What people can do to promote freedom of expression in
Russia?
join organizations NGOs that support global freedom of the
press AI, HRW,
support efforts in Russia to create legislation that opens up the
media
support lawyers and media defense councils in Russia who are
defending freedom of speech
Support independent radio stations that can send signals into
Russia as well as Internet and social media
http://www.khodorkovsky.com/programmes/open-russia/
Open Russia in its current form aims to connect and unite
Russian citizens who seek a state governed by the rule of law,
with a strong civil society, regular free and fair elections, and
the promotion of European democratic values.
Khodorkovsky has described Open Russia as a “horizontal
alliance,” explaining: “What is needed now for effective
resistance is not a party with yet another ‘vertical’ structure,
eager to fight for power, but a ‘horizontal’ alliance of the vast
number of ‘small civic groups’ that form the underlying fabric
of civil society and that solve their own concrete problems
locally.”

A Russian-language online media project OpenRussia.org,
which publishes daily, and promotes the values and aims of
Khodorkovsky and the Open Russia movement.
The recently announced Open Mediaproject, aimed at
supporting start-ups in the field of investigative journalism.
Journalists and activists wishing to set up their own media
project will be able to apply for financial support.
https://www.opensocietyfoundations.org/reports/mapping-
digital-media-russia
Mapping Digital Media: Russia
September 2011 Alexei Pankin with Andrei Fedotov, Andrei
Richter, Anastasia Alekseeva & Daria Osipova Independent
Journalism
Two significant discussions need to be initiated in the near
future to help to prevent further deterioration of news quality
and to ensure that the public interest is served. Firstly, debate
among media professionals on ethical norms in journalism in
general and in new media in particular, which would ideally
result in developing a set of standards recognized by a sizable
proportion of Russia's journalistic community. The second is a
public debate on public service broadcasting, which should lead
to the drafting of a roadmap of transition from state-controlled
outlets and eventually to drafting legislation spelling out the
role and remit of public broadcasters.
Learn More:
Investor and philanthropist George Soros established the Open
Society Foundations to help countries make the transition from
communism.

https://www.opendemocracy.net/od-russia/galina-
arapova/media-freedom-in-russian-regions-you-must-be-
joking…
Open Democracy
Being able to consult a media lawyer strengthens journalists’
position immensely – both at the stage of writing and as they
are being taken to court. Lawyers at our Mass Media Defence
Centre handle up to 100 cases a year, defending journalists and
editorial staff. Each time we take on a case, we are aware that
we are not defending an individual journalist, but taking a stand
for the cause of professional freedom and freedom of speech in
general. Both journalists and judges are beginning to see the
work of the press in a different light, belatedly realising to what
extent core standards relating to freedom of speech have been
laid down by the European Court of Human Rights and learning
to apply them. Every case of this kind changes both everyone
involved in it and Russian reality itself.
https://freedomhouse.org/report/freedom-world/2016/russia
freedom house
Only a small and shrinking number of radio stations and print
outlets with limited reach offer a diverse range of viewpoints. A
2014 law will force foreign owners of Russian media outlets to
sell all shares above a 20 percent stake by early 2017.
Aleksandr Fedotov, owner of Artcom Media, bought the Russian
edition of Forbes from Germany’s Axel Springer group in
September 2015 and announced that the magazine would reduce
its political content and focus more on “economics and
business.” Another Russian businessman and media executive,

Demyan Kudryavtsev, bought the stake in the newspapers
Vedomosti and the Moscow Times owned by Finland’s Sanoma
in April. The chief editor of the Moscow Times resigned in
October, citing conflicts with the new owner.
People can help Russia promote freedom of expression by:
pressuring Russia to change its constitution; asking other
countries to condemn Russia’s censorship and media control;
demonstrating against media control; supporting lawyers in
Russia who are working to support freedom of expression; help
radio and Internet services that provide information to the
Russian people, and join NGOs that promote freedom of the
press and speech in Russia and around the world.
pressuring Russia to change its constitution
ask other countries to condemn Russia’s censorship and media
control;
European Parliament urges action against Russian ′hostile ...
www.dw.com/en/european-parliament-urges-action-against-
russian.../a-36498112
1Cached
5 days ago - The European Parliament has urged the EU to
respond to Russian ... think tanks, news outlets like Russia
Today and Sputnik, social media
and …http://www.dw.com/en/european-parliament-urges-action-
against-russian-hostile-propaganda/a-36498112
demonstrating against media control;
supporting lawyers who are working to support freedom of
expression

open society foundation
help radio and Internet that provide information to the Russian
people
freedom house
join NGOs that promote freedom of the press and speech
PEN Amnesty International HRW, The committee to Protect
Journalists
Developing Organizations through Information Technology and
Knowledge Management
Grading Guide
TMGT/590 Version 5
2
Developing Organizations through Information Technology and
Knowledge Management Grading Guide
TMGT/590 Version 5
Application of Technology Management
Copyright
Copyright © 2016 by University of Phoenix. All rights reserved.
University of Phoenix® is a registered trademark of Apollo
Group, Inc. in the United States and/or other countries.
Microsoft®, Windows®, and Windows NT® are registered
trademarks of Microsoft Corporation in the United States and/or
other countries. All other company and product names are
trademarks or registered trademarks of their respective
companies. Use of these marks is not intended to imply

endorsement, sponsorship, or affiliation.
Edited in accordance with University of Phoenix® editorial
standards and practices.
Individual Assignment: Developing Organizations through
Information Technology and Knowledge ManagementPurpose of
Assignment
The purpose of this assignment is to assess the importance of
information technology and knowledge management as they
relate to improving decision making and to make informed
decisions concerning change management within an
organization. This assignment is also intended to enable
students to identify how innovation and creativity can be
improved upon through technological change.Grading Guide
Content
Met
Partially Met
Not Met
Comments:
The student analyzes how innovation and technological changes
promote creativity within a global environment.
The student evaluateshow technology impacts learning in their
chosen organization.
The student analyzes how knowledge management impacts the
decision-making process.

The student assesses the impact of technological change and
innovation on global organizations.
The student illustrates how technology can impact innovation
and promote creativity.
The paper is 1,050-words in length.
Total Available
Total Earned
7
#/7
Writing Guidelines
Met
Partially Met
Not Met
Comments:
The paper—including tables and graphs, headings, title page,
and reference page—is consistent with APA formatting

guidelines and meets course-level requirements.
Intellectual property is recognized with in-text citations and a
reference page.
Paragraph and sentence transitions are present, logical, and
maintain the flow throughout the paper.
Sentences are complete, clear, and concise.
Rules of grammar and usage are followed including spelling and
punctuation.
Total Available
Total Earned
3

#/3
Assignment Total
#
10
#/10
Additional comments:
Page 1 of 79
Chapter 13
Innovation, Intrapreneurship, and
Creativity
Page 2 of 79

Learning Objectives
As Chapter 10 noted, innovation is one of the most important
types of
organizational change because it results in a continuing stream
of new and
improved goods and services that create value for customers and
profit for a
company. Indeed, one important way of assessing organizational
effectiveness is
the rate or speed at which a company can bring new products to
market; a second
is the ability to create novel products that become an instant
success such as
Nintendo’s Wii. Both these types of innovation ensure high
performance, but they
depend on the level of intrapreneurship and creativity inside an
organization.
After studying this chapter you should be able to:
1. Describe how innovation and technological change affect
each other.
2. Discuss the relationship among innovation, intrapreneurship,
and creativity.

3. Understand the many steps involved in creating an
organizational setting
that fosters innovation and creativity.
4. Identify the ways in which information technology can be
used to foster
creativity and to speed innovation and new product
development.
Page 3 of 79
Innovation and Technological
Change
Innovation is the process by which organizations use their
resources and
competences to develop new and improved products or to find
better ways to make
these new products and thus increase their effectiveness.
1
Innovation can result in
spectacular success for an organization. Apple changed the
computing industry

when it introduced the first PC, Honda transformed the
motorcycle market when it
introduced its new small 50cc models, Mary Kay changed the
way cosmetics are
sold when she introduced at-home cosmetics parties and a
personalized style of
selling, and when Toyota developed lean manufacturing it
revolutionized carmaking.
Innovation
The process by which organizations use their skills
and resources to develop new goods and services or
to develop new production and operating systems so
that they can better respond to the needs of their
customers.
Although innovation brings about change, it is also associated
with a high level of
risk because the outcome of research and development (R&D) is
often uncertain.2 It
has been estimated that only 12% to 20% of R&D projects result

in products that
get to market; the rest are failures.
3
Thus although innovation can lead to change of
the sort that organizations want—the introduction of profitable
new technologies
and products—it can also lead to the kind of change they want
to avoid:
Page 4 of 79
technologies that are inefficient and products that customers
don’t want. (The way
in which organizations can manage the innovation process to
increase the chance
of successful learning taking place is discussed in detail later in
the chapter.)
Page 5 of 79
Two Types of Innovation

