Creativity and innovation hold the key to being competitive in a global environment, but what does it really take for a company to recruit or build innovative talent?
Defying conventional wisdom in management, no competitive advantage for a company seems sustainable over the long run in today’s globalized and rapidly changing business environment. Meanwhile, the expansion of online social media has made it such a powerful tool of communication with consumers that companies have no choice but to use it proactively, whether they like it or not.
These are among the questions and issues discussed by professors from American business schools who took part in a June 1 symposium organized by the Keizai Koho Center under the theme, “Corporate Competitiveness in the Global Economy.”
Christina Ahmadjian, a professor at Hitotsubashi University Graduate School of Commerce and Management who served as the moderator of discussions, observed how rapidly the study of management has been changing “just as business changes over time.” This serves as a caution, she said, that “we really shouldn’t be spending all our time immersed in the classics” of management studies.
Creativity, defined as creating something by combining already existing things in ways that nobody had previously thought, depends on how people think and there are two basic requirements for the mental processes needed for creative endeavors — for the people to have diverse experiences and to see compatibilities in those diverse experiences, said Jeffrey Sanchez-Burks, an associate professor of management and organizations with Ross School of Business at the University of Michigan.
Studies by researchers show that people who have lived abroad and lived in another culture — who have had “deep” immersion in another culture — are more creative than those who have not, but that alone is not sufficient, Sanchez-Burks said as he discussed the issue from the perspective of social psychology.
Some people may have been exposed to different cultures or ways of thinking but are unable to “combine them to create something new” if they think the diverse exposures are “incompatible or just different,” he said.
So what is also required, he said, is a recombinant mind-set to “perceive these compatibilities between the diverse experiences.” For an organization to get its people to have such a mind-set, it needs to encourage the people to see connections between the seemingly different exposures, he said.
Sanchez-Burks cited the result of a survey, which he was involved in, on a group of female engineers in the United States, where engineering is considered a male-dominated area. Half of the respondents felt that it was very difficult to be a female engineer and that they needed to minimize aspects of their gender in their work, while the other half said it was perfectly compatible to be both a woman and an engineer, he said.
In an experiment that asked them to design features for a cellphone, “what we found is that female engineers, despite having all the requisite diversity of knowledge needed to innovate, were less successful if they did not see compatibilities” between the two diverse experience of being a woman and an engineer, he said. “It’s a great irony that people who have diverse experiences are unable to leverage it.”
Company employees are sent abroad with the expectations that they would come back with fresh perspectives.
“Research suggests that they are unlikely to leverage these diverse experiences unless the organization actively tries to help them see connections, encourages them to find unusual linkages between the different ways of thinking,” Sanchez-Burks said.
Recent studies on business innovation suggest that what has been taught at business schools for many years may not be true, said Batia Wiesenfeld, a professor of management with the Stern School of Business at New York University.
“We used to teach that the right way to structure an organization is to develop a value proposition, a competitive advantage and then figure out who are the customers who care about that competitive advantage and focus on those customers, and at the same time sharpen the organization the way you sharpen a knife, align it so that you can keep very carefully delivering on the competitive advantage,” she said.
“What we have come to realize is that the world is changing too fast and that globalization means that no competitive advantage is sustainable in the long run,” she said. “We are now trying to teach organizations how to be ambidextrous, which in the context of innovation means to both cut costs and be efficient and deliver quality on one hand, and at the same time be constantly exploring and looking for new ideas and innovations on the other.”
Some of the findings from a study on major U.S. companies in the transportation and construction industries that represent most of the American market, which included interviews, surveys as well as analysis of data on innovations and technologies being created, defy conventional wisdom, Wiesenfeld said.
“Existing literature says that the best organizations to create quality and efficiency are those that operate like a machine” as opposed to those that are more flexible and operate like an organic system, she said. One of the findings from the study, however, is that centralization — concentration of decision making in the hands of just a few people in the organization — is not a key factor, she noted.
“We thought that organizations are more innovative when they let a lot of people make decisions, and that they are less innovative when very few people can make decisions,” but the study shows that centralization or decentralization of decision making is not relevant, she said.
What is more important, Wiesenfeld said, is that the organization has a task-relevant logic that they focus on the work at hand. And what holds the key, she said, is that the people making the decisions are experts in the area irrespective of their rank. “You let the decisions be made by the people who have the knowledge, rather than the position.”
