The Innovation And Efficiencies Management Dilemma Commerce Essay


Organisations have to find a balance between process and practice in order to be effective. However, this is a difficult task for many organisations, as process stifles creativity and vice versa. In other words, innovation and efficiency contradict each other and so this balance forms a massive headache for managers trying to ensure their firms are leaders in innovation in the long term, whilst at the same time ensuring cost efficiencies and company profitability in the short term.

There are two examples that highlight the two extremes that organisations must try to avoid in order to exploit the innovation. On the one hand, firms must avoid the case of Netscape, a company that strived for innovation and had a multitude of ideas, but lost out to its rival Microsoft because it didn't have the necessary processes in place to turn into marketable products. On the other hand, Xerox was also highly creative, but management decided to implement too many formal processes and stringent regimes that effectively stifled any innovation that may have been there before. Firms must therefore ensure that the processes are balanced in such a way so that they don't act as a barrier barriers to creativity. Managers must also ensure that they introduce those formal processes at the right time, so as not to jeopardise continued innovation.

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Many authors have discussed possible solutions to this management dilemma, including the possibility of firms fostering creativity outside of the formal process-driven structure of the organisation. Many large bureaucratic firms have hence developed highly innovative and creative working environments as separate hubs from the rest of their physical organisation. Xerox PARC and Lockheed's Skunkworks are two prime examples of organisational hubs, whereby their parent firms developed an environment optimal for knowledge creation outside of their seemingly unbreakable bureaucratic, efficiency driven formal structures.

However, the problem arises when those firms that do develop hubs, fostering creativity outside of their organisation, then want to bring those ideas back into the formal organisation. In other words, firms struggle with the reintegration of ideas fostered outside of their formal organisation structure, back into the organisation and its projects.

Project Based Organisation

In order to achieve an effective balance between Innovation and efficiency, there first needs to be a structure in place that can effectively support both. Many organisations have adopted project based organisational structures, that allow for both measurable outputs as well as cross hierarchical co-operation and collaboration. As such, project based structures afford great scope for vertical integration of information systems, as well as horizontal integration across project boundaries.

Communities of Practice

Once companies develop distinct communities, coordination becomes explicitly difficult

NASA has many partner organisations, who have developed their own organisational discourse, which can be difficult to transfer across boundaries

Misunderstandings can lead to distrust

Process can help to coordinate the different groups and partners across NASA

Ensure that different communities don't become alienated from one another

Communities of Communities

(Brown & Duguid, 1991) further summarised that knowledge organisations that seek to effectively balance structure and process should view the organisation as a community of communities. Innovation often occurs within individual communities of practice, which then must spread the information they gain throughout the organisation.

"As we have been arguing throughout, to understand the way information is constructed and travels within an organization, it is first necessary to understand the different communities that are formed within it and the distribution of power among them. Conceptual reorganization to accommodate learning-in-working and innovation, then, must stretch from the level of individual communities-of-practice and the technology and practices used there to the level of the overarching organizational architecture, the community-of-communities." (Brown & Duguid, 1991)

The small communities of practice where new knowledge emerges, needs to be transferred across the whole organisation

Solution: overlapping groups and Creative Shared Practice

"Shared knowledge, inherent co-ordination and collective understanding were necessary to make that collaborative inventiveness possible" (Brown and Duguid, 2001)

"Everybody has to be able to play the whole game. Each person should have certain things they're better at than others, but everyone should be pretty good at anything" (Alan Kay)

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Information Systems

Codifications versus Personalisation

Some authors have argued that there is also a challenge in terms of knowledge management that effects the effectiveness of knowledge based firms. (Hansen et al, 1999) describe how certain professional consulting firms such as Ernst & Young had pursued a codification strategy. These firms developed and focused on ways to capture, store and disseminate knowledge; a "people to documents" approach.

However, other firms such as Boston Consulting Group have developed a personalisation strategy. Dialogue between individuals is the focus, and knowledge retrieval is not about interaction with a database. In this sense, the Information Systems are not so much technical in nature, but more about networked communities. Knowledge that perhaps cannot be codified is shared in brain-storming sessions and conversations (Hansen et al, 1999).

Codification Competency

Personalisation Competency

6.0 - Conclusion

Summary of main arguments and implications

7.0 - List of References


Anand, N., Gardner, H. K. and Morris, T. I. M. (2007) KNOWLEDGE-BASED INNOVATION: EMERGENCE AND EMBEDDING OF NEW PRACTICE AREAS IN MANAGEMENT CONSULTING FIRMS. Academy of Management Journal, 50 (2): 406-428.

Andriopoulos, C. and Lewis, M. W. (2009) Exploitation-Exploration Tensions and Organizational Ambidexterity: Managing Paradoxes of Innovation. Organization Science, 20 (4): 696-717.


Brown, J. S. and Duguid, P. (2001) Creativity Versus Structure: A Useful Tension. (cover story). MIT Sloan Management Review, 42 (4): 93-94.

Drucker, P. F. (1988) THE COMING OF THE NEW ORGANIZATION. Harvard Business Review, 66 (1): 45-53.

Drucker, P. F. (1999) Knowledge-Worker Productivity: THE BIGGEST CHALLENGE. California Management Review, 41 (2): 79-94.

Haas, M. R. and Hansen, M. T. (2005) When Using Knowledge Can Hurt Performance: The Value of Organizational Capabilities in a Management Consulting Company. Strategic Management Journal, 26 (1): 1-24.

Hansen, M. T. and Nohria, N. (2004) How To Build Collaborative Advantage. (cover story). MIT Sloan Management Review, 46 (1): 22-30.

Hansen, M. T., Nohria, N. and Tierney, T. (1999) WHAT'S YOUR STRATEGY FOR MANAGING KNOWLEDGE? Harvard Business Review, 77 (2): 106-116.

Robertson, M., Scarbrough, H. and Swan, J. (2003) Knowledge Creation in Professional Service Firms: Institutional Effects. Organization Studies (01708406), 24 (6): 831-857.