In Chapter 9 , technology is defined as the skills, knowledge,
experience, tools,
machines, and computers used in the design, production, and
distribution of goods
and
services. Advances in technology are at the heart of the
innovation process and
today the world is experiencing an unprecedented level of
technological change.
4
In
general, the two principal types of technological change are
quantum change and
incremental change.
Quantum technological change refers to a fundamental shift in
technology that
revolutionizes products or the way in which they are produced.
Examples of
quantum changes in technology include the development of the
first PCs, which

revolutionized the computer industry; the development of
biotechnology that has
revolutionized the treatment of illness by replacing
conventional pharmaceutical
compounds with genetically engineered medicines; and the
emergence of
advanced computer software that permits social networking,
payments through
smartphone, and mobile game playing. New products or
operating systems that
incorporate a quantum technological improvement are referred
to as
quantum innovations . The introduction in 1971 of Intel’s 4004
microprocessor,
the first “computer on a chip” ever produced, is an example of a
quantum product
innovation. Quantum innovations are likely to cause major
changes in an
environment and to increase uncertainty because they force
organizations to
change the way they operate—as we have discussed in earlier
chapters.
Page 6 of 79

Quantum technological change
A fundamental shift in technology that revolutionizes
products or the way they are produced.
Quantum innovations
New products or operating systems that incorporate
quantum technological improvements.
Incremental technological change refers to the improvements
that are
continuously made to particular technologies over time, and
incremental innovations refer to the superior products or
operating systems
that incorporate and benefit from those refinements. For
example, since 1971, Intel
has continuously improved its original 4004 microprocessor,
introducing advanced

chips such as the Pentium and its Sandy Bridge chips in 2011.
Similarly, flexible
manufacturing, robots, advanced management software
solutions, and TQM are
examples of incremental innovations. All these incremental
technological changes
have dramatically improved the performance, quality, and safety
of all kinds of
products—and reduced their cost—such as the new mobile
computing devices and
fuel efficient vehicles currently being introduced.
Page 8 of 79
Incremental technological change
Technological change that represents a refinement of
some base technology.
Incremental innovations

Products or operating systems that incorporate
refinements of some base technology.
As one might expect, quantum innovations are relatively
uncommon. As Philip
Anderson and Michael Tushman note, “At rare and irregular
intervals in every
industry, innovations appear that command a decisive cost or
quality advantage and
that strike not at the margins of the profits and the outputs of
existing firms, but at
their foundations and their very lives.”
5
Anderson and Tushman call these kinds of
quantum innovations “technological discontinuities,” and in
their model of
innovation, a technological discontinuity sets off an era of
ferment. At the beginning,
intense competition between companies in an industry arises to
develop the design
that will become the dominant model for others to copy—just as
Intel’s most
advanced chips are the dominant design in the microprocessor

industry and Apple’s
iPhone and iPad have become the dominant design for a new
generation of mobile
computing devices.
After the dominant design emerges, the next period of the
technology cycle involves
an era of incremental change and innovation during which
companies work on and
improve a specific technology. Competition to improve a
technology in order to offer
Page 9 of 79
customers a better product, that is, incremental product
innovation, is the type of
innovation pursued by most organizations. For example, every
time a carmaker
redesigns and introduces the new version of one of its cars, it is
engaged in
incremental product innovation, but this is nevertheless a very
competitive process.

By 2011, for example, global carmakers had all recognized the
growing popularity
of fuel efficient vehicles and were competing to offer customers
new kinds of hybrid
or electric vehicles.
The innovations that result from quantum and incremental
technological change are
all around us. The increasing use of microprocessors used in all
kinds of consumer
products, cloud computing services that allow users to access
their data, music,
video remotely through the Internet using new kinds of mobile
computing devices,
ever-improving flat-screen TVs and gaming consoles, and the
genetically
engineered medicines produced by biotechnology either did not
exist a few decades
ago or were considered prohibitively expensive products.
Today, these products are
taken for granted and are continuously being improved as
companies fight for
competitive advantage—and indeed to survive. By 2011, for
example, leading

mobile phone makers like Nokia and Research in Motion found
themselves under
intense pressure from companies like Apple and Samsung that
had
forged ahead to develop new smartphone and tablet computer
technology that
allowed them to leapfrog over their rivals—and their stock price
soared as a result.
Technological change is thus both an opportunity and a threat—
it is both creative
and destructive.
6
It helps create new product innovations that pioneering
companies can take advantage of, but at the same time, these
innovations reduce
or eliminate demand for the products made by established but
less innovative
Page 10 of 79

organizations. For example, the development of the iPod and
iPhone by Apple
destroyed demand for older products such as the Sony Walkman
and Motorola
Razr—and the profitability of these companies has plunged as a
result.
Page 11 of 79
Protecting Innovation through Property
Rights
When a company’s managers use its resources in an enterprising
way, the result is
a stream of innovations that create new and improved products
and increase its
effectiveness. Companies must invest enormous amounts of
money in R&D to
develop innovative new products, however. Intel spent over $13
billion on R&D in
2011, for example, and it is also expensive to build new
manufacturing facilities to
make advanced products—a new chip-making factory costs Intel
from $3 to $5

billion to build, for example.
It would hardly be fair or equitable if, after a company spends
billions of dollars on
these activities, a competitor could just come along, piggyback
on the company’s
innovations, and start to produce a copycat product. If this were
easy to do, few
companies would make the investment necessary to develop new
products.
Technological progress would plunge and a society’s standard
of living would
advance little over time.
As Chapter 6 discusses, property rights give people and
organizations the right
to own and control productive resources and to profit from
them. To motivate
entrepreneurs and companies to take risks and invest in new
ventures whose
payoff is unknown, laws are enacted to protect the profits that
result from successful
efforts to innovate or create new products. Individual inventors
and companies are

given the legal property rights to own and protect their
creations by the granting of
patents, copyrights, and trademarks.
Patents give their owners the property right to use, control,
license, and otherwise
profit from their creation—a new product such as a door handle,
machine, or new
drug—for a period of 20 years from the date the patent is issued
by the U.S. Patent
Office. In other words, patents confer a monopoly right on their
owner—the
Page 12 of 79
individual inventor or company that has pioneered and paid for
the research that led
to the new product. One of the most profitable kinds of patents
are those obtained
by pharmaceutical companies that develop new drugs that better
treat some illness
or disease. Merck, the company that developed Prozac and

Viagra, made hundreds
of billions from the sale of these drugs, for example. But once a
patent has expired
any company can manufacture a copy of the original drug, a
generic drug, which is
then sold for a fraction of the price of the patented drug, so the
huge profits of the
company that invented the drug disappear.
Copyrights also confer a monopoly right on their owner. They
are typically granted
to people who create intellectual property, such as written or
visual works—books,
videogames, poems, and songs produced by authors, software
engineers, poets,
and musicians. If they wish, the owners of the copyright can sell
it to other people or
companies—such as when a movie company buys the rights to
turn a new book
into a movie from its author. Copyrights last for much longer
periods than patents,
often the lifetime of the work’s creator and beyond.
Currently, laws governing the length of copyrights are

changing. Support is growing
for the idea that copyrights to works should be granted for much
shorter periods,
perhaps for just 20 years or the life of their creator. Once a
copyright expires,
intellectual property enters the public domain and becomes a
public good, meaning
that anyone is free to make use of it at no cost. Today, tens of
thousands of out-of-
copyright books are available on websites such as Amazon.com
and
www.gutenberg.org.
To increase the benefits from their creations, innovators of new
products and
services are also given the legal right to the trademarks that
they use to identify
their products to customers. Trademarks are property rights to
the name of a
product (such as Nescafé or Ivory Soap), any symbols or logos
associated with it,
and the company that produces it (such as Nestlé or Procter &
Gamble).
Trademarks give their owner the sole legal right to

http://www.gutenberg.org/
Page 13 of 79
use these names or symbols and control the use to which they
are put—for example—
advertising a product, in perpetuity.
Because people and companies have to invest their creativity,
time, and money to
obtain copyrights and trademarks to develop a brand name, it is
only fair to allow
them to benefit from the “identity” of their creations. Thus J. K.
Rowling, the creator
of Harry Potter, holds the copyrights to her books, and she and
her publishing
company own the trademarks associated with the Harry Potter
brand name.
Nobody can issue Harry Potter toys or clothing without paying a
licensing fee to
them because they own the trademark, just as no company has
the right to use

another company’s patent unless it pays to use it—as long as the
patent is in force.
Protecting property and resources of all kinds is one of the
principal purposes of the
law. The issue of who holds the rights to written resources in
the digital age became
a hotly debated topic in 2005 when Google announced its
intention to scan millions
of books in major world libraries and then make them available
free over the Web to
users throughout the world. Google quickly found itself
embroiled in lawsuits with
publishing companies that claimed it is violating their
copyrights to these works.
How long an author, artist, or company should be able to claim
copyright over their
intellectual property is an issue that the courts have to resolve.
Organizational Insight 13.1 profiles the way the Rolling Stones
developed a set
of entrepreneurial skills to take advantage of their brand name
and copyrights that
has made them the wealthiest rock band in the world.

