Companies like Merck, Bosch or Microsoft that rely on a technology-push approach to innovation can systematize their corporate R&D processes to increase productivity. Customer-pull innovations, in contrast, generally come from elements of the business model that surround the core product technology, including manufacturing, logistics, distribution and finance. They are more difficult to standardize. Difficult, but not impossible. Top executives pursuing a customer-pull approach to innovation can follow a more systematic approach by stimulating experimentation across all components of the business model, selecting the most promising innovations, and disseminating them quickly and broadly.
CEMEX has tackled these challenges systematically. Although its core product technology has gone
Innovation, broadly speaking, comes in two varieties: technology-push and customer-pull. Technology-push – introducing new products based on cutting-edge research – is not an option for most companies in developing countries. Instead they must rely on the customer-pull – finding ways to solve customers’ problems without relying on proprietary scientific breakthroughs. Customers in emerging markets, however, are often quite poor, which means companies must also provide low-cost solutions to serve these customers profitably.
When multinationals enter developing countries they generally provided slightly scaled-down versions of products tailored for wealthier markets. Their products, however, often miss the mark in solving local
Many managers consider innovation the best way to increase revenues, cut costs and beat rivals. In the current recession, they find themselves constrained by a lack of resources, and must sell to price-sensitive customers unwilling or unable to pay a premium for the latest whiz-bang technology. Where can managers turn to learn how to innovate despite these constraints? The answer is not to round up the usual suspects when the topic of innovation arises: Microsoft, IBM, Sony, Samsung and Nokia for example.
All excellent companies, of course, and rightly admired for their ability to remain on the frontier of unpredictable industries. All resource rich. Managers can learn many things from technology leaders, but how to innovate on shoestring is not one of them. Leaders in technology-intensive industries such as
Simple rules are a practical tool to guide choices, balance flexibility with structure, and improve coordination in organizations. To implement the tool, managers create a set of rules to guide a key process. Simple in principle, but tricky in practice. Over the past decade I have worked with dozens of companies which adopted simple rules, and identified recurrent mistakes that derail simple rules. Managers who recognize these common pitfalls can avoid them.
- Too broad. Managers often confuse a company’s guiding principles with simple rules. HP’s core
Simple rules can improve decision making, balance structure with flexibility, and foster coordination in organizations. Implementing simple rules consists of three steps: select a critical process, craft the rules, and avoid common mistakes. This post discusses how to formulate effective rules, and the next describes how to avoid common mistakes.
Where do simple rules come from? Gerd Gigerenzer, whose research is summarized in an earlier post,
My previous post illustrated how simple rules can structure organizational processes, such as capital budgeting or new product development, while leaving flexibility for employees to exercise initiative and creativity. Simple rules can also mitigate a fundamental challenge facing large, complex organizations–breakdowns in coordination across silos.
When coordination breaks down in companies, employees often attribute the failure to incompetence or bad faith on the part of colleagues in other departments–”those bozos in headquarters/marketing/finance/etc. screw everything up.” But breakdowns in coordination are inevitable in large corporations. In Organization
My last post summarized research showing that simple rules work as well or better than sophisticated analyses, using less time and data. To date, this research has focused on individuals decision-making. Making choices in organizations is rarely a solo sport. Employees of large corporations face myriad considerations that research subjects can safely ignore in a laboratory experiment. These issues include fragmented information, office politics, the need to coordinate choices with others, and balancing discipline with flexibility. Simple rules can help employees navigate the social and political aspects of making choices. My next few posts will discuss the organizational benefits of simple rules.
Simple rules can help firms strike a balance between too much structure and too little. In their book
In the boom, abundant resources allowed managers to avoid hard choices–they could spread cash evenly over alternatives like peanut butter on a slice of bread. In the current downturn, scarcity of cash forces hard choices on what to do, what not to do, and what to stop doing. How can managers make these difficult choices?
Many believe that complex choices demand complicated analysis. Economic theory holds that decision
My last post introduced simple rules as a practical technique to allocate scarce resources to their best use. The approach works across a range of processes, such as capital budgeting, investment decisions, and employee selection. This post provides some real-world examples of simple rules in action to illustrate the breadth of application and what effective rules look like.
America Latina Logistica (ALL), the largest independent logistics company in Latin America, illustrates how simple rules can guide capital expenditure decisions when funds are limited. ALL was formed from one newly privatized branch of Brazil’s freight railway, which had owned by the government for decades. The new company had only $15 million for capital spending, which represented less than 10 per cent of the total funds requested by managers for projects to offset decades of underinvestment under government ownership. ALL crafted a set of simple rules to prioritize capital spending.
During the boom, many managers dodged tough choices because abundant resources could fund most requests. In the current recession, resources have evaporated while opportunities to acquire struggling competitors or win share have arisen. Making hard calls has acquired a new urgency for companies, but many lack the processes to make disciplined choices.
What can leaders do? At one extreme, they could seize authority from subordinates by consolidating