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When we think of innovation, we usually think first of technology. But, as the academics Michael Mol and Julian Birkinshaw point out in their new book Giant Steps in Management (reviewed here), the most important innovations in the business world concern how we think about and do management, how we organise, solve problems, make strategy and lead people.
They have collected 50 examples of management innovations, past and present, ranging from scientific management, the assembly line and the divisional structure, to six sigma, benchmarking and outsourcing.
So which innovations have had the biggest impact? Which are the most effective in today’s business world? Mol and Birkinshaw answer your questions.
• Read an extract from Giant Steps in Management that outlines why radical management innovation occurs so infrequently.
How exactly is management innovation connected to sustainable competitive advantage?
Francis, London, UK
Michael Mol and Julian Birkinshaw: Companies that successfully innovate their management processes, practices, structures and techniques will always be at an advantage. That’s not because management innovations are themselves useful products that companies can sell, unless they are management consultants. Instead management innovation filters through to competitive advantage in indirect ways.
Some management innovations allow companies to become better product innovators, some of the management systems used by Google like providing employees with free time, are clearly conducive to product innovation. Other innovations lead to more efficiency, like supply chain management, and improve the company’s bottom line. Yet other innovations improve the top line, like yield (revenue) management which helps hotels, airlines and other companies to set the best prices given customer demand. And then there are innovations which make employees happier. All of these constitute improvements for companies but they are invariably indirect improvements.
Advantages generated by management innovation are more likely to be sustainable than say those from technological innovation for several reasons. First, the management innovation is often specific to a company, rather than the whole industry or market.
Second, because management innovation is intangible and takes place inside organisations, it is much harder to replicate elsewhere. You can not reverse engineer a management innovation in the same way as a new mobile phone. Finally, the leading management innovators build upon previous innovations so that a complex platform of management innnovations evolves over time. This has been the case for Toyota but GE has perhaps been even more effective at continuing to introduce management innovations, from strategic planning to workout and six sigma, and keep one step ahead of its competitors all the time.
Which of the 50 examples of management innovations, both past and present, that you collected were the most valuable and what in your view are the most exciting new management innovations on the horizon?
Emily Hutchison, UK
Michael Mol and Julian Birkinshaw: If we understand valuable as providing the innovating company with the most competitive advantage, the innovations in the book that come to mind most are brand management, the multidivisional structure and lean manufacturing.
Even today Procter & Gamble is still a world leader in brand management, over 70 years after it started introducing the system. Brand management has allowed consumer goods companies to grow their businesses enormously. GM, which introduced the multidivisional structure in the 1920s, rapidly outpaced Henry Ford and his model T and maintained its advantage for decades, all the while adding bits and pieces to the structure.
Toyota and its lean manufacturing system is another example. It was introduced over fifty years ago. Its Japanese competitors, the Detroit big three and the Europeans have all tried to copy it but haven’t been truly successful until this very day. Toyota’s market value now far exceeds that of GM and Ford combined.
Some of the key recent innovations we discuss in the book include customer relationship management, open innovation, six sigma and outsourcing. We think innovations for the future are likely to tinker with existing management principles. For instance, as Gary Hamel has discussed in his recent book the Future of Management, using the wisdom of crowds rather than that of so-called experts. More use of heterarchy rather than hierarchy. And future management innovations may focus on areas that have mostly been dealt with in a reactive manner in the past, like ethics and the environment.
What are the pitfalls to avoid in running a successful family business? Can high end management innovations apply to small family businesses as well as large ones? And how do you turn around an ailing family business where the founder is about to retire and relinquish leadership to a son or daughter?
Michael Byakabasa, London, UK
Michael Mol and Julian Birkinshaw: The principles of management innovation apply as much to family business as to publicly-held business; in fact, because family businesses are not accountable to shareholders on a quarterly basis it is possible that there is more scope for them to invest in management innovations that offer hard-to-measure and long-term returns.
The principles also apply equally to small and large firms: while our book focuses on those innovations put in place by large firms, there are also quite a few examples of smaller firms being highly innovative in their work practices - consider Google today, or the Brazilian company Semco, which is not a large company, and family owned as well.
To your last question, we would not claim to be experts in family businesses per se, but it seems clear you have to try to be innovative around your ownership structure and control mechanisms to allow the founder to retain his/her say while still putting the real executive responsibility in the hands of either a son/daughter or a hired executive.
How does leadership and management innovation interact? Should one take precedence over the other?
Lucian Stancu, Derby, UK
Michael Mol and Julian Birkinshaw: Every management innovation in our list required leadership for it to be brought to fruition - leadership both in terms of the vision shown by the individual champion, and also in terms of the support and sponsorship from the executives at the top of the company (sometimes these are one and the same person). But of course leadership is also important in a host of other areas as well.
The other way of answering this question is that companies like GE and Goldman Sachs have developed innovative practices that allow and encourage leaders to emerge across their organisations. In other words, leadership can be seen as a product of management innovation, as well as a driver of it.
There’s often a lot of mystique presented by gurus (charging lots of money) but isn’t what you call management innovation simply about increasing efficiency? Can changes in management really have the same scale of effect as political or technological changes?
Michael Mol and Julian Birkinshaw: Many management innovations over the last 100 years have been about increasing the efficiency of existing operations. But many others have focused on different objectives - a lot of the people management innovations are about employee engagement and quality of working life; several of the strategy-based innovations are about creating new products and services, or making the organisation more adaptive to changing market demands.