Page 14 of 79
Organizational Insight
13.1 The Rolling Stones Are Not Gathering
Moss
The Rolling Stones have been one of the world’s leading rock
bands since
the early 1960s when they burst into the music scene as the
“bad boys” of
rock and roll. As with most rock groups in those early days,
they were an
unproven product with no track record. Desperate to sign
recording
contracts, the Stones, like most early rock bands, were in a
weak bargaining
position when dealing with record companies such as Decca, the
company
they initially signed with. As a result, despite their enormous
initial success,
they received a relatively small percentage of the profits their
best-selling

records generated. Later, after these contracts expired and
because they
were now world famous, the Rolling Stones were able to
renegotiate
contracts with record companies on their own terms. They also
used their
fame to find new avenues for entrepreneurship.
Since 1989, the Stones, under the leadership of Mick Jagger, the
CEO of
Rolling Stones Inc., have based their business model on finding
ways to use
their product—their unique music and rock persona—to
generate profit.
Since 1989 the Stones have earned more than $2 billion in
revenues; about
$700 million has come from royalties earned on the sales of
their records
and songs. But the incredible success of their world tours
generated the
remaining $1.3 billion from the ticket sales, merchandising, and
company
sponsorship money associated with their tours. The way the
Stones

orchestrate their world tours shows how entrepreneurial they
are.
It all began with the Steel Wheels tour in 1989, when for the
first time the
Stones, working with a Canadian promoter named Michael Cohl,
took total
Page 15 of 79
control over all aspects of their tour. Before this, the Stones,
like most rock
bands, put together a schedule of cities to tour. They would then
contact
well-known promoters in those cities to take
Marius Wigen/Shutterstock.com
responsibility for staging the concert and the sales of tickets;
the Stones
then received a percentage of total concert revenues. With this
business

model the promoters were taking away over 60% of total
revenues. Cohl
proposed a new model in which he would assume responsibility
for all 40
concert venues on the Steel Wheels Tour and guarantee to pay
the Stones
$1 million per concert, a much higher amount than they had
ever received
before. Cohl felt he could do this because his approach cut out
the profits
earned by the promoters; he also would be able to negotiate
merchandising
contracts to promote Stones T-shirts, posters, and so on, and to
get
corporate sponsorship for the tour.
Page 16 of 79
After they had played the first several venues, it became clear
to Cohl that
he was losing money on each one. To make the tour a success
they would

all have to find new ways to cut costs and increase revenues.
From this
point on the Stones became directly involved in every decision
concerning
staging, music, advertising and promotion, and even the price of
concert
tickets, which have shot up in every tour since Steel Wheels.
The Stones,
and particularly Jagger, faced a huge task to learn how to
improve the
concert tour business model, but they persevered and step by
step have
continued to refine and develop their approach in every
subsequent tour. In
the end, the Steel Wheels tour made over $260 million and the
Stones
made far more than the $40 million they were promised. In later
tours, from
“Packing Them In” to the “Voodoo Tour” in 1995 and the
“Licks” 2003 tour,
world revenues from concerts surged, with tickets selling at
face price for up
to $350.

When Mick Jagger and Keith Richards, who are both now in
their late 60s,
were asked how l/ ng they planned to go on touring, their
answer was “until
we drop.” The Stones reinvent themselves on every tour as
creative artists,
and performing at the level expected of them calls for a new
burst of
enterprise every time they get on the stage and give their
billions of loyal
fans the show they expect. In 2011, a new Stones 50-year
anniversary
“farewell’ tour was in the works; whether this tour will go
ahead in 2012 is
not clear as Richards and Jagger began yet another personal
squabble.
Clearly, being innovative in the rock music business is never
easy—it is
very hard work.
Page 17 of 79
Innovation, Intrapreneurship, and

Creativity
The leaders of innovation and new product development in
established
organizations are intrapreneurs , employees who notice
opportunities for either
quantum or incremental product improvements and are
responsible for managing
the product development process to obtain them. Many
managers, scientists, or
researchers employed by existing companies engage in
intrapreneurial activity. But
people like Amazon.com’s Jeff Bezos or Liz Claiborne who
start new business
ventures and found organizations are entrepreneurs. They
assume the risks and
receive many of the returns associated with the new business
venture.7
Intrapreneurs
Entrepreneurs inside an organization who are
responsible for the success or failure of a project.

There is an interesting relationship between entrepreneurs and
intrapreneurs. Many
intrapreneurs become dissatisfied when the organization they
work for decides
neither to support their creative new product ideas nor to fund
development efforts
that the intrapreneurs think will succeed. What do intrapreneurs
do who feel that
Page 18 of 79
they are getting nowhere? They often decide to leave the
organization and start
their own organization to take advantage of their new product
ideas. In other words,
intrapreneurs become entrepreneurs and found their own
organizations that may
compete with the organizations they left.
Many of the world’s most successful organizations have been
started by frustrated
intrapreneurs who became entrepreneurs. William Hewlett and

David Packard left
Fairchild Semiconductor, an early industry leader, because
managers of that
company would not support their computing ideas. Their
company, now HP, soon
outperformed Fairchild. Compaq Computer was founded by Rod
Canion, who left
Texas Instruments (TI) when managers there would not support
his idea that TI
should develop its own PC. HP eventually bought Compaq in
2001 to compete with
Dell and this merger helped lead to Dell’s current problems,
although by 2011 both
companies were suffering from competition from Apple, which
had hired away many
managers from both these companies. To prevent the departure
of talented people,
organizations need to take steps to promote internal
entrepreneurship. (We discuss
how to promote successful entrepreneurship in both new and
existing organizations
later in the chapter.)
All innovation begins with creative ideas. It is important to

realize, however, that
creative ideas are not just those that lead to major new
inventions or achievements:
Creative ideas are any that take existing practices a step farther
than the norm.
Creativity is nothing more than going beyond the current
boundaries, whether
those boundaries are technology, knowledge, social norms, or
beliefs.8 Deciding
that PCs do not have to be beige and can be blue, pink, or even
made of clear
plastic is a creative idea, just as putting together the first PC
was a creative idea.
Although the latter may be more memorable, and made Apple
founders Steve Jobs
and Stephen Wozniak famous, the millions of small creative
ideas and actions that
have gone into improving PCs since then are nevertheless
highly significant and
valuable. And Michael Dell’s creative idea of selling PCs over
the phone, although
Page 19 of 79

not in the same league as making the first PC, nevertheless led
to his fame as an
innovator.
Creativity
Ideas going beyond the current boundaries, whether
those boundaries are based on technology,
knowledge, social norms, or beliefs.
From this perspective, most people have been and will be
creative in their normal
endeavors. Thus, employees must grasp the fact that their input,
suggestions, and
ideas are
valuable and organizations should take steps to acknowledge
how important these
ideas are. Organizations can do this by promoting innovative
values and norms in

their organizational cultures and reinforce them by providing
financial rewards for
good ideas—as many organizations do. In 2011, Google’s new
CEO Larry Page
decided to link employee bonuses and financial rewards to their
ability to help the
company succeed in its efforts to become a major player in
social networking and
so compete with Facebook.
Creativity is not just making new things; it is also combining
and synthesizing two or
more previously unrelated facts or ideas and making something
new or different out
of them. It is also modifying something to give it a new use or
to make it perform
Page 20 of 79
better. Synthesis and modification are much more common than
creation, and this
is why incremental innovation is more common than radical
innovation. As

Anderson puts it, “We forget that moving a desk so that work
flows smoother is also
creativity. It’s modification. And creativity also blooms when
we redesign a job
description so that related tasks are given to the same person.
That’s synthesis. It’s
even creativity when we cut our losses on a worthless industrial
adhesive by
slapping it on the back of our secretary’s note pad...that bit of
creation is the 3M
‘Post-it’ notes but nothing is going to make your firm creative
unless you first help
individuals to unlock their willingness to try.”9
As Nonaka puts it, the process of innovation and creating new
knowledge depends
on the ability of managers to tap into the tacit, hidden,
subjective insights, intuitions,
and hunches of people everywhere in an organization.
10
The source can be a
brilliant researcher’s insight, a middle manager’s intuition
about changing market

trends, or a shop floor worker’s tacit knowledge built up by
intense involvement in
the work process over a number of years. The issue is to
transform personal
knowledge into organizational knowledge that results in new
products. This can be
complicated because such tacit knowledge is often difficult to
verbalize; it is know-
how accumulated by experience and tough to articulate in rules,
formulas, or
principles.
To obtain such tacit knowledge it is necessary to learn through
observation,
imitation, or modeling. Also, over time, through team
interactions, team members
learn how to share their knowledge, and team routines and
“recipes” develop that
are specific to a group and to an organization that lead to
innovative kinds of
behaviors. Some of these can be written down, though many are
present only in the
interactions between team members—in their knowledge of each
other. Note too

that from such interactions additional tacit knowledge may be
created so that
organizational knowledge builds up, spills over, and increases
throughout an
organization.11
Page 21 of 79
A knowledge-creating organization is one in which such
innovation is going on
at all hierarchical levels and across all functions and divisions.
Different teams meet
to share their growing information and insights, so as
knowledge is shared
throughout the organization, new heights of innovation can be
reached. Team
leaders, as middle managers, then have to confront the task of
translating creative
new ideas into the stream of products that customers will buy. It
is at this point that
the issue of how to create and design an organizational setting
to promote creativity

and innovation becomes crucial. And designing a setting to
encourage creativity is
as much a form of innovation as the design of the new products
that are created
within it.
Knowledge-creating organization
An organization where innovation is going on at all
levels and in all areas.
Page 22 of 79
Entrepreneurship as “Creative Destruction”
The widespread technological changes brought about by
increasing global
competition that generate new innovations are often referred to
as the process of
“creative destruction.” This process leads older, less-forward
looking companies to
become uncompetitive or even driven out of business by new,

more innovative
ones. No one foresaw how much the rapid advances made by
Apple in mobile
computing would hurt Nokia and Research in Motion, the
leaders for a decade, by
2011. This is “creative” because companies—old ones like
Apple or new ones like
HTC—can use new global and technological opportunities to
make better products
or lower the costs of making existing products. Established
companies that fail to
invest in the “right” new technologies—the ones that provide
customers with the
most value—can find themselves at such a competitive
disadvantage that they are
driven out of business unless they can adapt quickly. New
startups become the
companies that will lead the industries of the future unless
“older” competitors can
find
ways to fight back. Will Microsoft ever be able to meet the
challenge from Google

