Innovation; From the Entrepreneur to Multinational Corporations

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Introduction;

As the information age takes over from the industrial age, companies have been focusing their forces on improving efficiency in order to match or beat their rivals. As a result, re-engineering, competitive benchmarking and quality management often dominate corporate activities (Hamel, 200). Improving efficiency by following similar strategies, however, leads to competitive trap; as companies try to outdo one another, they end up competing solely on the basis of incremental improvements in cost, quality or both (Kim and Mauborgne, 1999a) however after a number of cost-cutting exercises and quality drives, even the most experienced managers will find it difficult to further improve corporate performance based solely on improvements in efficiency and quality.

Innovation is the specific function of entrepreneurship, whether in an existing business, a public service institution, or a new venture started by alone individual in the family kitchen. It is the means by which the entrepreneur either creates new wealth-producing resources or endows existing resources with enhanced potential for creating wealth.

Today, much confusion exists about the proper definition of entrepreneurship. Some observers use the term to refer to all small businesses; others, to all new business. In practise, however, a great many well established business engage in highly successful entrepreneurship. The term, then, refers not to an enterprise`s size or age, but to a certain kind of activity. At the heart of that activity is innovation: the effort to create purposeful, focused change in an enterprise`s economic or social potential.

Sources of innovation;

There are of course, innovations that spring from a flash of genius. Most innovations, however, especially the successful ones, result from a conscious, purposeful search for innovation opportunities which are found only in a few situations.

Four such areas of opportunity exist within a company or industry:

Unexpected occurrences

Incongruities

Process needs

Industry and market changes.

Three additional sources of opportunity exist outside a company in its social and intellectual environment;

Demographic changes

Changes in perception

New knowledge.

True, these sources overlap, different as they may be in the nature of their risk, difficulty, and complexity, and the potential for innovation may well lie in more than one area at a time. But among them, they account for the great majority of all innovation opportunities.

INNOVATION MANAGEMENT

Building lawn mowers does not, at first sight, seem to offer much scope for innovation. Yet the Flymo Company (now one of the largest European suppliers in this market) has built its position over 40 years through exactly that-innovation in design and manufacturing of its main products. It holds over 70 patents, with a further 100 in the pipeline, and has used it commitment to systematic and continuous innovation to build to sales of £100m. More important, it has made a conscious decision to use innovation to preserve its position in an increasingly price-competitive market. Its commitment shared by the 700 people who work for the company to focusing on customer needs and meeting them with high quality and well designed products has helped it fight off strong threats from low-cost competitors.

It is also not confined to manufactured products; examples of turnaround through innovation can be found in services and in the public and private sector. For instance, the Karolinska hospital in Stockholm has managed to make radical improvements in the speed, quality and effectiveness of its care services such as cutting waiting lists by 75% and cancellations by 80% through innovation. In banking the UK first direct organization became the most competitive bank, attracting around 10,000 new customers each month by offering a telephone banking service backed up by sophisticated IT. A similar approach to the insurance business direct line has radically changed the basis of that market and led to widespread imitation by all the major players in the sector.

INNOVATION AND COMPETITIVE ADVANTAGE

What these organizations have in common is that their undoubted success derives in large measure from innovation. Whilst competitive advantage can come from size, or possession of assets, etc. the pattern is increasingly coming to favour those organizations which can mobilize knowledge and technological skills and experience to create new products, processes and services.

Innovation contributes in several ways. For instance, research evidence suggests a strong correlation between market performance and new products. New products help capture and retain market shares, and increase profitability in those markets. In the case of more mature and established products, competitive sales growth comes not simply from being able to offer low prices but also from variety of non price factors design, customization and quality. For example product differentiation based on superior quality or other factors is associated with higher than average profitability, but products which are differenced on both quality and other features achieve twice the normal return on investment.

At the same time new product development is an important capability because the environment is constantly changing. Shifts in the socioeconomic field create opportunities and constraints. Legislation may open new pathways, or close down others. For instance, increasing the requirements for environmentally friendly products. Competitors may introduce new product which represent a major threat to existing market positions. In all these ways firms need the capability to respond through product innovation.

