Innovative management to ensure organisational resilience
Liisa Valikangas talks to John Warner about how organisations can build their resilience to unexpected threats to their existence through developing innovative management practices and key workforce behaviours.
In a turbulent world, organisations need to adapt quickly and make innovation part of their day-to-day operations and strategies. This may entail developing new products and services, but it should also involve devising innovative ways of managing their people and organisational activities.
Liisa
Valikangas is co-director of the Woodside
Institute, based in
Focusing on resilience
The institute has sought to determine what resilience means for business and how it is manifest in everyday management principles and practices. The contention is that by devising innovative management practices, companies can "weather out" unexpected traumatic situations that could threaten their survival. Faced with a sudden economic downturn, fundamental changes in technology, disruption through a bitter boardroom dispute, adverse publicity in the media, or stiff competition from low-cost labour markets, companies that are resilient can avoid a slow decline in business, emerge transformed and reinvigorated and, possibly, move ahead of the competition following their traumatic experience.
Valikangas is also a visiting associate professor at the London Business School. With a broader remit than the institute, it has recently entered into a partnership with the Woodside Institute and has formed the Management Innovation Lab. With its corporate partners, members of the faculty are seeking to determine the types of innovative management practices that will ensure long-term success and competitive advantage. The belief of the lab's staff, including Valikangas, is that management innovation forms the foundation on which organisational resilience can be built.
Four challenges
To ensure the continuing success of its corporate partners, the lab identifies four management challenges that lie at the core of its work:
Building organisational resilience by adapting quickly to rapidly changing circumstances and by resisting the overwhelming urge to prevent change until it can no longer be avoided, at which point adaptation becomes very costly.
Regularly harnessing innovative ideas that exist in all organisations, at every level and in everybody. Working out what "tools" and structures are necessary to tap a pool of human imagination. Encouraging "rule-breaking" innovation from all employees - rather than making it a specific responsibility of one of the organisation's functions.
Devising an environment that provides an opportunity for employees to bring all of their talents and gifts to the workplace. To raise the return on human capital by developing systems that enable people to take initiative and that allow their creativity and passions to flourish.
Developing metrics to determine the current capabilities of an organisation and measure the capabilities that are being developed for what lies ahead. As past measurement systems lose relevance, to find ways of measuring new thinking and practices as an indicator of the rate of corporate renewal.
Looking for signs of resilience
"As we've found from earlier work, resilience is quite difficult to define, but we do know that it's necessary to take steps towards innovative management in the first place if resilience is to be achieved," Valikangas says. "In our experience, very few organisations are truly resilient and it's rare to find those that have deliberately set about making strategic changes. Usually, companies are obliged to react suddenly to a crisis, rather than having a planned management response already in place."
It has also been found that copying good practice of those organisations that are perceived as being resilient is not an entirely successful strategy. Management practices can be idiosyncratic and specific to the systems and circumstances of the organisation and are not readily transferable. Valikangas considers that companies should systematically examine the basic principles of their own operation, rather than try to replicate good practice from elsewhere. If these principles do not include resilience, then resilience should be taken seriously and developed as an essential business tenet.
"Many practices that are in place in organisations today are a leftover from a former industrial age, such as specialisation, control, hierarchy, planning procedures and division of labour. What are needed now are management processes and competencies that will allow organisations to compete through organisation-wide innovation and imaginative management approaches - and so achieve resilience," Valikangas explains.
"Even though they have few strategies for achieving resilience, some companies have survived for a long time purely because of their sector, such as the oil industry for example. But where do companies that aren't in this position turnto for the inspiration that's needed to renew their management practices and capabilities?"
The answer, it would appear, comes from systems that have proven their resilience over time. They are all around us, but are outside the usual sphere of conventional business models. Systems may include neighbourhood communities, whole cities, democracies, markets, faith systems and evolution.
Valikangas believes that we can learn from these systems by asking what it is that has made them resilient. Although their characteristics may not translate directly for business purposes, it is possible to interpret the principles that have ensured their success and survival. For example, these may include: having a capacity for flexibility; how resources are allocated; how the system responds to competition; and having an ability to create new links with other systems.
Experimenting with different models
Having drawn inspiration from alternative models, it is suggested that the next step is to determine how this can be interpreted into management practices and behaviours. Solutions may involve managers encouraging greater employee autonomy, or giving employees an opportunity for "free speech" in the business. Alternatively, managers may choose to break through conventional departments in favour of a system that allows employees to join interdisciplinary teams. Or, as a further example, a decision may be taken to create an "open marketplace" inside an organisation that drives activities on the basis of attracting interest, responding to demand and having access to multiple sources of funding.