because it does not control the online search and advertising
business? Will Google
find that it will lose its leading position to Facebook because it
does not control the
social networking market? In the last decades, the emergence of
new industries—
such as digital communication, biotechnology, robotics, fuel
cells, and online
retailing and gaming—have created massive disruptions in the
business world.
The industrial revolution is another example of how the process
of creative
destruction works. The old agricultural age, where wealth
depended on land and
Page 23 of 79
physical labor, gave way to the age of steam-powered
machinery and
transportation. The new industrialists who used their capital to
create new low-cost
industries destroyed the old craft guilds. The information

technology age represents
the latest wave of major technological change in which all kinds
of businesses must
invest in IT to avoid being left behind by entrepreneurial
companies that make such
investments first—and then are able to forge ahead.
Page 24 of 79
Innovation and the Product Life Cycle
When technology is changing, organizational survival requires
that managers
quickly adopt new technologies to innovate new products.
Managers who do not do
so soon find that they have no market for their existing
products—and destroy their
organization’s future. Sony, for example, long the leader with
its Walkman, suddenly
lost its leading position in the music player business when
Apple came along with
its iPod player. But the “ancient” Rolling Stones release new
records and tour often

to keep their product current and fashionable.
The rate of technological change in an industry—and
particularly the length of the
product life cycle—determines how important it is for managers
to innovate. The
product life cycle reflects the changes in demand for a product
that occur over
time.
12
Demand for the most successful, innovative, new products
passes through
four stages: the embryonic stage, growth, maturity, and decline.
In the embryonic
stage a product has yet to gain widespread acceptance;
customers are unsure what
the technology embedded in the product has to offer them, so
there is little demand
for it. If customers decide the technology is valuable and offers
them a “value
proposition,” demand for the product takes off, and the product
enters its growth
stage.

Product life cycle
The changes in demand for a product that occur over
time.
Page 25 of 79
In the growth stage many consumers are entering the market and
buying the
product for the first time; demand increases rapidly. Mobile
computing devices are
currently in this stage. Apple’s high-tech mobile devices have
spurred most global
mobile computing companies to introduce their own products
based on similar
technologies. The growth stage ends and the mature stage
begins when market
demand peaks because most customers have already bought the
product (relatively
few first-time buyers are left). At this stage, demand is typically
replacement

demand because incremental innovation has resulted in a new
generation of
products that have better features—so customers junk the old
ones such as out-of-
date cellphones or bulky CRT monitors and TVs and go for
high-definition flat-
screen LCD TVs. The decline stage follows the mature stage if
and when demand
for a product falls because quantum technological change
results in the emergence
of a superior alternative product and a product becomes
technologically obsolete—
the iPod replaced the Walkman, for example.
Page 26 of 79
Rate of Technological Change
As this discussion suggests, the most important determinant of
the length of a
product’s life cycle is the rate of technological change.
13

Figure 13.1 illustrates
the relationship between the rate of technological change and
the length of product
life cycles. In some industries—such as PCs, semiconductors,
and online books
and music—technological change is rapid and product life
cycles are very short. For
example, technological change is so rapid in laptops that a new
model becomes
outdated only several months after its introduction.
In other industries the product life cycle is somewhat longer. In
the car industry, for
example, the average product life cycle is three to five years.
The life cycle of a car
is short because technological change produces a continual
stream of incremental
innovations in
Figure 13.1 Technological Change and Length of the Product
Life Cycle
Page 27 of 79

car design, such as the introduction of GPS positioning systems,
advanced
microcontrollers, plastic body parts, and more energy-efficient
engines. In contrast,
in industries where the pace of technological change is slower,
product life cycles
tend to be much longer. In steel or electricity, for example,
changes in technology
take longer to be introduced, and products such as steel girders
and electrical cable
can remain in the mature stage indefinitely.
Page 28 of 79
Role of Fads and Fashion
Fads and fashion are also an important determinant of the length
of the product life
cycle.
14

Today, customers have a major impact on the kinds of
technological
change that organizations pursue. The WWW and the massive
flow of information
that takes place quickly through websites such as Facebook and
Twitter makes it
apparent to customers which kinds of new products are in
vogue. So organizations
are increasingly watching the changing needs of customers—
their fads and
fashions—and investing resources to develop new technologies
and products that
will meet those needs. Few new car buyers today will buy a car
introduced even a
few years ago that is likely to be technologically outmoded,
especially given the new
kinds of styles and features the most recent cars possess.
Similarly, in the
restaurant business, customer demand for certain kinds of food
changes rapidly so
that the Cajun or Southwest cuisine popular one year may be
history the next as
Caribbean fare becomes the food of choice. McDonald’s learned
this lesson the

hard way when tastes changed for fast food, but it has been able
to respond
successfully by innovating new kinds of fast foods and drinks.
Fashion
considerations are even more important, where at the upper end
of the cosmetics
and clothing business the last season’s hit clothing line or
perfume is passé by the
next season. Thus today product life cycles may last no more
than months, and
only those companies that have the technological capability to
respond fast—by
developing new lines of clothing, perfumes, or mobile
computing devices—will
perform well.
The faster technology changes a product’s life cycle, the more
important it is to
innovate products quickly and on a continuing basis. In
industries where product life
cycles are very short, managers must continually develop new
or improved
technologies or their growth and even their survival is
threatened. The PC company

that cannot develop new and improved models of ever-thinner,
more powerful
laptops and tablets within months to compete with those of
Apple will soon find itself
in trouble—something that has happened to Dell and Sony. The
fashion house that
fails to develop a new line of clothing for every season cannot
succeed, nor can the
Page 29 of 79
small restaurant, club, or bar that fails to notice changing fads
and fashions. So the
problem facing organizations is how best to promote creativity,
innovation, and
intrapreneurship.
Page 30 of 79
Managing the Innovation
Process

How should managers control the innovation process in high-
tech companies such
as Amazon.com and Google or in mainstream businesses such as
supermarkets
and restaurants to raise both quantum and incremental
innovation? Managers can
use several related methods. These same methods also serve to
overcome the
resistances to change discussed in Chapter 10 , which reduce the
level of
innovation if left unattended. For example, different divisions
or functions may be
helped or harmed by the kinds of technological change taking
place and so resist
change. Also, managers may fail to recognize new product
opportunities because of
the existence of cognitive biases.
Page 31 of 79
Project Management

One technique that has proved useful at promoting quantum, but
especially
incremental, innovation is project management , the process of
leading and
controlling a specific ongoing work program so it results in the
creation of new or
improved products. A project is a subunit whose goal centers on
developing a
program of activities that delivers a product or service on time,
within budget, and
that meets predetermined performance standards. In the race to
produce advanced
technological products, the issues of managing a project both to
reduce the time it
takes to bring a new product to market and to reduce the high
costs of innovation
are becoming increasingly important. So it is useful to examine
the role of project
managers in effective new product development.
Project management
The process of leading and controlling a project so it

results in the creation of effective new or improved
products.
Project
A subunit whose goal centers on developing the
products or service on time, within budget, and in
conformance with predetermined performance
specifications.
Page 32 of 79
Effective project management begins with a clearly articulated
plan that takes a
product from its concept phase, to its initial test phase, to the
modification phase,
and to the final manufacturing or—in the case of services—
setup phase. The
concept phase typically involves the most work and cost of all
these phases

because the task facing the product development team, led by
the project manager,
is to use the latest research developments to create new
products.
How does a project manager’s job differ from that of a typical
manager in an
organization? First, a project manager is managing a higher
proportion of highly
skilled and educated professionals. Typically, many scientists
and engineers of all
kinds work on a project. A major project design choice involves
the decision of how
much authority should be decentralized to professional
employees to make them
responsible for their actions. Each team member’s creative
efforts must be
harmonized with the needs of the project team as a whole, and
with criteria such as
a project’s costs and time frame. However, the uncertainty
surrounding a project
and the fact that unexpected problems, delays, and
breakthroughs are typically
encountered often makes it difficult to determine when a project
will be completed.