Two major disadvantages of strategy driven by competitition can be identified; first strategies tent to converge along the same basic dimensions of competition. Second, competition based strategy tends to lead to reactive, incremental, and often imitative moves. In the process, resources are absorbed in responding to daily competitive moves, rather than being used in creating growth opportunities. As a consequence, emerging markets and changing customer demands become hazy and, although instance competition makes innovation indispensable, the strong focus on competition consumes most effort and makes innovation difficult to attain.

Whilst, new products are often seem as the cutting age of innovation in the market place, process innovation plays just as important a strategic role. Being able to make something no one else can, or to do so in ways which are better than anyone else, is a powerful source of advantage. For example, the Japanese dominance in several sectors cars, motorcycles, shipbuilding, and consumer electronics owes a great deal too superior abilities in manufacturing something which results from a consistent pattern of process innovation. The Toyota production system and its equivalent in Honda and Nissan led to performance advantages of around two to one over average car makers across arrange of quality and productivity indicators.

INNOVATIVE ORGANIZATION

It is easy to find prescriptions for innovative organizations full of criticisms of stifling bureaucracy, unhelpful structures, brick walls blocking communication and other factors stopping good ideas getting through. But we must be careful not to fall into the chaos trap not all innovation works in organic, loose, informal environments or `skunk works` and these types of organization can sometimes act against the interest of successful innovation. We need to determine appropriate organization that is, the most suitable organization given the operating contingencies. Too little order and structure may be as bad as too much.

Equally `innovative organization` implies more than a structure; it is an integrated set of components which work together to create and reinforce, environment which is enables to innovation to flourish. Studies of innovative organization have been extensive also many can be criticized for taking a narrow view, or for placing too much emphasis on a single prescription. In addition it is might draw out from these a set of components which appear linked with achieve.

Innovation organizations are characterized by `organic` (Burns & Stalker, 1961) structural properties when they operate in a dynamic, complex environment. While their operating environment is less dynamic and less complex, they are characterized by `mechanistic` structure. Previous research has also substantially investigated how certain cultural and climatic dimensions such as risk taking, entrepreneurial style, top management support, autonomy, reward system, to name a few, foster creation of innovations. Following are some of the variables that are considered as the necessary constituents and key ingredients of an innovative organization:

Sensitivity; the ability of an organization to search, predict, anticipate problems and opportunities and formulate strategic responses to adapt to the environmental changes (Aguilar, 1967; Mervin & berg, 1977; Miller & Friesen, 1984; Singh, House & Tucker, 1986).

Learning: The faculty that enables an organization to assimilate significant knowledge from its environment, experience and history facilitate change (Cyert & March, 1963; March & Olsen, 1975; Argyris & schon, 1978, shrivastava, 1983; Cohen & Levinthal, 1990)

Problem-solving skills; the capacity to produce adaptive responses which are apt but unusual and the degree of difference that a proposal exhibits from comparable responses to the problem for the furtherance of organizational goals (Pelz, 1983; Utterback, 1971; Roberts & Fusfeld, 1987; Cohen & Levinthal, 1990).

Experimentation; this refers to the extent to which new potential ideas are tested in the organization (Quinn, 1979; Malidique, 1980; Peters & Waterman, 1982; Burgelman, 1984; Pinchot, 1985; Kanter 1989; Roberts, 1989)

Communication; The ability of the organization to collect, and disseminate the collected and experimented information to the relevant organizational units (e.g., Utterback, 1971; Keegan, 1974; Goldhar, Bragaw & Schwartz, 1976; Tushman, 1977; Gobeli & Rudelius, 1987).

Risk- readiness; The willingness of an organization to invest in new products/processes under conditions of uncertaintitiy, not because of compulsions of survival, but on account of its pursuit of excellence (Drucker, 1985; Khan & Manopichetwattation, 1989; Gobeli & Rudelius, 1987)

Absorption; the ability of the organization to contain disruptions, caused out of experimentation, change and innovation (e.g., Kanter, 1983; Rogers & Kim, 1984; Amburgey, Kelly & Barnett, 1990)

CASE STUDY

ARGOS

Argos is a home and merchandise product retailer in the United Kingdom as a part of Home Retail Group. It sells more than 18,000 products mainly stored in its nine UK distribution centres through its chain of over 730 stores. Annually, Argos's products cover the needs of more than 130 million customers.

