing and distribution divisions, while using almost no formalization or standardization in its R&D
division.

Question 19

What is Skunk Works?

Answer 19

Skunk Works® is a term that originated with a division of Lockheed Martin that was formed in June of 1943 to quickly develop a jet fighter for the U.S. Army. It has evolved as skunk works to refer more generally to new product development teams that operate nearly autonomously from the parent organization, with considerable decentralization of authority and
little bureaucracy.

Question 20

What are quasiformal structures?

Answer 20

reporting relationships that were not formally indicated on the organizational chart). These quasiformal structures were more problem-focused and could change faster than the rest of the company. They also provided a forum for interaction across divisions and thus played an important boundar­
y-spanning role

Question 21

What is an advantage of quasiformal structures?
And an disadvantage?

Answer 21

One advantage of quasiformal structures is that they fostered inter-
actions based on interests rather than on hierarchy. This can foster more employee motivation and cross-fertilization of ideas.

Some of the downsides to such quasiformal structures were that they required time to manage, and they could be hard to kill. Since the quasi structures were not part of the formal reporting structure, it could
sometimes be difficult to establish who had the authority to disband them.

Question 22

What is another method firms use to strike balance between efficiency and flexibility?

Answer 22

Another method firms use to strike a balance between efficiency and flexibility is to adopt standardized manufacturing platforms or components that can then be mixed and matched in a modular production system. This enables them to achieve standardization advantages (such as efficiency and reliability) at the component level, while
achieving variety and flexibility at the end product level.

Question 23

What is modularity?

Answer 23

Modularity refers to the degree to which a system’s components may be separated and recombined

Making products modular can exponentially increase the number of possible configurations achievable from a given set of inputs.

Question 24

What does modularity achieve?

Answer 24

Modularity is achieved in product design through the specification of standard interfaces

Because modularity enables a wider range of end configurations to be achieved from a given set of inputs, it provides a relatively cost-effective way for firms to meet heterogeneous customer demands.

Furthermore, since modularity can enable one component to be upgraded without changing other components, modularity can enable firms and customers to upgrade their products without replacing their
entire system.

Question 25

When do modular products become more valuable?

Answer 25

Modular products become more valuable when customers have heterogeneous demands and there are diverse options for meeting them.

Question 26

What do the standard interfaces reduce?

Answer 26

When products are made more modular, it enables the entire production system to be made more modular. The standard interfaces reduce the amount of coordination that must take place between the developers of different components, freeing them to
pursue more flexible arrangements than the typical organizational hierarchy

Question 27

What are loosely coupled organizational structures?

Answer 27

Organizations can also be made modular through the adoption of structures that enable “loose coupling.”43 In a loosely coupled structure, development and production activities are not tightly integrated but rather achieve coordination through their adherence to shared objectives and common standards.

Question 28

What enabled the loosely coupled organizational structures to be more common?

Answer 28

Advances in information technology have also enabled loosely coupled organizational structures to become more common.45 Information technology can enable a firm to access and process more information at a lower cost, vastly increasing the firm’s
options for development configurations

Question 29

What does less need for integration free firms to do?

Answer 29

Less need for integration frees firms to pursue more flexible research and development and production configurations.

Question 30

How can whole industries be transformed as large vertically integrated firms are displaced by nimbler, more specialized producers?

Answer 30

For instance, firms can become more specialized by focusing on a few key aspects of technological innovation that relate closely to the firm’s core competencies, while obtaining other activities through outsourcing or alliances.

By focusing on those activities in which the firm has a competitive advantage, the firm can improve its chance of developing a product that has a price-to-value ratio that attracts customers while reducing the overhead and administrative complexity of maintaining a wide scope of activities.

This can cause whole industries to be transformed as large vertically integrated firms are displaced by nimbler, more specialized
producers.

Question 31

What are the disadvantages of loose coupling?

Answer 31

Many activities reap significant synergies by being integrated.50 In particular, activities that require the frequent exchange of complex or tacit knowledge are likely to need closer integration than a loosely cou-
pled development configuration can offer.

An integrated firm also has mechanisms for resolving conflict that may be more effective or less expensive than those available in the market.

Question 32

What are some of the key ways managers can use culture and norms to foster innovation?