The process of balancing team members’ creative efforts with
cost and time
considerations is the most difficult task project managers (PMs)
face.
The past experience and intuition of successful PMs allows
them to judge how well
or poorly progress is being made toward a successful outcome.
Balancing the
conflicting demands of performance, budget, and time schedule,
and resolving the
conflicts among them is a difficult process, especially as
projects often are ongoing
for one to three years or longer. One of the hardest tasks of a
PM is to maintain the
momentum of the project when team members such as engineers
or designers find
it difficult to solve specific problems or keep within the budget
and a project
threatens to flounder. Overcoming inertia, suggesting possible
solutions,
brainstorming, and providing encouragement and positive
feedback are an essential
part of the PM’s job. But scientists and engineers can be

perfectionists whose only
goal is to increase the product’s performance, and the PM must
keep the goals of
time and cost in mind. Engineers must be convinced that the
search for a “perfect”
Page 33 of 79
product will turn out to be a disaster if it results in one that is
so expensive that
customers do not wish to buy it. Sony, for example, engineered
laptops as thin as
the ones Apple makes today a decade ago but they cost $4000
dollars and
customers were not willing to pay such a high price.
It is the ability to think ahead and conduct effective advance
planning that is often
key to a PM’s success. Based on their past experience,
successful PMs know what
typical problems arise, and they know how to organize and
control employees to

solve them. So when a crisis occurs, as it often does, resources
can be quickly
mobilized to confront and solve it.
Another important aspect of the advanced planning PMs conduct
involves deciding
how to respond to top managers who are continually evaluating
the performance of
a project—searching for signs of success or failure, for
example. The ability to “sell”
and champion their ideas and project is a never-ending task for
PMs. Later, we
discuss how PMs must be product champions, the people who
believe in a project
and are committed to its success; if they cannot show their
enthusiasm, other
managers are unlikely to show support for it. The ability to
explain the nature of a
new project clearly, and to crystallize its meaning and
importance, are major
determinants of a PM’s ability to obtain funding for a project,
and to gain additional
funding for a project behind schedule to help ensure the
survival of a project. Many

projects are terminated abruptly because top managers lose faith
in the PM and the
project team.
PMs commonly employ quantitative modeling to conduct
effective advanced
planning, to uncover potential bottlenecks, and to help speed
progress toward
successful completion of a project. Such modeling allows PMs
to develop “What if?”
Page 34 of 79
scenarios and to experiment with finding new and better ways of
performing the
sequential, and parallel, steps involved in reaching the final
product.
One common modeling approach is to develop a PERT/CAM
network or GANTT
chart, which are essentially flowcharts of a project that can be
built with many

proprietary software packages (such as those of Microsoft).
15
These software
packages focus on (1) modeling the sequences of actions
necessary to reach a
project’s goal, and (2) relating these actions to cost and time
criteria, such as the per-
week cost of the scientists and engineers employed in the
project, to (3) sort out and
define the optimal path for reaching the goal. Once the PM has
chosen a particular
path to follow, these programs provide ongoing feedback on
project performance that
can be used to assess current project performance.
One of the first, and simplest, of these modeling techniques, the
critical path
method (CPM), captures the essence of what these models try to
achieve. The goal
of CPM is to determine (1) which particular tasks or activities
of the many that have
to be performed are critical in their effect on project time and
cost and thus (2) to
determine how to sequence or schedule critical tasks so a

project can meet a target
date at a minimum cost. Finding the critical path thus provides
an optimal solution to
the needs of a particular project. The flowchart in Figure 13.2
illustrates the
critical tasks involved in building a house.
The optimal sequencing of tasks that have to be performed to
reach the completed
product is often worked out by a team, which experiments with
different possible
sequences. In this simple example of building a house, the most
efficient
sequencing of steps can be easily discovered. For many more
complex projects,
however, the analysis of these steps constitutes an important
learning tool; many
unforeseen interactions between these steps can be uncovered
by a careful
analysis. Attention is then paid to how to shorten the path—how
to reorganize or
combine tasks to cut time and cost and improve performance.
Frequently, a team
experiments by building prototypes of a new facility’s layout or

task structure if how
to make a product or provide a service is the key issue.
Page 35 of 79
Note the link to reengineering an organization, discussed in
Chapter 10 , where
the move to combine the activities of different specialists or
functions and focus on
business processes, not activities, is also a way of shortening
the critical path.
PERT/CRM software packages permit the user to examine and
compare many
different kinds of configurations to find the best path to job
completion. Modern IT
systems that use computer-aided design (CAD), discussed in
Chapter 9 , can
completely change task sequencing, especially when other types
of organizing such
as flexible work teams, product teams, and network structures
are included in the
project management process.

Indeed, such developments have made the job of the project
manager increasingly
prominent in many organizations. Successful PMs are often
those who rise to more
general management positions because they have demonstrated
their competency
in understanding how to design organizational structure and IT
systems to facilitate
the development of innovative products. Project management is
often a prerequisite
for promotion to top-management positions today.
Page 36 of 79
Figure 13.2 CPM Project Design
Page 37 of 79
Stage-Gate Development Funnel

One of the mistakes that top managers often make as they
control the innovation
process is to fund too many development projects
simultaneously. The result is that
limited human, functional, and financial resources are spread
too thinly over too
many different projects. As a consequence, no single project or
PM is given the
resources necessary for a project to succeed, and the level of
innovation falls.
Given the nature of this problem, it is necessary for managers to
develop a
structured process for evaluating different new product
development proposals and
deciding which to support. A common solution to this problem
is to implement a
stage-gate development funnel
16
(Figure 13.3 ). The purpose of a stage-gate
funnel is to establish a structured and coherent innovation
process that both
improves control over the product development effort and forces

managers to make
choices among competing new product development projects so
resources are not
spread too thinly over too many projects.
Initially, the funnel has a wide mouth (stage 1) to promote
innovation and
encourage as many new product ideas as possible from both new
and established
project managers. Companies establish a wide mouth by
creating incentives for
employees to come up with new product ideas. Some
organizations run “bright
ideas” programs, which reward prospective project managers for
submitting new
product ideas that eventually make it through the development
process. They also
allow scientists and engineers to spend a certain percentage of
work time on
projects of their own choosing. For example, HP and 3M allow
research scientists to
Page 38 of 79

spend 15% of their time on their own projects; Google allows
them to spend 20%.
(Typically, a person who submits a new idea that is approved
will become the
project manager who takes charge of a new project.)
New product ideas are submitted as brief written proposals for a
cross-functional
team of managers to evaluate. At gate 1, each product
development proposal is
reviewed in terms of its fit with the goals and strategies of the
organization and
chance of success in the market.
Figure 13.3 A Stage-Gate Development Funnel
Proposals that meet these criteria are passed on to stage 2, and
the rest are
rejected (although the door is often left open to reconsider a
proposal that has merit
at a later date).

In stage 2, the prospective project manager must draft a detailed
new product
development plan that contains the detailed information that
will allow the team of
Page 39 of 79
judges to decide whether or not to approve the idea and allow
the new project
managers to go ahead and pursue a full-blown product
development effort. Included
in the new product development plan should be factors such as
strategic and
financial objectives, an analysis of market potential, a list of
desired product
features, a list of technological requirements, a list of financial
and human resource
requirements, a detailed development budget, and a timeline
that contains specific
milestones (for example, dates for prototype completion and
final launch). The
managers who have judged and supported the project often help

the new project
manager improve the plan, for example, by developing a more
detailed timeline or
by meeting customers to learn how to tailor the new product to
best meet their
needs.
Once completed, the plan is reviewed by a senior management
committee at gate
2. Here the review focuses on a detailed look at the new product
development plan
and considers whether the proposal is attractive, given its
market potential, and
viable, given the technological, financial, and human
requirements of actually
developing the product. This review is made in light of all other
product
development efforts being undertaken by the organization. At
gate 2, projects are
either rejected, sent back for revision, or allowed to proceed to
the development
phase (stage 3).
The stage 3 development effort can last anywhere from six

months to ten years,
depending on the industry and product type. For example, today
many electronics
products have development cycles of only six months; it takes
only two to three
years to develop a new car, about five years to develop a new
jet aircraft, but seven
or more years to develop a new medical drug.
Page 40 of 79
Using Cross-Functional Teams and a
Product Team Structure
As just noted, establishing cross-functional teams is a critical
element in any
structured new product development effort.
17
Although successful innovation
begins in the R&D function, the way the activities of the R&D
department are
coordinated with the activities of other functions is crucial.
18

Figure 13.4
identifies the many functions necessary for successful
innovation. In addition to
R&D, they include engineering, materials management,
manufacturing, and
marketing.
Because those different groups usually have different
orientations and attitudes,
coordinating their activities is difficult. The link between R&D
and engineering, for
example, is vital to convert successful research into a product
that can be designed
and made efficiently. R&D scientists, however, may complain
that the potential of
“their” new
Page 41 of 79
Figure 13.4 Innovation as a Cross-Functional Activity
Successful innovation depends on the coordination of the

activities of the research
and development department with the activities of other
departments.
product is being sacrificed if the engineers tinker with its
design to make production
easy or cheap. In turn, engineering may feel that R&D is too
emotionally committed
to the product and has lost sight of the market in its pursuit of
technical excellence.
Both R&D and engineering also need to coordinate with
manufacturing to ensure
the new product can be made cost effectively and reliably. A
link with marketing will
Page 42 of 79
ensure the product possesses the features and qualities that
customers need and
want. Also, it confirms that R&D resources are not being spent
to create or improve

a product that customers do not want. Selected members of
marketing, R&D,
engineering, and manufacturing must be assigned to be core
members of
successful new product development teams to promote
successful new product
development. The term core members refers to the small group
of functional
experts who bear primary responsibility for the product
development effort. In
addition to core members, many other experts may work on the
project as the need
arises. But the core members stay with the project from
inception to completion of
the development effort: They “own it.” To ensure core members
are not distracted,
they are usually assigned to only one development project at a
time. If a new
product development project is particularly important, core
members may be
removed from their regular functional role and assigned to work
on the project full
time.

Many organizations have been unable to manage the functional
linkages necessary
for successful product innovation because they have not adopted
the appropriate
organizational structure. In Chapter 6 , we discussed the various
types of
structure that organizations can use to operate effectively when
uncertainty is high.
Two of them, product team structure and matrix structure, are
especially suitable for
managing innovation in high-tech organizations. Both of these
structures focus on
creating cross-functional teams to pursue new product
development from the
research concept stage, through the engineering design and
manufacturing stages,
to marketing and sales. These structures allow each function to
develop an
understanding of the problems and interests of the other
functions, and they reduce
communication problems. Decentralizing authority to the team
also forces team
members to cooperate and develop a shared understanding of
the project.