In addition to its stores, Argos also provides web-based and phone retail services. Customers can collect the products from the nearest possible store or be sent to them be courier services. Argos differentiates itself in the market by handing out its own issued 1,800 page catalogue. Nearly two out of three of the United Kingdom population, about 18 million people, has an Argos catalogue. [1] 

Argos occupies 34,000 employees and had last year total sales of £4,282m resulting in a rapid growth both in its market share and its variety of products. More than 850 vehicles distribute the products which are delivered from 650,000 suppliers, 1,200 of whom are situated in countries all around the world. [2] 

In terms of being a big and growing sector, a lot of challenges arise for the company. Most of them are about efficient customer service, organizing the suppliers in the widening product range, inventory control and distribution. Moreover, in order to optimize inventory level, measure how effectively the company managing its resources, maximize revenues and minimize costs as low as possible, the company is in need of an intelligent information system.

Business demand

Accenture's ongoing High Performance Business research expose that high performers understand the value of operating their supply chains at peak efficiency-continually tuning supply to demand so that customers are neither over-serviced nor under-serviced, and that cost efficiency is not succeed at the expense of meeting customer expectations.

Argos clearly understood the challenge involved in balancing supply and demand. The company ran a lean operating model. Its stores tended to be relatively small, averaging about 14,000 square feet. Yet, within these stores, Argos typically offered 11,000 stocked items. In many cases, only one item was in stock at any given time. When it sold, customers would have to wait up to a week or more for the item to be replenished. Complicating point was the fact that Argos' shops used 45 different systems to achieve the company's complex supply chain. Some of these applications were more than 15 years old and nearing the end of their useful life.

However Argos` shops were using 45 different systems creating significant complex challenges to be overcome. In addition to this drawback, working on different systems was complicating the analysis on the company' supply chain and the existing management systems would prevent the company's growth and the multi-channel sales plans. Therefore the company aimed to modernize its inventory management systems. This occurred in 2001 with a collaboration of Oracle and Accenture.

Product Overview

Oracle Supply Chain and Order Management Analytics provides organizations with comprehensive visibility into the key factors within the order-to-cash process and the company's supply chain-including inventory management and finished goods. The solution is also suitably integrated with other applications in the Oracle Business Intelligence Applications family to deliver robust supply chain and order management information across the company value chain. For instance, Oracle Supply Chain and Order Management Analytics enables better understanding of problem areas in fulfilling certain products, unrealistic inventory levels, specific regions being unreceptive to a new product, or a set of customers submitting cancellations in a regular fashion. Through prebuilt intelligence dashboards, Oracle Supply Chain and Order Management Analytics provides hundreds of powerful, best-practice metrics, alerts, and reports to supply chain and order management professionals also line of business managers. With this timely, complete information, they can gain insight into problems and take appropriate actions. Oracle Supply Chain and Order Management Analytics enables analysts to perform drill-down analyses on a near-real-time basis to determine how the business is performing. In addition they may more effectively manage orders that are pending fulfilment, inventory, or invoicing as well as influence the concerned department to expedite the appropriate stage in the order to cash cycle.

Traditional solutions require managers to wait days or even weeks for specific reports. With Oracle Supply Chain and Order Management Analytics, you can decrease the time it takes to generate reports. It provides more detailed reporting at a greater frequency and to a broader range of users so everyone-regardless of level-receives the information needed to make day-to-day decisions. Managers and front-line professionals can segment report data by product, geography, region, and customer so they can fine-tune strategy and improve performance. Supply chain and order management specialist and leaders across the organization can direct to performance, analyze specific metrics, and compare them to targets or performance benchmarks. They can quickly spot deviations and take corrective action. Product Overview Oracle Supply Chain and Order Management Analytics provides organizations with comprehensive visibility into the key factors within the order-to-cash process and the company's supply chain-including inventory management and finished goods.

