Pause IV Organizational Architecture

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Pause IV Organizational Architecture Powered By Docstoc
					  Generating Growth in the
Operationally Driven Company



                   Professor Rebecca Henderson
                  MIT Sloan School of Management
  Phone: (617) 253-6618, Email: Rhenders@mit.edu,
      http://www.mit.edu/people/rhenders/home.html
Generating Growth:

 Understand how customer needs will evolve
 Understand how technologies will evolve
    – (Both your own and those on which you rely)

   Develop world class products and services that meet
    customer needs
But:

   Real growth requires dealing with some tough
    strategic issues
   And with even harder organizational problems

   What can be done?
         Growth:
A tough strategic problem?
Problems in recognition

 Growth opportunities do not arrive with labels on them
 Forecasting the future of technology is hard
 Forecasting customer needs and market demands is
  even harder
 Growth opportunities often look less profitable than the
  current business
  Real growth often challenges existing
  capabilities, business models
Performance
                        Maturity


                                          Growth?
              Takeoff



                        Ferment

                                   Time
 The nature of technical work changes

Performance
                         We need to be
                         responsive & flexible
                         but controlled
                                                   Will it work?
                                                   Exploration, fun,
                   Can we make                     creativity key
                   100,000?
                   And service them?


              Will it work?
              Exploration, fun,
              creativity key

                                                 Time
 The marketing challenge evolves

Performance
                        Stay close to your
                        customer – really close



                                             Who
                   Do we have
                                             needs this?
                   any reference
                   customers?


              Who
              needs this?


                                            Time
      Some new technologies sell to niche markets
      with less demanding requirements

                         Established technology

    Performance
                                                    Mainstream customer needs




                            Invasive Technology

                                                     Niche customer needs



                                             Time
Clay Christensen: The Innovator’s Dilemma
Now PDAs sell to customers with
different needs:
   Speed,
   Power,
   Memory
              PCs




                      PDAs




                        Weight/cost
But as PDAs improve they may come to
challenge PCs
   Speed,                            ?
   Power,
   Memory
             PCs




                     PDAs




                       Weight/cost
Or consumer preferences may change

  Speed,
  Power,
  Memory
             PCs
                    ?

                     PDAs




                        Weight/cost
 Managing the change in customer
 needs may be a critical task



Performance


                    Leading edge customer
                    focused research may be
                    a critical capability

                    And many firms are not organized
                    to execute upon it

                          Effort
A major materials supplier:
The Problem


   CR&D                SBU 1



    $100m
                ?        SBU 2

 Biomaterials                  SBU 3       Market
     work


                                       ?
 The ways in which a firm captures value also
 evolve dramatically

Performance
                      We may not be leading edge
                      but you’d rather buy
                      from us because…

                   We can sell it,        Speed, IP
                   make it,               Differentiation,
                   service it, ship it    Frontier performance key
                   Most of the time


              Speed, IP
              Differentiation,
              Frontier performance key

                                           Time
Two key ideas:

   Uniqueness
    – Controlling the knowledge generated by an innovation:
      being the only game in town
   Complementary Assets
    – Controlling the assets necessary to exploit the
      knowledge generated by innovation
Sources of Uniqueness

   Intellectual property protection
    – Patents
        • Finite length
        • The right to prohibit “producing”
    – Copyrights
        • The right to prohibit “copying”
   Secrecy
    – Trade secrets & non compete clauses
    – “Tacit” knowledge
   Speed
Complementary Assets: Definition

   Those assets that allow a firm to make money, even if
    the innovation is not unique:
   The answer to the question:
    – If our innovations were instantly available to our
      competitors, would we still make money? Why?
Uniqueness & Complementary Assets
over the Life Cycle:
                                  Complementary
                     Uniqueness      Assets


          Maturity


Takeoff



          Ferment
       Growth:
An organizational and
operational challenge?
 The organizational challenge of growth
 may be dramatic

Performance




                               Overload
                                  +
                            Competency traps




                             Time
Is This Your Project Pipeline?
Overload at PreQuip
                                        Resources
            Active Projects                                          Implied Development Resource
                                        Required for   Months to           Allocation (months)
         (formal development            Completion     Completion
         projects by number)             (months)       (desired)
                                                                    This year   Next year   Year after that
                   1                         54             8        40             14            0
                   2                        123            24        38             62           23
                   3                         86            12        50             36            0
                   4                        286            20        92            172           22
                   5                         24             4        24              0            0
                   .
                   .
                   .
                  26                        352            36        48            150          120
                  27                         75             9        62             13            0
                  28                        215            30        40             80           95
                  29                        153            18        60             93            0
                  30                         29             3        29              0            0



 All Other Support Activity                  ––            ––        430          430          430
  (customer support, troubleshooting)

 Total Development Requirements              ––            ––       2783         2956         2178

 Available Resources (months)                ––            ––        960          960          960


 Rate of Utilization (percent) ––                          ––       289.9       307.9       226.9
     Overcommitment destroys
     productivity
Average
              100%
Value-Added
Time on       80%