Even though a product team structure facilitates innovation and
the new product
development process, it is often not sufficient to solve the
coordination problem.
Many organizations use additional integrating mechanisms to
facilitate innovation:
Page 43 of 79
team leaders and project champions, “skunk works,” new
venture divisions, and
joint ventures.
Page 44 of 79
Team Leadership
Although establishment of a cross-functional product
development team may be a
necessary condition for successful innovation, it is not a

sufficient condition. If a
cross-functional team is to succeed, it must have the right kind
of leadership, and it
must be managed effectively.
19
One important consideration is to have team leaders who can
rise above their
functional background and take a cross-functional view.
Another issue is how much
power and authority should be given to the team leader. Here a
distinction can be
made between lightweight and heavyweight team leaders.
20
A lightweight team
leader is a mid-level functional manager who has lower status
than the head of a
functional department. The lightweight team leader is not given
control over human,
financial, and functional resources. Not a true project manager,
this leader remains
under the control of a functional department head. If the
lightweight leader wants

access to resources, he or she must pursue the heads of
functional departments to
obtain them. This arrangement weakens the power and authority
of team leaders
because they come to depend on the goodwill of the heads of
functional
departments. The result can be limited cross-functional
coordination. Still, this
arrangement might be appropriate in those cases when minor
modifications of an
existing product are all that is required.
A heavyweight team leader is a true project manager who has
higher status within
the organization. The heavyweight team leader is given primary
control over key
human, technological, and financial resources for the duration
of the project. This
Page 45 of 79
allows the heavyweight leader to lay first claim to key resources
and, if necessary,

to override the wishes of the heads of the functions. For
example, the heavyweight
leader may be able to insist that a certain marketing or
engineering manager be
assigned full time to the project, even if the heads of the
engineering and marketing
departments are against this. Greater power gives the
heavyweight team leader
more ability to assemble a cross-functional team with the skills
needed to develop a
successful new product.21
Heavyweight team leaders often function as product champions,
the people who
take ownership of the project, solve problems as they occur,
smooth over disputes
between team members, and provide leadership to the team.
Sometimes the
product champion is not formally appointed but emerges
informally during the
innovation process. Organizational Insight 13.2 discusses how
important the
product champion role can be.

Page 46 of 79
Organizational Insight
13.2 Championing the Mustang
Don Frey, an R&D engineer, was a product champion at Ford
Motor
Company. At Ford’s R&D laboratories, Frey was assigned to
projects that
seemed new and interesting, but he never got to talk to
customers and
never got involved in operational decision making about what to
offer the
customer and how much new developments would cost. As a
result, for
many years, he and other R&D engineers worked on products
that never
got to market. Frustrated by the lack of payoff from his work,
Frey began to
question the utility of a corporate R&D laboratory that was so
far removed
from operations and the market. In 1957, he moved from R&D

to head the
passenger car design department, where he would be closer to
market
operations. In this new position, Frey was much closer to the
customer and
directed the energies of his department to producing innovations
that
customers wanted and were willing to pay for.
Page 47 of 79
Natalja/Shutterstock.com
Frey soon concluded that in the automobile business, the best
R&D is
incremental: Year by year a car was improved to meet customer
demands.
He also saw how important it is to use customer complaints as a
guide for
investing R&D resources to get the most benefit. Equipped with
this new
perspective on innovation, he was made a member of Ford’s top

planning
committee in 1961, and he became interested in developing a
new car for
the emerging “sporty car segment.”
Frey and his staff saw the possibility of designing a car for this
segment,
and they began championing the development of a product.
Ford, however,
had just lost a fortune on the Edsel and was reluctant to start a
new car.
Because there was no corporate support for Frey’s ideas, all of
the early
engineering and styling of what became the Mustang were
carried out with
bootleg funds—funds earmarked for other projects. By 1962,
Frey and his
team had produced the first working prototype of the Mustang
and believed
Page 48 of 79

they had a winner. Top management in general and Henry Ford
II in
particular were not impressed and offered no support, still
fearing the new
car might turn out to be another Edsel.
Luckily for the Mustang team, Lee Iacocca became vice
president and
general manager of Ford in 1962, and he bought into the
Mustang concept.
Believing the Mustang would be a huge success, Iacocca risked
his
reputation to convince top management to back the idea. In the
fall of 1962,
after much pressure, funds to produce the car were allocated.
With Frey as
product champion, the Mustang was completed from approval to
market in
only 18 months. When the Mustang was introduced in 1964, it
was an
instant success, and over 400,000 Mustangs were sold.
Frey went on to champion other innovations in Ford vehicles,
such as disc

brakes and radial tires. Reflecting on his experiences as a
product
champion, he offered some coaching tips for future product
champions:
Innovation can start anywhere and from small beginnings, and
product
champions must be prepared to use all the skill they have to pull
people and
resources together and to resist top managers and financial
experts who
use numbers to kill new ideas.
22
As Frey’s experience suggests, innovation
is a risky business, and product champions have to go out on a
limb to take
on the disbelievers.
Page 49 of 79
Skunk Works and New Venture Divisions
A skunk works is a task force, a temporary team that is created

to expedite new
product design and to promote innovation by coordinating the
activities of functional
groups.
23
The task force consists of members of the R&D, engineering,
manufacturing, and marketing functions who are assigned to a
separate facility, at a
location isolated from the rest of the organization. This
independent “autonomous”
setting gives skunk works members the opportunity to engage in
the intensive face-
to-face interactions necessary for successful innovation. As a
team, skunk works
members “own the problem”: They are the intrapreneurs
responsible for the
project’s success or failure. Thus a skunk works is an island of
innovation; it
provides a large organization with a small-organization-type
setting in which skunk
works members have the opportunity and motivation to bring a
new product to
market quickly. Ford’s original Mustang was developed in a
skunks works setting by

Don Frey, for example.
HP, 3M, and other organizations have also recognized the
advantages of a small-
organization atmosphere for fostering intrapreneurship. When
potentially successful
new product ideas are discovered by their R&D functions, these
organizations
create a new venture division, a self-contained, independent
division given the
resources to develop a complete set of value-creating functions
to manage a project
from beginning to end.
24
Unlike a skunk works, which is dissolved when the product
is brought to market, a new venture division assumes full
responsibility for the
commercialization of the product. Heavyweight project
members become the heads
Page 50 of 79

of the division’s functions and assume responsibility for
managing the functional
structure created to bring the new product to market.
Establishing the balance of control between a new venture
division and corporate
headquarters can become a problem. As the new division
demands more and more
resources to fulfill its mission, corporate managers may become
concerned about
whether the project will be successful. If corporate managers
start to intervene in
the division’s activities and its managers feel their judgment
and autonomy is being
threatened, the entrepreneurial spirit inside the new venture
division may decline.
In contrast, major problems can arise if the parent organization
establishes too
many independent new venture divisions in the desperate
attempt to spur
innovation. One problem is the major expense this involves,
which can quickly drive
up operating costs. A second problem is that the new divisions

may use their
autonomy to pursue their own goals, regardless of whether or
not these conflict with
the goals of the whole organization. Finally, managing new
venture divisions is a
difficult process that requires considerable organizational skill.
Managers must
create the right kind of organizational structure if
they are to be successful; utilizing the right kinds of IT systems
is also vital; this
important issue is discussed later in the chapter.
Page 51 of 79
Joint Ventures
Joint ventures between two or more organizations, discussed in
Chapter 3 , are
another important means of managing high-tech innovation. A
joint venture allows
organizations to combine their skills and technologies and pool

their resources to
embark on risky R&D projects. A joint venture is similar to a
new venture division in
that a new organization is created in which people can work out
new procedures
that lead to success. When both companies share revenues,
risks, and costs, it
often can result in the development of a stream of profitable
new products. Joint
ventures can also cause problems, however, if the venture
partners begin to come
into conflict over future development plans. This often happens
when, over time, the
venture begins to favor one partner over than another. Given
this possibility, many
joint venture agreements have clauses allowing one partner to
buy the other out, or
giving one partner 51% ownership of the venture, to ensure that
the gains from
future innovation can be achieved.
Page 52 of 79

Creating a Culture for Innovation
Organizational culture also plays a major role in shaping and
promoting innovation.
Values and norms can reinforce the entrepreneurial spirit and
allow an organization
to respond quickly and creatively to a changing environment.
Three factors that
shape organizational culture and the degree to which its values
and norms
emphasize innovation are organizational structure, people, and
property rights (see
Figure 7.2 ).
Page 53 of 79
Organizational Structure
Because organizational structure influences the way people
behave, creating the
right setting is important to fostering an intrapreneurial culture.
Several factors can

stunt innovation and reduce the ability of an organization to
introduce new products
as it grows.
Increasing organizational size may slow innovation. As
organizations grow, decision
making slows down. Decisions have to be made through
established channels in a
lengthy hierarchy, and a thriving bureaucracy stifles the
entrepreneurial spirit. As an
organization becomes more bureaucratic, people become more
conservative and
risk averse, and the creative people most able and willing to
take risks and innovate
become discouraged and may leave the organization.
As organizations age, they tend to become less flexible and
innovative and so may
fail to notice new opportunities to develop new products.
25
As Rosabeth Moss
Kanter notes, this occurs because of “the inability of many
traditional mature firms
to anticipate the need for productive change and their resistance

to ideas advanced
by creative people.”
26
In addition, it is difficult for people to remain entrepreneurial
throughout their careers. Thus as organizations and their
members age, there may
be an inherent tendency for both to become more conservative.
With organizational growth comes complexity and an increase
in vertical and
horizontal differentiation that may hurt innovation. An increase
in hierarchical levels
makes it hard for employee intrapreneurs to exercise meaningful
authority over
projects. They may be under the constant scrutiny of superiors
who insist on signing
off on all decisions involving a project. Similarly, when the
skills and knowledge
needed for innovation are spread across too many functions, it
is difficult for a
project manager or product champion to obtain and coordinate
the resources vital to
bring a project to fruition.27

Page 54 of 79
To promote innovation, organizations need to adopt a structure
that can overcome
those problems. Organic structures based on norms and values
that emphasize
lateral communication and cross-functional cooperation tend to
promote innovation.
Matrix and product team structures possess these organic
qualities and provide
autonomy for intrapreneurs to act decisively. In addition,
organizations can give
their members wide latitude to act outside formal task
definitions and to work on
projects where they think they can make a contribution. Apple
and Microsoft confer
on their top “thinkers” the title “research fellow” and give them
the autonomy and
resources to decide how to put their skills to best use, for
example.