Answer 32

1. creating norms of meritocracy, flexibility and autonomy
   The norms of an organization signal whether employees are empowered to challenge assumptions and come up with new ideas, or are expected to adhere to the current
   way of doing things.
2. eliminating norms of consensus
   If leaders of organizations want employees to challenge the accepted wisdom, it is important to abolish practices and norms that require people to come to consensus
   prior to making decisions or moving forward with a project.

Research suggests that it can also be very useful to let teams that disagree about a solution pursue different—even competing—paths

3. solo ideation vs brainstorming groups
   There is considerable controversy over whether brainstorming groups foster or thwart creativity.
4. lowering the price of failure
   To foster a culture of innovation, many firms have found it useful to lower the price of failure, and even celebrate bold-but-intelligent failures
5. cultivating idealistic goals
   Many firms have found it valuable to organize the firm around a grand and noble mission that both fosters intrinsic motivation and helps to rally others to its cause.

Question 33

What is the not-invented here syndrome?

Answer 33

They may also be reluctant to adopt other divisions’ innovations because of the belief that innovations that are not developed locally will
not suit their local market needs

Question 34

What are the four primary strategies used by firms to manage multinational innovation?

Answer 34

center-for-global,
local-for-local,
locally leveraged
globally linked

Question 35

What is the center-for-global strategy?

Answer 35

When all innovation activities are conducted at a central hub and innovations are then diffused throughout the
company.

Question 36

What foes the centralization of innovation activities of management enable?

Answer 36

• Tightly coordinate all R&D activities (across both functions and projects).
• Achieve greater specialization and economies of scale in R&D activities while avoiding duplication of activities in multiple divisions.
• Develop and protect core competencies.
• Ensure that innovations are standardized and implemented throughout the company.

Question 37

When are managers likely to choose center-for-global approach?

Answer 37

Managers are likely to choose a center-for-global approach to innovation when they local-for-local strategy have a strong desire to control the evolution of a technology, when they have strong concerns about the protection of proprietary technologies, when development activities require close coordination, or when there is a need to respond quickly to technological change and dispersed efforts are likely to create inefficiencies

Question 38

What are the downsides of center-for-global approach?

Answer 38

center-for-global approach tends to not be very responsive to the diverse demands of different markets.

Furthermore, the divisions that serve these markets might resist adopting or promoting centrally developed innovations.
As a result, innovations developed centrally may not closely fit the needs of foreign markets and may also not be deployed quickly
or effectively.

Question 39

What is local-for-local strategy?

Answer 39

When each division or subsidiary of the firm conducts its own R&D activities, tailored for the needs of the local
market.

Question 40

What are the advantages of the local-for-local strategy and when is this strategy used?

Answer 40

A local-for-local strategy takes advantage of access to diverse information and resources, and it customizes innovation for the needs and tastes of the local market. Managers are likely to choose a local-for-local strategy when divisions are
very autonomous and when markets are highly differentiated.

Question 41

What are the downsides of the local-to-local strategy?

Answer 41

It can result in significant redundancy in activities as each division reinvents the wheel. Furthermore, each division may suffer from a lack of scale in R&D activities, and there is a risk that
valuable innovations will not be diffused across the firm.

Question 42

What is the locally leveraged strategy?

Answer 42

When each division or subsidiary of the firm conducts its own R&D activities, but the firm attempts to leverage resulting innovations throughout the
company.

Question 43

When is the locally leveraged strategy used?

Answer 43

A firm implementing a locally leveraged strategy attempts to take the most creative resources and
innovative developments from the divisions and deploy them across the company.

Question 44

What is the globally linked strategy?

Answer 44

Innovation activities are decentralized, but also centrally coordinated for the global needs of the
corporation.

Question 45

What does the globally linked strategy attempt?

Answer 45

while innovation is decentralized to take advantage of resources and talent pools offered in different geographic markets, it is also globally coordinated to meet companywide objectives. This approach also attempts to enable the learning accrued through innovation activities to be diffused throughout the firm. This strategy can be quite powerful in its ability to tap and integrate global resources, but it is also
expensive in both time and money as it requires intensive coordination.

Question 46

What is the difference between locally leveraged and globally linked strategies in terms of R&D divisions?

Answer 46

In both the locally leveraged and globally linked strategies, R&D divisions are decentralized and linked to each other. The difference lies in the missions of the R&D divisions. In the locally leveraged strategy, the decentralized R&D divisions are largely independent of each other and work on the full scope of development activities rel-
evant to the regional business unit in which they operate