Exploratory and Exploitative Market Learning

A quick note from Using Exploratory and Exploitative Market Learning for New Product Development divides R&D organizational learning into two types: Exploratory and Exploitative:

More specifically, this study argues that exploratory market learning contributes to the differentiation of the new product because it involves the firm’s learning about uncertain and new opportunities through the acquisition of knowledge distant from existing organizational skills and experiences. By contrast, this study posits that exploitative market learning enhances cost efficiency in developing new products as it aims to best use the currently available market information that is closely related to existing organizational experience.

So we can think about Innovation as exploratory learning and invention as exploitative learning. The paper explores this theory based on a survey:

“This study is based on survey data from 157 manufacturing firms in China that encompass various industries. The empirical findings support the two-dimensional market learning efforts that increase new product differentiation and cost efficiency, respectively. The study confirms that exploratory market learning becomes more effective under a turbulent market environment and that exploitative market learning is more contributive when competitive intensity is high. It also suggests that because of their differential direct and moderating effects on new product advantage either exploratory or exploitative market learning may not be used exclusively, but the two should be implemented in parallel. Such learning implementations will help to secure both the feature and cost-based new product advantage components and will consequently lead to the new product success.

To summarize: Innovation is useful (and probably caused by) a turbulent market with lots of changes and discontinuities, while invention or sustaining development is useful in stable / competitive markets.

Bosses Overestimate Their Management Skills

A self explanatory article from WSJ: Bosses Overestimate Their Management Skills:

A new survey of 1,100 front-line managers suggests many are over-estimating their skills, with surprisingly little self-doubt. Seventy-two percent said they never questioned their ability to lead others in their first year as a manager.

Learning in Cross-organizational New Product Development Teams

Another interesting article from the Journal of Product Innovation Management: Increasing Learning and Time Efficiency in Interorganizational New Product Development Teams. The thesis is clear – cross organizational product development is on the rise. However, it is unclear that processes exist to learn and improve performance from these projects:

Despite the growing popularity of new product development across organizational boundaries, the processes, mechanisms, or dynamics that leverage performance in interorganizational (I-O) product development teams are not well understood. Such teams are staffed with individuals drawn from the partnering firms and are relied on to develop successful new products while at the same time enhancing mutual learning and reducing development time. However, these collaborations can encounter difficulties when partners from different corporate cultures and thought worlds must coordinate and depend on one another and often lead to disappointing performance

Some interesting learnings about what drives success: Caring, Safety and Shared Problem Solving (team building?)

To facilitate collaboration, the creation of a safe, supportive, challenging, and engaging environment is particularly important for enabling productive collaborative I-O teamwork and is essential for learning and time efficient product development. This research develops and tests a model of proposed factors to increase both learning and time efficiency on I-O new product teams. It is argued that specific behaviors (caring), beliefs (psychological safety), task-related processes (shared problem solving), and governance mechanisms (clear management direction) create a positive climate that increases learning and time efficiency on I-O teams.

The results seem to have been validated empirically:

Results of an empirical study of 50 collaborative new product development projects indicate that (1) shared problem solving and caring behavior support both learning and time efficiency on I-O teams, (2) team psychological safety is positively related to learning, (3) management direction is positively associated with time efficiency, and (4) shared problem solving is more strongly related to both performance dimensions than are the other factors. The factors supporting time efficiency are slightly different from those that foster learning. The relative importance of these factors also differs considerably for both performance aspects.

Here is the take home message (lets add it to the other learnings from the past – including virtual team performance):

Overall, this study contributes to a better understanding of the factors that facilitate a favorable environment for productive collaboration on I-O teams, which go beyond contracts or top-management supervision. Establishing such an environment can help to balance management concerns and promote the success of I-O teams. The significance of the results is elevated by the fragility of collaborative ventures and their potential for failure, when firms with different organizational cultures, thought worlds, objectives, and intentions increasingly decide to work across organizational boundaries for the development of new products.

Lessons on innovation Management from DuPont

If you remember the post from a couple of days ago about Chief Innovations Officer, here are Lessons on innovation from DuPont’s CInO:

I think you keep things fresh by continuing to challenge the organization to look for the next new thing. When you maintain high standards and keep track of the frontiers of science — where the rate of change for technologies is the greatest — then the opportunities will follow. Our willingness to follow new technologies and project in advance the markets for these technologies keeps things new and interesting.

I guess this is pretty much along the lines of our discussion about roles of CInO: To scan and access innovation wherever it might be. On the other hand, there seems to be a significant focus on the market place:

For me, the key is in the marketplace. It is vital to get an in-depth understanding of the needs and wants of the customer, even if they are unspoken needs. That depth of understanding is what guides our innovation. Without it, our efforts would not be successful.