Also important for the organization to be innovative, Wiesenfeld said, is “to prioritize — be willing to ignore what we have done in the past and prioritize what we see as current and future challengers, rather than past practices.”
Another finding from the study is that some of the features that make an organization operate like a machine — which had been presumed to be bad for innovation — “are actually very good for innovation,” she said. For example, formalization — which sets clear rules, policies and procedures and was earlier considered as a potential barrier to innovation — in fact “creates transparency and open information and allows the organization to be more innovative,” she noted.
Personal identification — what the employees of a company think of themselves — also influences their innovativeness, Wiesenfeld said. Professional identification — for an employee to think of oneself more as an engineer than as a member of a company, for example — “turns out to be important for people who are doing more innovative activities, especially very radical innovative activities,” and leads them to build more relationships with people outside the corporate organization — another key element that promotes the workers’ innovativeness, she said.
At the same time, this emphasis on professional identification can actually harm by making the employees “less interested in the hard work of sharpening the organization’s capabilities and its value propositions, cutting costs and developing higher quality,” she added.
Meanwhile, Phillip Stocken, a professor of accounting with Tuck School of Business at Dartmouth, discussed how organizational structures in multinational companies affect their performance, based on a survey in which he took part on roughly 3,000 U.S.-based multinationals and their nearly 45,000 overseas subsidiaries.
An organizational mismatch — in which decision-making rights are either centralized or decentralized in ways that do not match the business environment — negatively affects the companies’ return on assets, Stocken said. This is a serious issue in a rapidly globalized business environment where, for example, the U.S.-based retail giant Walmart today has 51 percent of its stores outside the U.S., compared with just 1 percent in 1993, he noted.
If a firm has allocated decision-making rights to the managers of foreign subsidiaries when in fact the parent company should have retained the rights, its ability to coordinate its activity gets weakened and subsequently its ability to efficiently use its assets declines, he said in quoting from the study. Even if the decentralization has empowered the overseas subsidiaries to respond to local needs, the benefits do not offset the disruption to the firm’s entire value chain, he noted.
On the other hand, the study showed that the negative impact from an inappropriate centralization — in which the parent holds on to the decision rights that should have been delegated to overseas subsidiaries — appears to be much smaller than in the case of inappropriate decentralization, he said.
And the cost of fixing the company’s organizational structure to better match the business environment will be much larger if the decision-making power has been excessively delegated to its foreign subsidiaries, Stocken noted.
So what the study shows is that multinational firms should be very careful when they decide to decentralize their structure because once the decision rights have been delegated to the subsidiaries, it would be very costly to retract those rights that had been granted to managers around the world, he said.
K. Sudhir, a professor of private enterprise, management and marketing with the Yale School of Management, discussed how online social media — ranging from Facebook to YouTube to Twitter — has become a serious contender to advertising now that “almost everybody is on it.”
It is “not a question of whether this is important” for marketing “because people are going to be there, no matter what,” he said.
Marketers understand that word of mouth about their products on online social media is “far more efficient and effective” than paid advertisements “because it’s free and trusted.”
And unlike conventional word of mouth, the permanent record of the online communication “is an asset that you can use over and over again,” he said.
“We all understand the importance of testimonials. When a customer says nice things about you, you tell other customers, ‘Look this is what they told us.’ “
Marketers can find ways to use social media efficiently. “You can listen and use it. You can seed the information that you want on social media and use social media to spread it, and you can record what is going on in the social media and use it to leverage your communication strategy,” Sudhir said. The point, he said, is to proactively seed the “viral word of mouth.”
Online social media is not just an alternative to advertisements by companies that lack advertising budget, but big companies like Ford Motor Co. are starting to use it “to create brand awareness” for their new products, he said.
On social media, you cannot control the message as in paid advertisements “because in the word of mouth, you can’t control what others say,” Sudhir noted. “You will find lots of things that you will not be happy about. There are lots of horror stories about customer service.”
But that should not discourage marketers from proactively using social media because if they shy away from communicating through social media, somebody else will do it, he said, adding, “You can’t really keep your head in the sand and say this is not going to happen.”
The consequence of not having full control over the message “is something to be accepted because if you don’t, you’re never going to be able to exploit this media,” he said.
Now that online social media is a serious contender to advertisements, marketers “have to live with it and use it,” and message control is “an issue, but it is a manageable issue and there is no reason to stay away from social media,” he said.