Page 55 of 79
People
The culture of innovation in high-tech organizations is fostered
by the
characteristics of employees themselves. In many research
settings, people
cooperate so closely on product development that they become
increasingly similar
to one another. They buy into the same set of organizational
norms and values and
thus are able to communicate well with each other. In turn,
organizational members
select new members who buy into the same set of values, so that
over time a
recognizable set of values and norms that creates a culture that
promotes creativity,
cooperation, and the voluntary sharing of new ideas emerges.
However, an
organization needs to guard against groupthink and prevent
team members from
suffering from the kinds of cognitive biases discussed in
Chapter 12 —lest they

lose sight of new or emerging trends in the industry.
Microsoft’s programmers, for
example, fixated on improving its Windows software
applications and ignored signs
that customers wanted better ways to search the Web to quickly
find more relevant
and accurate information—so Google became the search leader.
To maintain a
capacity to innovate successfully, organizations must strive to
maintain diversity in
their skilled employees and allow them to follow divergent
paths. The uncertainty
associated with innovation makes it important for employees to
be adaptable and
open to new ideas. One way to encourage flexibility and open-
mindedness is to
recruit people who are committed to innovation but who travel
along different
pathways to achieve it. This is what 3M seems to do, as
described in
Organizational Insight 13.3 .
Page 56 of 79

Organizational Insight
13.3 Fostering Innovation at 3M
3M is one of the most successful innovators of new products in
the world.
3M uses many different technologies to innovate thousands of
new and
improved products for companies and individual consumers
each year. To
encourage successful new product development, 3M has set a
challenging
stretch goal that 30% of its revenues should be earned from new
products
developed in the last three years. This goal encourages its
employees to act
as entrepreneurs and to search out new opportunities to create
products
that customers will value and buy.
Sometimes, the process of developing new products at 3M
begins with
finding a technology to make a product that will better meet an
existing

customer need. In 1904, for example, 3M’s engineers developed
a new
technology that allowed them to bond grit to paper, and the
result was a
blockbuster product—the first sandpaper. 3M developed this
technology
because it knew from watching its customers there was a large
unmet need
and thus potential market for an inexpensive, easy-to-use
abrasive.
In many cases, it is more difficult for a company to discover
customer
needs—or even to discover potential uses for a new product.
The way
another 3M product, Scotch masking tape, was developed
illustrates this.
The story of Scotch tape begins when Dick Drew, a 3M
scientist, visited an
auto body shop in St. Paul, Minnesota, to test a new kind of
sandpaper he
was developing. Two-tone cars were popular then, and Drew
watched as
paint shop employees improvised a method to keep one color of

paint from
being over sprayed onto the other. They used a paint shield
made up of a
Page 57 of 79
combination of heavy adhesive tape and butcher paper. Very
often, as they
pulled their shield off when the paint was dry, it took the
photosync/Shutterstock.com
other color paint with it. Employees joked with Drew that it
would be a good
idea if 3M could develop a product that made their job easier.
28
Drew realized what was needed was a tape with a weaker glue
or adhesive
that would not pull the paint off. He went back to his lab to
develop such a
glue and, after many attempts, used it to develop the first

masking tape.
Paint shop employees now had a way to detach butcher paper
from a car
and achieve a first-class paint job. Once the success of the new
product
was proved, Drew began to think about other uses for masking
tape. It soon
became clear that the common need for a reliable way to seal,
wrap,
package, or attach something meant that the uses for masking
tape were
Page 58 of 79
endless. Drew continued his research, and in 1930 he invented
clear
cellophane tape to meet many of these other kinds of customer
needs.
Managerial Implications Innovation
1. Research and development activities must be integrated with
the activities of the other functions if the innovation process is

to be successful.
2. Employees must be given autonomy and encouraged to use
organizational resources to facilitate the continuous
development of new products and processes.
3. Project managers, a stage-gate product development funnel,
cross-functional teams, appropriate team leadership, a skunk
works, and new venture divisions should be created to provide
a setting that encourages entrepreneurship.
4. Top management must create a culture that supports
innovation and recognizes and rewards the contributions of
organizational members—for example, by linking rewards
directly to performance.
Page 59 of 79
Property Rights
The uncertainty associated with innovation makes it difficult for
managers to

evaluate the performance of highly skilled employees in R&D,
marketing, and so on.
Managers cannot simply observe highly skilled employees to
determine how well
they are performing. Often their performance can be evaluated
only over a long
time—perhaps years. Moreover, innovation is a complex,
intensive process that
demands skills and abilities inherent in competent employees,
not in the
organization. If one of these employees comes up with a new
idea, it is relatively
easy to take it and establish a new venture to take advantage of
it. Indeed, much
technological innovation occurs in new organizations founded
by scientists who
have left large organizations to branch out on their own. Given
these issues, strong
property rights are needed to align the interests of talented
employees with those of
their organization.
29
An organization can create career paths for its highly skilled
employees and project

managers and demonstrate that success is closely linked to
future promotion and
rewards. Career paths can be established inside an organization
that allow talented
people to rise to the top. Inside the R&D function, for example,
successful scientists
can be groomed to manage future R&D projects. After some
years in R&D,
however, scientists might move to take control of manufacturing
operations or to
assume other functional or corporate responsibilities.
Strong property rights can also be created if an organization
links effective
individual and group performance to substantial organizational
rewards or
inducements. Innovative employees should receive bonuses and
stock options
proportional to the increase in profitability that can be
attributed to their efforts.
Page 60 of 79

Making employees owners in the organization will discourage
them from leaving
and provide them with a strong incentive to perform well. Many
successful high-
techs such as Google, Merck, and Apple do this; and thousands
of the current
employees of Google and Apple are millionaires as a result of
the decision to give
stock options to employees.
By focusing on property rights, people, and structure, an
organization can create a
culture in which norms and values foster innovation and the
search for excellence in
new product development.
Page 61 of 79
Innovation and Information
Technology

Information efficiencies
The cost and time savings that occur when IT allows
individual employees to perform their current tasks at
a higher level, assume additional tasks, and expand
their roles in the organization due to advances in the
ability to gather and analyze data.
Previous chapters discussed how IT can raise organizational
effectiveness,
particularly by reducing operating costs. Why? Because of
information efficiencies , the cost and time savings that occur
when IT allows
individual employees to perform their current tasks at a higher
level, assume
additional tasks, and expand their roles in the organization
owing
to advances in the ability to gather and analyze data.
30

The ability of IT to enhance
a person’s task knowledge and technical skills is also an
important input into the
innovation process, however. In fact, IT facilitates the
innovation process because it
promotes creativity in many ways and affects many aspects of
the process of
bringing new problem-solving ideas into use.
Page 62 of 79
First, IT facilitates creativity by improving the initial base of
knowledge to draw from
when employees engage in problem solving and decision
making. To the degree
that IT creates a larger and richer pool of codified knowledge
for any given
employee to draw from, and allows these employees to work
together, innovative
potential is increased. Examples of knowledge codification from
using knowledge
management were discussed in Chapter 12 . For example, at

large consultancy
firms like Accenture and McKinsey & Co., groups of
experienced consultants
assemble knowledge online from every level of the firm, then
use in-house IT to
disseminate information to consultants throughout the
organization—information
that would otherwise not have been available to them.
Knowledge or information availability alone will not lead to
innovation; it is the ability
to creatively use knowledge that is the key to promoting
innovation and creating
competitive advantage.
31
In 1990, Prahalad and Hamel, for example, suggested it
is not the level of knowledge a firm possesses that leads to
innovation and
competitive advantage, but the velocity with which it is
circulated in the firm.
32
Organizations must take steps to ensure that they use knowledge
to develop
distinctive competences at both the individual and functional

levels, particularly
between functions.
Similarly, a reshuffling of tasks likely will occur as new IT
systems increase the
ability of people or subunits to acquire and process information.
This leads to many
more opportunities for creatively combining, modifying, and
synthesizing information
leading to the incremental innovations discussed earlier. For
example, what before
might have been a task that requires the inputs of three different
people or subunits
becomes a task that one individual or function can perform more
creatively and
effectively because IT helps increase both the amount and
quality of information
that can be adequately processed. IT also facilitates cross-
functional and divisional
communication and coordination that can promote the sharing of
tacit knowledge
between people and groups, leading to increased organizational
knowledge.