The solution is also suitably integrated with other applications in the Oracle Business Intelligence Applications family to deliver robust supply chain and order management information across the company value chain. For instance, Oracle Supply Chain and Order Management Analytics enables better understanding of problem areas in fulfilling certain products, unrealistic inventory levels, specific regions being unreceptive to a new product, or a set of customers submitting cancellations in a regular fashion.

Through prebuilt intelligence dashboards, Oracle Supply Chain and Order Management Analytics provides hundreds of powerful, best-practice metrics, alerts, and reports to supply chain and order management professionals as well as line of business managers. With this timely, complete information, they can gain insight into problems and take appropriate actions. Oracle Supply Chain and Order Management Analytics enable analysts to perform drill-down analyses on a near-real-time basis to determine how the business is performing. They can also more effectively manage orders that are pending fulfilment, inventory, or invoicing as well as influence the concerned department to expedite the appropriate stage in the order to cash cycle.

The analysis on the Argos distribution pattern led the collaboration to suggest that there is a need for a better, more successful inventory management as it is vital to improve customer service. Also it was suggested that inventory in stores and warehouses must be managed and reduced as possible, and it must be monitored more accurately.

Additionally, when the company's sales were examined, the figures indicate that the company's sales reach %200 bigger than its annual averages in Christmas Season. The company was in the need to forecast demand to existing inventory stock levels across its supply chain to make the right procurement decisions. 4

Project Estimations

As a result of the adoption of the new suggested systems it is estimated that there will be a significant decrease in inventory guided by exact inventory information and decision making capabilities through daily stock activity report. Argos's previous system gave weekly individual store report that was combined to understand replenishment requirements. To cover this inadequacy and time consuming activity of the system managers often resulted in manipulating the reports.

In contrast, Oracle Retail Advanced Inventory Planning uses complex planning algorithms to make a correct supplier and a good transfer plan to stores with considering daily store stock requirements. Thus, the system produces forecasts based on demands. This approach will help Argos in a three year period to reduce inventory levels by tens millions British pounds. [3] 

In supplier management side, shipments have also been shifted from weekly to daily in order to keep inventories low in its warehouses. The system provides alerts about stock and reports to management professionals as well as lines of business managers and to supply chain. In addition, orders can be more effectively managed by distributing bills and forwarding to the concerned departments. Supply chain and order departments and managers can analyze performance according to targets.

Thus, these processes reinforce cooperation between the company and its suppliers.

Benefits to Argos:

The new system has set a new framework through redesigning organization structure, training stock managements including all stores of Argos and a communication program for supply chain. Moreover, efficiency of usage of stockrooms in the stores was a part of the project.

As a result the main improvement is that Argos has gained strict governance in inventory control and suppliers.

A single source of data across inventory, suppliers, raw materials, products and stores is obtained from a single system

A sophisticated replenishment system ensures that stocks are organized closely to future demand.

Through delivering on daily basis, Inventory costs have been reduced and the stock reduction savings will reach £100 million by 2010 4

Improvements on customer satisfaction through strong stock availability at stores by daily deliveries.

Supply performance figures provide improved supplier cooperation and pallet presentations from 68 to 99 percent. 4

Reduction the number of deliveries to stores by 9% in 2003 as compared to 2001. [4] 

The warehouses have high capability to cope with increase in its product lines.

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Change management and organizational design

Resources from Accenture's Talent and Organization Performance service line set the framework for a comprehensive stock management training and communication program that covered all areas of the Argos supply chain, including suppliers, distribution centres and individual stores. As part of this effort, the team tailored job roles and tracked business readiness performance to help ensure that the 1,000 affected stakeholders could be able to function effectively within an environment marked by new processes and systems. At the same time, Accenture worked closely with Argos to make significant in-store changes. For instance, a new stockroom layout for all Argos stores freed additional space and increased speed of service. The team also recommended Argos stockroom adjustments, making faster-selling items more accessible to sales associates.

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