Management of Innovation Audit in Microsoft and Alcoa - Essay Example

? An individual report auditing the management of innovation in a nominated organisation - the cases of Microsoft and Alcoa Table of contents Introduction 3 2. Management of Innovation – theoretical perspectives 4 3. Management of Innovation in practice 6 3.1 Microsoft and Windows 6 3.1.1. How Windows has been an example of innovative product 6 3.1.2 Management of Innovation by Microsoft in regard to Windows 8 3.2 Alcoa and Process Innovation: Refining Aluminum 9 3.2.1 How Refining Aluminum has been an innovative process 9 3.2.2 Management of Innovation by Alcoa 10 4. How the innovation management process is different for the two types of innovation selected 11 5. Conclusion - The key learning experiences of the respective innovation examples 12 References 12 Appendix 13 1. Introduction The identification of effective strategies is a key challenge for managers in all firms worldwide. Most commonly, specific criteria are set for ensuring the alignment of organizational practices with the market trend and the consumer preferences. Still, in practice it has been proved that even when these criteria are met, the competitiveness of organizations involved may remain at low levels. The management of innovation in modern organizations is examined in the specific study. Reference is made to two particular firms: Microsoft and Alcoa. The first of them, Microsoft, has become popular mostly because of the development of Windows, an operating system that has been characterized as highly innovative. According to Chu (2010, p.2) ‘product innovation is technological upgrading of existing product or developing a new product technology’. On the other hand, Alcoa has introduced a unique process for refining aluminium; the above process meets the requirements of innovation process, which has been defined as ‘the usage of new or improved production technology’ (Chu 2010, p.3). The characteristics of Windows and of Alcoa refining aluminium process as product innovation and innovation process accordingly are presented, compared and evaluated in this study. It is proved that the management of innovation in each of these firms has been different, reflecting the goals and priorities of each organization. In Microsoft where the rapid growth is a key objective of the organization, innovation has been used for serving the specific need of the organization. On contrary in Alcoa emphasis is given more on long-term growth rather on the achievement of significant benefits in the short term. As a result, the perspectives of innovation in Microsoft are different than those of Alcoa, an issue analytically explained below. 2. Management of Innovation – theoretical perspectives The successful management of innovation in industries of different characteristics is based on specific terms. At a first level, organizations that are interested in promoting innovation have to be quite competent in managing knowledge (Mothe and Foray 2001, p.28). According to Mothe and Foray (2001) the promotion of innovation within organizations does not necessary requires the establishment of new vision and mission; rather, it can be achieved even in the context of the existing mission and vision under the terms that the relevant mission and vision are flexible enough so that they can be alternated for supporting plans focusing on innovation. At the same time, King (2009) notes that the tools available to managers of modern organizations for promoting innovation can highly vary; reference is made to for example to ‘the strategic positioning of personnel or the implementation of user innovation communities’ (King 2009, p.198). Moreover, Tidd et al (2005) emphasize on the following fact: the management of innovation in modern organizations can be a demanding task. The use of models and frameworks that have been extensively tested in the empirical research could help managers to minimize risks in regard to the particular activity (Tidd et al. 2005). The above researchers refer, as an example, to the Innovation Process model (Figure 1, Appendix). The particular model promotes the following idea: innovation in firms with different characteristics is likely to be developed in three phases: Search, Select and Implement (Tidd et al. 2005, p.348). It is implied that using the above model a firm can effectively promote innovation without being exposed to high risks. In any case, the study of innovation, as an element of the organizational life, has led to the assumption that innovation is not an action or a decision; rather, ‘it is a process and should be managed accordingly’ (Tidd and Bessant 2011, p.24). The above argument does not reject the existence of innovative products. At this point, the term innovation seems to have two different perspectives: innovation is the process through which the development of innovative products is achieved; also, innovation can be the innovative process itself, without necessarily referring to a particular product (Tidd and Bessant 2011). At the next level, Tidd and Bessant (2011) note that innovation process cannot be developed independently; it has to be combined with an appropriately structured learning process (Tidd and Bessant 2011, p.24). It is explained that the identification of an innovative product or process is not adequate, for securing the benefits of the relevant product or process; rather, the individuals involved in the specific procedure should be able to use their experiences, in regard to the development of the specific product/ process, for supporting the growth of their organization (Tidd and Bessant 2011, p.24). In other words, innovation is not