This might be good, but may prevent organizations from driving breakthrough inventions or disruptive innovation – as by definition, the marketplace does not have a clear understanding of what would disrupt it!

For DuPont, it is about getting external input very early on in the process. The clear demarcation between success and failure is that early external input. It means testing externally before we try and perfect it and getting it right the first time. We are constantly working to better collaborate with our customers and get their input early on in the process.

As we have discussed in the past, collaboration with customers is fraught with dangers. So, may be CInO needs to find ways of understanding market needs AFTER the proof of concept has been developed and the innovative idea is clear?

The Role of the Chief Innovation Officer

A short article in Business week on The Role of the Chief Innovation Officer:

A primary task then, of the chief innovation officer, is to oversee someone who is responsible for executive training and can make sure that the company’s language of innovation and the principles it embodies are widely disseminated and practiced.

Interesting concept. I clearly agree that a consistent definition of innovation is critical to measuring innovation effectiveness and ensuring that innovation delivers results. However, I would hope that a Chief Innovation Officer (CInO) would do more than provide a consistent language. As per the author:

Managing the learning process when innovating for new-business growth is the second critical area of responsibility for the chief innovation officer. Core-business innovation proceeds largely on established knowledge about markets, customers, competition, and capabilities, which can be extended to bring something new to market at scale. New-business innovation proceeds in small-scale, controlled experiments conducted in a foothold market—a small geographic region or customer group that will serve as a low-cost laboratory.

This is interesting. We have discussed the valley of death before, organizations face significant challenges in bringing innovation to fruition. The author points out that it is the CInO’s job to close the valley of death. The problem with this broad statement is the overlap in roles between CInO, CTO and VP of R&D. An organization will need to think through this conflict clearly before establishing a CInO (more on it below). Lastly, as per the author:

The failure rate, a critical learning metric, is likely to be high. Generally, in the absence of a structured approach to new-business innovation, about 1 in 10 new ideas works out. By taking the test-and-learn approach, the chief innovation officer can increase the hit rate to as much as 3 out of 10—a batting average that might be unacceptable in core-business innovation but can get you into the Hall of Fame in new-business innovation.

The author is acknowledging what we discussed above and points out that CInO can help improve organizational learning based on the failures of innovation project. A pretty good idea.

Here are my thoughts on the role of a CInO:

Encourage disclosure of innovative ideas from in-house engineers
Work with partners and customers on identifying and accessing innovation (and needs for it)
Scan external environments (universities, other small businesses) for accessing innovation
Provide seed fundings to develop proof-of-concept projects for innovation ideas
Monitor innovation projects and transition them to CTO / R&D for development
Nurture innovation projects and ensure they are not killed by not-invented-here mentality
Measure results of innovation projects and maintain metrics
Institute organizational learning from external and internal innovation projects
Develop and implement and innovation IP strategy
Others?

The Valley of Death in Product Innovation

Journal of Product Innovation Management has a great article on The Valley of Death as Context for Role Theory in Product Innovation:

The Valley of Death is used as a metaphor to describe the relative lack of resources and expertise in this area of development. The metaphor suggests that there are relative more resources on one side of the valley in the form of research expertise and on the other side by commercialization expertise and resources. Within this valley a set of interlocking roles are examined that move projects from one side to the other.

The idea is pretty clear: Companies acquire or generate innovation and then do not find a way to nurture it to the stage that it delivers results. The underlying problem is that existing product lines and culture rejects home grown innovation. The innovation accessed from the outside (open innovation) is rejected because of the traditional “Not Invented Here” problem. The authors provide empirical evident to support these conclusions after studying 272 PDMA members.

“The data also support the roles of champion, sponsor, and gatekeeper as major actors that work together to develop and promote projects for introduction into the formal process. Champions make the organization aware of opportunities by conceptualizing the idea and preparing business cases. Sponsors support the development of promising ideas by providing resources to demonstrate the project’s viability. Gatekeepers set criteria and make acceptance decisions. The data also reveal a dynamic interdependence between role players. It is concluded that the Valley of Death is a productive tool for identifying and understanding a critical area of development that has not been adequately addressed”

This research finds a dynamic interplay between roles to accomplish tasks that are not well understood in practice or the literature. The implications of this research are far-ranging. It suggests that companies must understand the challenges in the valley, must develop the skills, and must make resources available to master the front end of product innovation. Recognizing roles, providing resources, and establishing expectations and accountability in this area of development become manageable in light of these results. Theoretically, this research informs role theory of a dynamic set of relationships previously treated as static. It also empirically investigates an area of product development where there is limited data. This paper opens profitable inquiries by focusing on an area of development not adequately researched yet drives the activities and investment made in subsequent steps of product development.