To your second question, we fully accept that political and technological changes can be dramatic in their impact at a societal level. Indeed, we often think in terms of a category of ”institutional innovations” such as the creation of the joint-stock company, anti-trust legislation, and patent protection, that created the basic conditions in which capitalism could flourish - the road we drive on, if you like.
On top of that, we then see management innovations as the engine that turns the ”fuel” of technological innovations into forward momentum.
What are the highest priorities in terms of hard and soft skills that a manager/leader needs to develop when it comes to leading people that will help create an empowered, highly engaged and motivated workforce?
Cathy Bernatt, Japan
Michael Mol and Julian Birkinshaw: This is an excellent, if rather broad, question! Employee engagement (or rather, its absence) is perhaps the biggest single challenge facing companies today, and it is desperately in need of innovative thinking and action.
The short answer to your question, we would suggest, is a combination of empathy, self-awareness and energy: these are attributes that make a person ”attractive” as a leader, and therefore someone who people are likely to be motivated to want to give their best to.
But the real ”prize” is to be able to systematise or institutionalise a capability in an organisation that allows people with these sorts of attributes to find their way into management positions, rather than the current norm of allowing technically capable (but interpersonally weak) people to move into positions of authority.
What would you say has been the single biggest management innovation and why? The production line would get my vote.
Michael Mol and Julian Birkinshaw: Obviously we would say all 50 innovations in our book matter a lot! But in truth everybody probably has their own favourite and it depends on the criteria you employ. The production line (moving assembly line) has had a huge impact on the way production takes place and on how services are brought to customers.
But what about scientific management, which has forever changed the way in which people are managed? And lean production, which continues to be a major source of competitive advantage for Toyota until today? The multidivisional form of organising determines how big firms structure themselves and without the invention of industrial research labs we might not have television or the internet today.
With the advent of the web, it is much easier to create networks of people and ideas? Has the internet been harnessed fully in management innovation? Can you give examples?
J.S Lee Paris, France
Michael Mol and Julian Birkinshaw: Yes and no. The web certainly is becoming a key tool in the move towards using networks. But we think it hasn’t nearly been exploited enough by large companies in a structured manner. But this is starting to happen now. An excellent example is open innovation at Procter & Gamble and elsewhere, which does rely to a large extent on networks of knowledgeable individuals and companies all over the world.
In the book we also talk about communities of practice, people with similar interests gathering on web-based networks. These communities show a promise of delivering added value to the organisations these people work for. The big paradox here is that they may only be valuable to the extent that they are not managed. Once you start interfering with the community, its members will be upset.
So it becomes much harder for any one organisation to capture the value of the community. This is very much what we’re seeing happen in the open source software community. It also implies that there is a shift of power from the employer to the employee. Employees will want to engage with their communities, regardless of whether other members of the community reside inside or outside the organisation.
Do you think that - in the end - technology is the key enabler of each one of the management innovations you have analysed?
Vito Marcolongo, Milan, Italy
Michael Mol and Julian Birkinshaw: Technology definitely plays a key role in many management innovations. The assembly line and enterprise resource planning are for instance examples of that. But to say that all management innovations are shaped primarily by technology would be untrue and is also missing the point.
First, people play an important role in the creation and implementation of management innovations. If you take an innovation like scenario planning, it requires some sort of technology, electronic or even pen and paper, but the key enabler is really the ability of people to imagine multiple futures and translate these into courses of action.
Second, sometimes the link to technology is only developed after the management innovation comes about. This is true for many accounting innovations. First the innovation is conceived in people’s minds and implemented. Only then does technology, like computer software, come into play. Finally, some of our innovations really do not involve technology in any meaningful manner, the organisational structure innovations like the strategic business unit come to mind.
What our book shows and what we believe is that technological innovation and management innovation often emerge together because technological innovation creates a need for management innovation and vice versa. Many new technologies can not be deployed without introducing some new management system at the same time. And management innovation can become more effective when it is accompanied by technological innovation.
We have heard a lot about optimising the supply-chain in a flattening world. Innovations need testing. What aspects should be emphasised in MBA courses?
John Fernandes, Sao Paulo, Brazil
Michael Mol and Julian Birkinshaw: There is a lot of emphasis on such issues as optimising supply chains in MBA courses because there is already a great deal of accumulated wisdom on those issues. So we can learn, sensibly, from the efforts that many companies have put in on getting supply chain optimisation right.
But we would argue that MBA courses shouldn’t just provide students with a knowledge of existing best practices; they should also be teaching students to critically evaluate existing practices and come up with new ones. That is why one of us offers an elective course at London Business School called ”Adventures in Management Innovation”.
About the experts:
Julian Birkinshaw is a professor in the department of strategic and international management at the London Business School, and and co-founder and research director of the Management Lab. His main area of expertise is in the strategy and management of large multinational corporations, and on such specific issues as corporate entrepreneurship, innovation, subsidiary-headquarters relationship, knowledge management, network organisations, and global customer management. He is active as a consultant to many large companies, including Rio Tinto, SAP, ABN AMRO, GSK, ABB, Direct Wines, Ericsson, Kone, Exxon, WPP, Bombardier, Sara Lee, HSBC, Akzo Nobel, Roche, Thyssen Krupp, UBS, PWC,.
Michael J Mol is a senior lecturer in Strategic Management at the University of Reading, and a Visiting Researcher of the Management Innovation Lab at London Business School, both in the UK. He has worked and studied at seven universities in five countries. His work has been funded by among others Siemens, the Carnegie Bosch Institute and the Advanced Institute of Management Research. His work focuses on the strategic management of larger firms, with particular interests in sourcing strategy and management innovation.