independent from the organization’s operations; rather, it needs to support organizational activities, i.e. it needs to contribute, in practice, to the growth of the organization. In Microsoft, the combination of innovation with a learning process is clearer than in Alcoa, where emphasis is given on innovation not as part of the organization’s operations but rather as an independent process, being developed gradually and not necessarily simultaneously with the organization. The above issues should be taken into consideration when evaluating the effectiveness of Microsoft and Alcoa in managing innovation. It should be noted that the management of innovation tends to be related to each organization’s culture; from this point of view, it has been proved that highly innovative organizations have specific cultural characteristics, such as ‘willingness to take risks’ (Christiansen 2000, p.26). 3. Management of Innovation in practice As explained above, the management of innovation in organizations can be differentiated. Certain firms, like Microsoft, focus on the continuous development of an innovative product, as in the case of Windows, a product that has been highly developed today, compared to its initial form. Other firms seek to standardize the benefits of their innovative processes and then proceed to the further development of these processes; in Alcoa, the management of innovation has been based on the gradual, and slow development of the firm’s innovative process, meaning the refining of Aluminum. In other words, emphasis has been given on securing the benefits achieved rather than increasing these benefits, as in the case of Microsoft. From this point of view, the practices of innovation used by Alcoa can be characterized as less risky but also less beneficial, at least compared to firms that emphasize on continuous innovation, such as Microsoft. 3.1 Microsoft and Windows 3.1.1. How Windows has been an example of innovative product In order to understand the value of Windows as an innovative product it would be necessary to refer to the historical development of the particular product, as related to the history of Microsoft. In fact, it seems that for Microsoft innovation has been highly promoted. Indeed, according to the company’s timeline, the efforts of Microsoft to support innovation have been made clear for first time in 1975, when ‘Allen and Gates developed a BASIC computer language’ (Microsoft, company timeline 2012). The development of a simple, but quite functional, operating system, the MS-DOS in 1981 can be considered as the key step for the appearance of Windows (Microsoft, company timeline 2012). Indeed, in 1983 the firm announced the development of Windows; the new operating system was available in the market by 1985 (Microsoft, company timeline 2012). However, in its first form, the particular product was not complete; it included only an innovative ‘graphical-user-interface’ (Microsoft, company timeline 2012). Windows, as a complete operating system, entered the market in 1990, as Windows 3.0 (Microsoft, company timeline 2012). Since then, the development of Windows has been rapid and continuous. When first appeared, the specific operating system was considered as a unique and innovative product; for many years the superiority of Windows towards its competitors has verified its uniqueness. In fact, Windows has been characterized as a highly innovative product since it met a series of criteria. Primarily, Windows responds to the criterion set for characterizing a product as innovative; the definition on product innovation given by Chu (2010), as presented in the Introduction of this paper, sets two different criteria that need to be met, alternatively, so that product innovation exists. Indeed, Windows can be characterized as ‘a new product technology’ (Chou 2010, p.2); on the other hand, Windows has not been available to duplication, due to its structure and its unique technological characteristics. Even today, the market’s major operating systems, such as Linux or Mac have not managed to compete effectively Windows, as it is proved through graph in Figure 2, Appendix, where the current performance of operating systems worldwide is presented. The superiority of Windows towards its rivals is clear. Innovation, in case of Windows is also improved, among the other characteristics mentioned above also by the fact that the particular product has managed to keep the control of its industry for quite a long period of time. If evaluated using the 4Ps Model of Innovation Space (Figure 2, Appendix) Windows can be characterized as a product innovation, being directed towards the external part of the cycle, since it has been proved to be radical. Through the dimensions of Innovation Model (Figure 3, Appendix) a similar assumption can be made; in fact using the above model Windows can be characterized as a product innovation, new to the world, i.e. radical, and developed at system level. In terms of the Microsoft’s value chain, Windows have contributed in the increase of the firm’s value in the following sectors: technology, logistics, marketing and sales (Figure 4, Appendix), as these factors are identified through the Porter Value Chain analysis model. 