"How do you create something similar to a successful city block within a company? It's made up of people who have different purposes in life, who have a diversity of backgrounds and who enjoy a balance between their work and leisure activities," Valikangas says. "Something similar could be created within a company. But how do you get that 'buzz' of city life? How do you achieve a critical mass to ensure that great ideas bubble up, and how do you combine the ideas from many different people in a meaningful and productive way?"
Valikangas's experience confirms that the process of responding to these challenges should not be conducted in isolation. The whole of the organisation's workforce needs to be drawn into considering the emerging ideas and to experiment with them to determine how well they work. She regards it as essential for more than one pilot project (offering only one possible solution) to be running, in order to foster a spirit of experimentation. The first attempt may not always be the final attempt and may be discarded - rather than being scaled up.
"We need to learn from experiments and build up a portfolio of management innovations that are occurring concurrently. One of these might prove to have a significant impact on the organisation and fundamentally change how things are done," Valikangas says. "This is a very different approach from the past and requires people who have the competence and confidence to think in terms of wider business concepts and issues."
Tapping people's imagination
Like experimentation, the involvement of the whole workforce in thinking through issues about management innovation is seen as the way forward for organisations. It taps into the collective imagination of people who have a significant interest in any resulting changes that are adopted. Particularly productive areas for radical ideas include suggestions for changes in the working environment, how employees want to be managed and how they want to manage others.
"We found that when people become engaged in this type of thinking, they become highly motivated because it empowers them. It's not easy coming up with radical ideas for management change that are truly innovative. But, by drawing on analogous external systems, it's possible for people to step back, consider how these systems work and decide if variations of them could have a place in their business. Experimentation establishes whether ideas work out or not. There's no guarantee, but they can help in building management practices that will contribute to organisational resilience."
Greater flexibility
An organisation that already has the capacity continuously to reinvent its core capabilities and business model - before it becomes absolutely necessary - is almost certainly taking the appropriate steps towards achieving resilience. In practical terms, and taking resource allocation as an example, Valikangas explains that such an organisation would:
allocate resources more flexibly than businesses that follow existing practices;
allocate resources in a more market-like fashion (explained below);
tap into the "working installation" of the organisation to optimise resource allocation; and
develop an internal market that identifies opportunities and makes ideas known within the organisation. It would also make the owners of the ideas responsible for pursuing them to fulfilment.
"What most organisations have today is a hierarchical system that's based on prophecy [of what will be needed] and is allocated once a year as part of a budgeting cycle. Existing processes are cumbersome, slow to respond and only take place at discrete intervals," Valikangas says. "Frankly, they're hostage to the knowledge base of a few people at the top who make the final decisions. Rather than responding to opportunities as they arise, it can involve waiting until an opportunity becomes a crisis and such a big issue that you have to pay it attention."
A market-like resource allocation system would be capable of paying attention to, and pursuing continuously, many small opportunities as they arise. Ideas could be subject to a form of peer review, rather than having to work their way through several layers to the top for approval, and relatively modest funding decisions and people allocation would be made much closer to the impending project.
Necessary leadership characteristics
The competencies of leaders who work in these new systems are likely to be somewhat different from those who work in a conventional hierarchical structure, according to Valikangas. Leaders should be capable of:
searching for opportunities;
encouraging other people's ideas;
looking for patterns;
identifying themes to make links (internally and externally); and
being an editor of ideas, rather than their author.
In the future, rather than looking at the opportunities that everyone will be pursuing, leaders need to identify where the people are in the organisation who have new and different ideas. Leaders, she says, should analyse what these people are spending their time on now and, if necessary, reprioritise their work to foster greater idea generation and innovation.
The role of the leader is to provide cohesion, interpretation and motivation for those with ideas, but the leader also needs to be flexible (resilient) in the face of many unknowns and able to rethink the usual way in which the organisation's change processes work.
At present, a typical change and innovation process is marked by a series of predetermined "stage gates" or checkpoints. At these, outcomes and standards of success are measured and - providing the project is progressing on track - will have been achieved. But, according to Valikangas, for those pursuing an innovation pathway the outcomes may be a series of unknowns. In which case, leaders should be capable of putting a series of value-driven processes in place that are reviewed at each stage of a project/experiment and which question, for example:
What lessons have been learned?
What is it that is being tested?
What are the hopes for future learning?
How much more is known currently than was known before commencing?
What are the business opportunities that are presenting themselves?
"Working this way is not easy with existing business structures still in place. Leaders may have no idea how much money is going to be spent, or even what it's going to be spent on. Most organisations would be very uncomfortable with such a situation," Valikangas says. "Inevitably, the leader lacks information about the nature of the opportunity but the dilemma is that, if they were to have it, so would a competitor and the chances are that they'd already be doing something about it."