Engineering
Tasks         60%




              40%



              20%




               0%
                     1     2        3         4        5        6
                                             Number of Projects per
  Source: IBM Development Efficiency Study
                                                  Engineer
  The Timing and Impact of Management
  Attention
                                                  Phases
                Knowledge       Concept        Basic   Prototype      Pilot   Manufacturing
                Acquisition   Investigation   Design    Building   Production  Ramp-Up

      High
                                              ABILITY
                                              TO INFLUENCE
                                              OUTCOME

  Index of
Attention and
 Influence

             ACTUAL
             MANAGEMENT
             ACTIVITY
             PROFILE
      Low
Overload may destroy long term
performance:
                                                 No longer
                                                 term projects
                                                 initiated
  +
              Pressure to
         -    fix short term         Time spent         DELAY
              problems               Fire fighting

      Performance Gap            -    +
                                     Time spent
              Pressure to
                                     in “next generation”
              fix the roots of the
         -    performance gap
                                     projects


          DELAY                      Growth projects
                                     available
Why is it so hard to kill project #26?

   It’s a “good” project!

   Good managers can meet stretch goals
       (and I’m a good manager)

   Making difficult decisions takes time & energy
Competencies evolve over time,
creating “competency traps”

Performance
                        Maturity


                                          Growth?
              Takeoff



                        Ferment

                                   Time
Growth challenges every aspect of an
organization

                Leadership
                & Strategy


                Structure &
                 Process


                Incentives



                Culture &
               Mental Models
But strategically, growth must build on
existing assets…
                                  Complementary
                     Uniqueness      Assets


          Maturity


Takeoff



          Ferment
    The Organizational Challenge:

Entrepreneurial
Drive,
Freedom from      Startups    Successful growth unites
the “old ways”               entrepreneurial insight with
                                effective coordination




                                        B as U



                               Control & Coordination
What can be done?
What can be done?
    Lead:
     – Develop a growth strategy:
       Communicate it!
     – Generate energy
     – Build an “ambidextrous” senior team
     – Make decisions
Develop a Growth Strategy:
Communicate it!



              How will we
              Create value?




        How will we    How will we
       Deliver value? Capture value?
Generate Energy

   Position the need to move into growth areas as a
    competitive necessity:
    – Flirt with bankruptcy
    – Make vivid the idea that the firm might flirt with
      bankruptcy


   Position growth as an opportunity
    – Generate some small successes: build enthusiasm and
      “infect” the organization
    – Leap boldly into the future
Build an Ambidextrous Senior Team
   Ambidextrous senior teams must manage
    – both more mature, operationally focused businesses
    – and higher growth, emerging businesses
   High performing senior teams show:
    – High conflict, high respect decision making capabilities
    – High levels of trust and truth telling
    – The ability to manage divergent incentive systems and
      career paths
   Coupled with processes that support the divergent
    management of quite different business units
    – E.g. Resource allocation processes that allow for
      different time horizons, milestones, rates of return
 Make real decisions:
 Is spending balanced short vs long term?
                                                 Low         Moderate      High
         Consumer Value Perception               Resource    Resource      Resource

                New Core        New
Enabling                                       Improvement       Variant       No Change
                Product         Benefits
Technology
                                                                            Breakthrough
      Radical

                                                                                 Platform
        Next
   Generation



                                     Natural
                                                                                Derivative

  Incremental


                                                              Brand
                                                              Support


        Base
What can be done?
    Lead:
    Structure:
     – Choose a structure that matches the firm’s strategy
       and skills
     – Manage it using every lever that you have
     Choose a structure that fits the firm’s
     strategic positioning and skills
Entrepreneurial
Drive,            Acquire/
Freedom from
                  Partner
the “old ways”
                          Joint
                         venture/
                         alliance
                                    Internal
                                    venture

                                          Build inside
                                          existing unit

                                    Control & Coordination
     Manage it using every lever that you
     have
Entrepreneurial
Drive,            Acquire/
Freedom from
                  Partner                      ?
the “old ways”
                          Joint
                         venture/
                         alliance
                                    Internal
                                    venture
                                          Build inside
                                          existing units
                                          existing unit


                                    Control & Coordination
What can be done?
    Lead
    Structure:
    Incent
     – Explain “just what’s in this for me?”
     – Manage the balance between:
         • Individual outcomes and team/firm outcomes
         • “Objective” and “subjective” measures
    The Incentive problem is an inherently
    difficult one…
Entrepreneurial
Drive,
Freedom from      Startups
the “old ways”




                                     B as U



                             Control & Coordination
     Using “high powered” incentives may
     reduce coordination
Entrepreneurial
Drive,
Freedom from
the “old ways”
                  Acquire/
                  Partner                      ?
                          Joint
                         venture/
                         alliance
                                    Internal
                                    venture
                                          Build inside
                                          existing units
                                          existing unit


                                    Control & Coordination
What can be done?
    Lead
    Structure
    Incent
    Transform the culture:
     – Build on core values
     – Practice thinking in new ways
     – Manage from the heart
Summary
Successful growth requires
    Leadership
    The “Right” Structure
    Appropriate Incentives
    Transforming the Culture

				
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