3.1.2 Management of Innovation by Microsoft in regard to Windows As already noted above, in Microsoft emphasis is given on the continuous development of products. In other words, the firm focuses not just to achieve innovation but also to continuously develop its innovative products so that its growth worldwide is effectively supported. Indeed, since the introduction of Windows 3.0, the initial form of Windows as a complete operation system, the efforts of Microsoft to continuously improve the specific product have been intensive. In this way: in 1993 Windows NT enter the market; in 1995 the Windows 95 incorporate a series of improvements on Windows’ previous version; in 2000 Microsoft presents Windows 2000 Professional, an improved version of Windows 95, aiming to respond to the needs of advanced computer systems, or else of ‘computer systems of next generation’ (Microsoft, company timeline 2012). According to the above timeline, Microsoft’s efforts to promote innovation in regard to Windows have emphasized on the continuous improvement/ updating of the particular product. In other words, for Microsoft innovation means focusing on continuous growth and not achieving specific benefits by introducing products based on advanced technology. The approach used by Microsoft in regard to the management of innovation is aligned with the organization’s mission statement, where it is noted that the firm focuses ‘on helping people and businesses throughout the world realize their full potential’ (Microsoft, mission 2012). The innovation strategy of Microsoft can be evaluated by using the Simplified Model of the innovation process, as follows: the firm has addressed all four issues highlighted in the particular model, from the Search phase up to the Capture phase (Figure 5, Appendix); therefore the specific innovation strategy can be characterized as quite successful. 3.2 Alcoa and Process Innovation: Refining Aluminum 3.2.1 How Refining Aluminum has been an innovative process Up to its introduction in the market by Alcoa, the refining aluminium process was unknown to the public. In fact, it was Alcoa that supported the introduction of the particular process, which was not welcomed at the particular period, in 1880s (Zangwill 1998). The value of the process introduced by Alcoa in regard to the refining of aluminium can be mainly identified at the following point: up to the introduction of Alcoa’s invention the energy required for ‘transforming bauxite into aluminium was about 5.4 kilowatt hours per pound’ (Zangwill 1998, p.129). Through the invention of Alcoa, the energy required for the above activity ‘was just 4.5 kilowatt/ hour’ (Zangwill 1998, p.129). The refining of aluminium process, as developed by Alcoa can be characterized as an innovative process, as the term is incorporated in the 4Ps of Innovation Space model (Figure 2 Appendix). As of its dimensions the particular process can be characterized as being in a balance between incremental and radical; at the same time, the particular process has been developed at systems level, being a revolution similar to the steam power, which is mentioned as example in the Dimensions of Innovation model (Figure 3 Appendix). The particular innovation has been contributed in the significant increase of Alcoa’s value chain in regard to the following parts of the chain: Technology Development, Operations and Sales (Figure 4 Appendix). Thus the particular process meets all requirements, which are necessary for the process to be characterized as innovative. 3.2.2 Management of Innovation by Alcoa According to Smith, the technical development of Alcoa has been mainly related to ‘hands-on management and shop-floor tinkering’ (Smith 2003, p.20). Another characteristic of the management of innovation in Alcoa has been the following one: even if Alcoa the concept of refining the aluminium has been appropriately conceptualised, so that it is presented to potential investors who would finance the project, still the concerns over the potential success of the particular invention were many (Smith 2003). The firm faced severe difficulties in promoting the invention so that the funds required for its development, which were significant, to be raised (Smith 2003). Moreover, Zangwill (1998, p.129) noted that in Alcoa managers had to deal with low employee motivation, as resulted because of the development of the process. It is explained that as soon as the first part of the process was completed, employees started to under- perform thinking probably that their involvement in the development of the process was no more necessary (Zangwill 1998, p.129). Thus, in Alcoa, the management of innovation was not related only to the invention of the process but also to the gathering of funds required for its financing and the increase of employee morale for supporting the relevant project. The success of Alcoa in regard to the management of innovation is verified through the graph in Figure 7 (Appendix) where the sectors that aluminium is used are presented. It is made clear that the invention of Alcoa has changed the terms of operation of firms in many industries. The effectiveness of Alcoa in managing innovation could be evaluated using the Simplified Model of the Innovation Process as follows: the firm has successfully developed all phases of the innovation process, as described in the above model, i.e. Search, Select, Implement and Capture (Figure 5 Appendix). Just in regard to the Implementation phase of the innovation process the firms faces difficulties and delays, mostly because of the significant needs of the project in terms of funding, as analysed earlier. However, this phase of the innovation process was finally completed successfully; thus, the firm can be characterized as quite successful in managing innovation. 