Leaders in a culture that is innovative and experimental need to be able to handle unknowns and ambiguity. This is unlike the current more familiar territory in which the leader has at their disposal both the power and the resources, well ahead of time, that are needed to undertake a major project. In pursuing innovation, the contention is that the leader will have little, if any, information, will need to identify the opportunities to be explored, will have to learn quickly from a variety of business experiments and initiatives, and must ensure that the significance of the outcomes is not lost on the organisation's core business.
Ripe for management innovation
Valikangas suggests that it is not clear yet what sort of management systems and processes should be in place in organisations to enable them to renew themselves, to become "as nimble as change itself" and to tap into the full spectrum of human imagination and capabilities. However, she believes it is reasonable to assume that all core management processes will need to be rethought, including planning, budgeting, resource allocation, performance evaluation and reward.
"In addition to a capacity to develop innovative products and services, it's equally important that organisations have innovative management practices in place too. These will ensure that 'opportunities' have access to the 'main mind' of the organisation and avoid them being a peripheral initiative or a fringe opportunity," she says.
Everything appears to be "up for grabs", including developing innovative goods and services but, just as importantly, devising innovative management practices. How many management competency frameworks recognise this and can claim to have identified the behaviours needed by leaders to ensure that innovation in all aspects of business is a core corporate capability? Even though management innovations have given companies competitive advantage in the past, including, for example, the introduction of divisions, brand management, employee problem-solving, total quality management and cross-functional teamworking, it is not common for innovation to be approached systematically or to have it rooted in the day-to-day business of the organisation.
Constraints
Valikangas points out that, in many cases, the core processes of organisations are suppressing innovative ideas. Existing systems have a stranglehold that either determine how much, or how little, attention is paid to growth opportunities and management innovations, or prevent new ideas penetrating the core processes altogether. It is, she says, obstructions such as these that should be removed and the processes that are responsible for stifling change should be replaced. Reforms may not come easily. "Many managers gain their experience in the core business of an organisation as 'stewards' rather than entrepreneurs," she adds.
Automated core processes can remove discretionary powers and make it difficult for managers to influence how organisations are run. Their preoccupations may revolve around budgeting, carrying out prescribed processes, assessing performance, preparing reports and completing forms. However, eliminating the factors that are causing constraints and replacing them with new and innovative processes is an area that is clearly ripe for the intervention of managers and leaders with vision.
Challenges
"Perhaps we should be promoting managers who build something new, rather than those who have proved to be good stewards of existing business processes," Valikangas suggests. "To meet the challenges of the future, managers need to be less control-oriented, understand the influence their role can have on the business, use the organisation's power base to discover new opportunities and take on the role of editor and encourager of ideas."
For Valikangas, the bottom line is to systematically build innovative capability and develop core processes that are based on discovery and an "exploration of the unknown", rather than retaining systems that wait for circumstances to become a crisis before a management response is made.
"As a challenge, wouldn't it be interesting to see how an organisation could cut its costs by 90% to match the prices of goods coming in from a cheap labour market? If managers developed the capacity to think this way, it might bring up some radical solutions. Whereas, now, to cut by 9% may be regarded as plain impossible," Valikangas says. "Rather than believing we can't compete on cost, we can compete and thrive by innovating - particularly, with the introduction of innovative management processes and systems."
Review of competencies
If the perceptions and experiences outlined are to be taken seriously, it appears to be time to revisit managers' competencies and those of the entire workforce. In the case of managers' competencies, this would involve establishing if they reinforce a capacity for enacting innovative management reforms and, for the rest of the workforce, reviewing how their competencies ensure that people's imagination and passion are being fully tapped. With the right mix, organisations will be better equipped to achieve organisational resilience and long-term success.
The
Further information: Liisa Valikangas, Managing Director, the Woodside Institute, email: lv@woodsideinstitute.org .
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For almost 20
years, Liisa Valikangas
has been a researcher and consultant, in both academia and the business
world. Prior to her current roles at the Woodside Institute and the
Management Innovation Lab, she has held positions at Strategos,
based in California, in the US, Tampere University
in Finland, International Management Development Institute (IMD) in Switzerland,
Keio Business School in Japan, Stanford University in California and with SRI
Consulting. She has a PhD in business administration from |
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Co-founder of the Woodside Institute, Gary
Hamel is a visiting professor of strategic management at the |
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The Woodside Institute is a private
non-profit research organisation, based in |
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For further details on the Management Innovation Lab, contact Professor Julian Birkinshaw, tel: 020 7262 5050 ext. 3640; www.london.edu/managementinnovationlab.html . |