Page 63 of 79
Innovation and Information
Synergies
In fact, one of the most important performance gains that result
from IT occur when
two or more individuals or subunits pool their resources and
cooperate and
collaborate across role or subunit boundaries, creating
information synergies .
Information synergies occur when IT allows individuals or
subunits to adjust their
actions or behaviors to the needs of the other individuals or
subunits on an ongoing
basis and achieve gains from team-based cooperation.
Information synergies
The knowledge building created when two or more
individuals or subunits pool their resources and

cooperate and collaborate across role or subunit
boundaries.
IT changes organizational forms and promotes creativity and
innovation inside both
network and virtual organizational forms. IT-enabled virtual
forms composed of
electronically connected people or firms facilitate knowledge
sharing and
innovation. Compared to face-to-face communication, for
example, the use of
electronic communication has increased the amount of
communication within the
organization. IT’s ability to link and enable employees within
and between functions
and divisions—whether through database repositories,
teleconferencing, or
electronic mail—helps lead to information synergies. The
application of IT promotes
cross-functional work flows, makes critical information more
accessible and
Page 64 of 79

transparent to employees, and increases the incidence of
problem solving leading
to innovation.
33
The downside to linking employees must be noted as well. It is
possible that not
only the amount of good advice information seekers receive will
increase—bad
advice may increase as well. However, many firms work to
ensure the reliability of
information received via electronically weak ties by forming
online communities
where collections of experienced employees within a given area
can be located
(e.g., a software developers’ forum, a sales force intranet, a
manufacturing
discussion group). Developing a knowledge
management system also helps to ensure high-quality
information and advice,

given when requested.
IT also allows for an increase in boundary-spanning activity —
interacting with
individuals and groups outside the organization to obtain
valuable information and
knowledge from the environment—that helps promote
innovation. IT allows an
employee to search for and absorb new knowledge that is
relevant to a problem at
hand.
34
For example, in complex organizations, employees working on
one task or
project may wish to obtain useful knowledge residing in other
operating units, but
the employees may not know whether or not this knowledge
exists and where it
might reside. IT, through knowledge management systems,
allows employees to
search their network for information.
Page 65 of 79

Boundary-spanning activity
The interactions of people and groups across the
organizational boundary to obtain valuable
information and knowledge from the environment to
help promote innovation.
IT has many other useful properties that can promote
incremental and quantum
technological change. IT allows researchers and planners to
communicate more
easily and less expensively across time and geographic location;
to communicate
more rapidly and with greater precision to targeted groups; to
more selectively
control access and participation in a communication event or
network; to more
rapidly and selectively access information created outside the
organization; to more
rapidly and accurately combine and reconfigure information;
and to more concisely

store and quickly use experts’ judgments and decision models.
All these qualities
can enhance creativity and make project management more
effective. Amazon.com
is a company using IT to make creative decisions and broaden
its product line,
becoming a consultant itself and selling its own creative ideas
(see
Focus on New Information Technology, Part 7 ).
Page 66 of 79
IT and Organizational Structure and Culture
IT also affects the innovation process through its many effects
on organizational
structure. Specialization typically leads to the development of
subunit orientations
that reduce the ability of employees to understand the wider
context within which
they are contributing their skills and expertise. IT can mitigate
this tendency by

providing greater
Page 67 of 79
Focus on New Information Technology
Amazon.com, Part 7
Jeff Bezos’s use of the Internet to sell books can probably be
regarded as a
quantum innovation in this industry. However, innovation at
Amazon.com
has not stopped there. Bezos and his top-management team have
engaged
in a series of incremental innovations to grow and expand
Amazon’s core
competences as an online retailer.35
Although Bezos initially chose to focus on selling books, he
soon realized
that Amazon’s information technology could be used to sell
other kinds of
products. He began to search for products that could be sold
profitably over

the Internet. First, he chose CDs, then when DVDs became
popular
Amazon began to sell them. Today, Amazon also has online
storefronts
offering music and video downloads of all kinds and gives its
customers the
opportunity to store their purchases online through its
expansion into cloud
computing services. All these new goods and services reflect its
desire to
offer the widest range of products possible to attract customers,
and
especially to encourage repeat business so that it can continue
its mission
to become the biggest global book, music, and video store.
In other ventures Amazon has opened a holiday gift store to
entice
customers to send gifts as well as books and DVDs as presents,
offered a
gift-wrapping service, and launched a free electronic greeting
card service
to announce the arrival of the Amazon gift. Today, it has over
40 different

product storefronts.
Bezos has moved aggressively to use Amazon’s developing
expertise in
virtual storefront retailing to offer a consulting service to
organizations that
Page 68 of 79
wish to develop their own customer-friendly storefront that has
made
Amazon so popular. As discussed in previous chapters, it has
also used its
IT competences to widen its product line, and to keep its line up
to date with
regard to the ongoing changes in electronics and digital
technology that are
constantly altering the mix of products it offers in its virtual
store.
As a result of these incremental innovations to Amazon’s
business, Bezos

has transformed his company from “online book seller” to
“leading Internet
product provider.” The company’s share price has soared in the
2010s as
Amazon has become the most profitable online retailer, and
investors
believe the company has the skills and competences to retain—
and
strengthen—its dominant position. The fact that it has overtaken
eBay in
recent years to become the online retail storefront of choice also
suggests
that its next challenge will be to take on Walmart as it expands
its
storefronts to offer customers more products and services,
including the
delivery of thousands of different kinds of food products,
flowers, toiletries,
and other kinds of basic consumer goods.
information access to specialists through such technologies as
email, corporate
intranets, access to the Internet, and so on.

To speed innovation, many organizations have begun to move
decision making
lower in the organization to take advantage of specialized
workers who possess
more accurate and timely local information. IT helps this
process in two ways. First,
IT gives lower-level employees more detailed and current
knowledge of consumer
and market trends and opportunities. For example, IT in
customer support centers
directed at solving customer problems via the Internet has
become a widespread
Page 69 of 79
means of increasing effectiveness. Second, IT can produce
information synergies
because it facilitates increased communication and coordination
between
decentralized decision makers and top managers. Now, as
decision-making
authority moves lower in the hierarchy, it may become better

aligned.
36
Third, IT means that fewer levels of managers are needed to
handle problem
solving and decision making, which results in a flatter
organization. In addition,
because IT provides lower-level employees with more freedom
to coordinate their
actions, information synergies may emerge as employees
experiment and find
better ways of performing their tasks.
IT can also promote innovation through its effects on
organizational culture. IT
facilitates the sharing of beliefs, values, and norms because it
allows for the quick
transmission of rich, detailed information between people and
subunits. IT thus can
enhance the motivational effects of cultural values supportive of
innovation. Using
IT, an organization can make available to employees a slew of
supportive
messages and statements, often contained in an organization’s

mission statement,
corporate goals, operating procedures, and so on. Email, voice
mail, and intranets,
for example, provide mechanisms for transferring and
disseminating information
about the organization to employees and can help promote the
cultural shared
norms, values, and expectations that can facilitate innovation.
Page 70 of 79
Summary
Managing the process of innovation and change to enhance
organizational
effectiveness is a central challenge facing managers and
organizations today. An
increasing rate of technological change and an increase in
global competition are
two forces that are putting enormous pressure on organizations
to find new and
better ways of organizing their activities to increase their
ability to innovate and

create value. Chapter 13 has made the following major points:
1. Innovation is the development of new products or new
production and
operating systems (including new forms of organizational
structures).
2. There are two types of innovation: quantum innovations,
which are the result
of quantum shifts in technology, and incremental innovations,
which result
from the refinements to an existing technology. Technological
change that
results in quantum innovations can create opportunities for an
organization
to introduce new products, but it can also be a threat because it
can
increase the level of competition.
3. Innovation, intrapreneurship, and creativity are closely
related concepts, and
each is vital to build a knowledge-creating organization.
4. Managers can use a number of techniques to help promote
innovation.
These include project management, using a stage-gate

development funnel,
using cross-functional teams and a product team structure,
establishing
strong team leadership, making use of skunk works and new
venture
divisions, and creating a culture for innovation.
5. IT creates information efficiencies and information synergies
and thus is an important tool for
promoting creativity and innovation, especially through its
effects on organizational design,
structure, and culture.
Discussion Questions
1. What is the relationship between quantum and incremental
technological
change?
Page 71 of 79
2. What is the relationship among creativity, intrapreneurship,
and innovation?
3. What is project management? How should managers decide
which projects

to pursue?
4. What steps would you take to create (a) a structure and (b) a
culture
congenial to innovation in a high-tech organization?
5. What are information synergies and in what ways can they
enhance
innovation?
Page 72 of 79
Organizational Theory in Action
Practicing Organizational Theory
Managing Innovation
Break up into groups of three to five people and discuss the
following scenario:
You are the top managers in charge of a chain of stores selling
high-quality, high-
priced men’s and women’s clothing. Store sales are flat, and
you are increasingly

concerned that the clothing your stores offer to customers is
failing to satisfy
changing customer needs. You think that the purchasing
managers are failing to
spot changing fads and fashions in time, and you believe store
management is not
doing enough to communicate to purchasing managers what
customers are
demanding. You want to revitalize your organization’s product
development
process, which, in the case of your stores, means designing,
selecting, and stocking
the products that customers want.
1. Using the chapter material, outline the way you will create a
program to
increase creativity and intrapreneurship at the store and
corporate level. For
example, how will you encourage input from employees and
customers, and
who will be responsible for managing the program?
2. How will you make use of IT and organizational structure to
facilitate the