4. How the innovation management process is different for the two types of innovation selected The innovation management process in Microsoft is different compared to that of Alcoa, mostly at the following point: Microsoft has highly focused on a particular product: Windows. Through the years the firm has highly improved this product, supporting the product’s superiority in the global market (Figure 6, Appendix). The effects of product innovation in Microsoft are mostly related to the specific organization, leading to the increase of its market share and its profits. It is perhaps for this reason that the innovativeness of Windows as a unique product has been often criticized (Oakes 2010). In Alcoa, a different approach has been used: the firm operates in its industry for about 120 years; innovation management in Alcoa focused on the development of a unique process, which has been differentiated by then but this differentiation has not been as high as that of Windows. Rather, the refining aluminium process that Alcoa first developed has been extensively used in all industries worldwide; in other words it was the invention of the refining aluminium process on which the firm most focused (Alcoa, Corporate View 2012). Since the invention of this process and its introduction in the market, the firm’s efforts for managing innovation have been limited; in opposition, in Microsoft the management of innovation is a non-stop process. Also, in Alcoa, as already explained earlier, managers had also to deal with the financial aspects of the project but also with the introduction of plans for increasing employee motivation in regard to the development of the particular project. 5. Conclusion - The key learning experiences of the respective innovation examples The innovation examples presented in current study have resulted to important learning experiences. In fact, it seems that each of the particular cases leads to different assumptions in regard to the nature and the value of innovation, as an element of modern organizations. In Microsoft, innovation had a key role in the development of a strong brand name; through the years, this brand name was further developed, as the firm’s key innovative product, Windows, was improved and updated. In this way, it has been made clear that innovation is not an action occurring instantly; it is rather a long-term process, which can highly benefit the organizational growth. In fact, through the case of Microsoft it has been revealed that the contribution of innovation in the increase of organizational performance can be much more higher than estimated. Windows, Microsoft’s key innovative product, has helped the firm’s brand name to become popular worldwide; up today also, its mostly through Windows that the organization keeps its market position. On the other hand, through the case of Alcoa, the follow lesson has been learned: the management of innovation does not involve only in the procedure of developing the technical parts of a process or of introducing a product of unique characteristics. It is a complex process that can incorporate various activities, such as the retrieval of capital for it’s funding and the allocation of staff willing to support the particular plan. In Alcoa, the refining aluminium process, a process that changed the characteristics and the potentials of many industries worldwide would not exist if the managers of the firm had failed in pursuing the investors to support the specific project. Thus, innovation is a complex process based on many terms all of which need to be met for the process to be successfully complete. References Alcoa (2012) Company website. Available at http://www.alcoa.com/global/en/about_alcoa/overview.asp [Accessed at 25 April 2012] Anderman, S. (2007) The Interface Between Intellectual Property Rights And Chu, S. (2010) Managing Knowledge for Global and Collaborative Innovations. World Scientific. Christiansen, J. (2000) Building the Innovative Organization: Management Systems That Encourage Innovation. Oxford: Palgrave Macmillan. King, W. (2009) Knowledge Management and Organizational Learning. New York: Springer. Microsoft (2012) Company website. Available at http://www.microsoft.com/about/en/us/default.aspx [Accessed at 25 April 2012] Mothe, J., and Foray, D. (2001) Knowledge Management in the Innovation Process. New York: Springer. NetMarketShare (2012) Operating System Market share. Available at http://marketshare.hitslink.com/operating-system-market-share.aspx?qprid=8 [Accessed at 25 April 2012] Pepall, L., Richards, D., and Norman, G. (2010) Contemporary Industrial Organization: A Quantitative Approach. Hoboken: John Wiley and Sons. Oakes, C. (2010) MS: Innovator or Integrator? WIRED. Available at http://www.wired.com/politics/law/news/2000/06/36902?currentPage=all [Accessed at 25 April 2012] Sanders, R. (2001) Technology Innovation in Aluminum Products. JOM, 53(2): pp.21-25. Available at http://www.tms.org/pubs/journals/jom/0102/sanders-0102.html Smith, G. (2003) From Monopoly to Competition: The Transformations of Alcoa, 1888-1986. Cambridge: Cambridge University Press. Tidd, J., and Bessant, J. (2011) Managing Innovation: Integrating Technological, Market and Organizational Change. Hoboken: John Wiley & Sons. White, M., and Bruton, G. (2010) The Management of Technology and Innovation: A Strategic Approach. Belmont: Cengage Learning. Zangwill, W. (1998) Light Strategies For Innovation. Ontario: Simon and Schuster. Appendix Figure 1 – Innovation Process Model (Source: Tidd et al. 2005, p.348) Figure 2 – 4Ps of Innovation Space model (Source: Lecture notes) Figure 3 – Dimensions of innovation (Source: Lecture notes) Figure 4 – Value Chain Analysis model of Porter (Source: Lecture notes) Figure 5 – Simplified model of the innovation process (Source: Lecture notes) Figure 6 – Market share of Windows, as of March 2012-04-25 (Source: NetMarketShare 2012) Figure 7 – Distribution of aluminium among industries (Source: Sanders 2001) Read More