What do we “Learn” from the lessons below?

1. What do we “Learn” from the lessons below? Kodak had to shift from films based photography business to digital image. IBM had to shift from “Mainframe” to “Computer Service Organization”. Microsoft’s Encarta and Wikipedia made Encyclopedia Britannica to move from traditional business to Online format. Smith-Corona – one time the world’s greatest typewriter company went bankrupt in late 90s. Use of minimill technology by NUCOR steel have seen players like BETHELEM Steel going bankrupt.

2. Innovation & Change Management “You can not enter the same river – twice. The only thing constant is Change” – Heraclitus No Organization is Immune. Almost 40 percent of the companies which comprised of “Fortune 500” a decade ago no longer exist. Of the 1970 “Fortune” list, 60 percent have disappeared – either acquired or out of business. And of the 12 companies which comprised the Dow Jones Industrial Index in 1900, Only GE survives as a giant – and even that is now on a shaking platform in the recent downturn.

3. Innovation & Change Management A “Paradigm Shift” occurs when a new technology or business model comes along that ‘dramatically’ alters the nature of demand and competition. This is more likely in an industry where one or more of the following conditions are in place : Established technology in the industry is mature and approaching or at its natural limit. A new disruptive technology has entered the marketplace and is taking root in market niches that are poorly served by incumbent companies that use established technology. A company develops a new business model that is radically different from that used by competitors, enabling it to capture more demand and put its rivals on the defense. (Draw and discuss Richard Foster’s TECHNOLOGY S curves –Performance/functionality of desired attributes on Y axis vs. Accumulated R&D effort/cumulative investment in R&D on X axis and subsequently the Time on X Axis to show movement from existing to Successor technologies.)

4. Innovation & Change Management Clayton Christensen has built on Foster’s insights and his own research to develop an influential theory of disruptive technology : Disruptive Technology refers to a new technology that gets its start away from the mainstream of a market and then as its functionality improves invades the main market – Technology Paradigm Shift. ( Discuss the technology of “Hydraulics” causing paradigm shift and closure of organizations who stayed with “Steam Shovels”.)

5. Innovation and Change Management • Business Models • The term Business Model refers to the way in which an enterprise intends to make money. • Razor and Razor Blades model of Gillette. • Printer and Ink Cartridges • Free web search and paid advertising and Sponsored links model of Google. • Amazon.com book sales- including book reviews, comments, e-pay and committed on-time delivery vs. Crossword’s leisure, open access, diversity, coffee shop, children section – “experience” models. • Dell Direct Selling • No frill airline and Ginger model of Taj.

6. Innovation and Change Management • Punctuated Equilibrium • A view of industry evolution asserting that long periods of equilibrium are punctuated by periods of rapid change when industry structure is revolutionized by Innovation. • (Discuss Indian Industry examples of Automobiles, Cement, Telecom and now that of Malls and Townships)

7. Innovation and Change Management • Organizational Inertia • When confronted with paradigm shifts, many incumbent businesses decline. This decline is normally due to the inability of an enterprise to change its strategy and organization architecture as rapidly as the environment is changing due to Organizational Inertia.

8. Innovation and Change Management • Organizational Inertia • The Organizational Inertia is the effect of internal and external forces which include : • Cognitive Schemata • Internal Political Constraints • Organizational Culture • Strategic Commitment and Capabilities and • External Institutional Constraints (Let us study them one by one)

9. Innovation and Change Management • Cognitive Schemata • In the course of their work managers form “Cognitive Schemata”, which are mental models of the world their enterprise inhabits. These mental models include beliefs about what works and does not work in their business and about what is important and unimportant. These models are based on experience. • When a management team has worked together for some time, they often come to share the same world-view- the same cognitive schema- and this can (and many a times does) influence their decision making. This results in to ignorance of events, data and suggestions creating Cognitive Blind Spots. (Discuss cases such as ACC, HMT as well as ACE and NANO)

10. Innovation and Change Management • Internal Political Constraints • The power and influence enjoyed by different managers is a function of several things, including their position in the hierarchy, their control over valuable resources and information and their perceived expertise. • Any “Change”, almost by definition, tends to alter the established distribution of power and influence within an organization. Those whose power is likely to be affected, resist change and depending upon to what extent they are successful, the organizational inertia increases.

11. Innovation and Change Management • Organizational Culture • Another source of organizational inertia is the existing culture of the enterprise as expressed in norms and value systems. If the formal and informal socialization mechanisms within an organization have emphasized a consistent set of values for a prolonged period, and if hiring promotion and incentive systems have all reinforced these values, suddenly announcing that those values are no longer appropriate and need to be changed can produce resistance and dissonance among employees. • Discuss Cases such as • A) Philips : From autonomy to foreign subsidiaries to reduction in autonomy – the decision met with resistance. • B) Change of focus from good quality, high volume production to support a wide ranging market base to high quality, niche / customized products on relatively smaller volumes for specific markets.

12. Innovation and Change Management • Strategic Commitments • An organization’s investment in tangible and intangible assets to support a particular way of dong business or to support a specific business model. • Discuss Cases such as • A) IBM : From mainframe to PCs to Software Solutions. • B) Tata Steel : Converting from Central Marketing (rationing!) office to Global Distribution centers, logistics and supply chain infrastructure.

13. Innovation and Change Management • External Institutional Constraints • At times government agencies, labor unions and even environmental activists etc. slow down firm’s ability to meet new competition. Regulations, subsidies, incentives (or rather disincentives!), false notion decisions in support of Socialism against profit making entrepreneurs by political bodies. • Discuss Cases such as • A) Hindustan Antibiotics : the story of a “Failed” PSU. • B) Indian Ports and Dockyards : A case of lost opportunities. • C) Air India: Nationalization and now allowing Pvt. Players to go global.

14. Innovation and Change Management • “Leading Change” – A study by John Kotter : 8 steps: • Establish a great enough sense of urgency. • A powerful enough “guiding coalition at the top” to push through the change • Leaders establish a compelling vision. • Vision is effectively communicated across the organization and to employees at all levels. • Remove obstacles to the change effort. • Plan and create short-term wins. Employees “See” evidence of change. • Do not declare ‘victory’ too soon – otherwise ‘pressure’ gets released. • Change is to be anchored in the “organization’s Culture”.

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