Magazine article European Business Forum

Why Management Matters Most: When a Country or a Company Starts to Fall Behind in Innovation Performance and Productivity Growth, Its Leaders Should Focus on Developing New Managerial Skills Rather Than Chasing Promising New Technologies. the Current Dilemma Facing the Netherlands Is a Classic Case

Magazine article European Business Forum

Why Management Matters Most: When a Country or a Company Starts to Fall Behind in Innovation Performance and Productivity Growth, Its Leaders Should Focus on Developing New Managerial Skills Rather Than Chasing Promising New Technologies. the Current Dilemma Facing the Netherlands Is a Classic Case

Article excerpt

Dutch innovation performance and productivity growth is falling behind. Dutch businesses are focusing on restructuring and cost reductions. Dutch politicians have been too concerned with short-term government expenditures. Research at Dutch universities is failing to fuel the knowledge economy. On top of these rather worrying factors, the position of the Netherlands in the Global Competitiveness Index of the World Economic Forum is disappointing. The Netherlands has fallen from the top ten - and this could have serious consequences for the Dutch welfare state.

The Dutch innovation debate so far has concentrated on technology-related macrovariables, like below-average private investment in R&D or the low numbers of available scientists and engineers. The central thought is that for a small country to innovate, it should invest in only a few promising core technologies, such as nanotechnology or biotechnology. Particularly striking is the strong bias towards technological innovation and the total ignorance of what Daft (1978) called "administrative innovation".

But there is strong evidence from around the world that managerial capabilities and organising principles, not just technological know-how, are key to innovation. One can think of Richard Branson's superior visioning ability, which has enabled him to understand the future evolution of markets and technology, and create new opportunities to serve both 1 current and new customers. Other examples are the superior "industry foresight" of Dell (direct delivery without intermedial aries in the PC market), Ikea (direct delivery and self-assembly by the client in the furniture market), Xerox (paperless office) 1 and Southwest Airlines (cost efficiency and focusing on a particular value chain in the airline business). These examples highlight how the ability of top management to imagine the future - and develop capabilities to meet that future - can lead to competitive advantage.

Expanding worldwide competition, fragmenting markets and emerging technologies are forcing established firms to renew themselves continuously by transforming stagnant businesses and creating new sources of wealth. Hamel and Prahalad (1994) contend that instead of "more of the same" or "try harder" approaches (how to be better), organisations should fundamentally reconsider their core activities (how to be different).

Building managerial capabilities

The first step lies in mobilising "dynamic capabilities". The key attributes of dynamic capabilities are (Volberda, 1998):

* Broad knowledge base: The ability to combine knowledge from across different core technologies often distinguishes innovative companies. Take 3M, for example. When consumer research showed that customers complained about rusting steel wool pads, experts from 3M's adhesives, abrasives, coatings and non-woven technologies divisions got together to create Never Rust plastic soap pads.

* High absorptive capacity: The ability to recognise the value of new, external knowledge from beyond the periphery of the firm, assimilate and apply it to commercial ends is crucial.

* Broad managerial mindsets: Managers must have the ability to identify and support new ideas. By relying on routines, managers concentrate on their own specialised areas and avoid the need to construct new activities. Consider the experiences of firms such as NCR, for example. Due to its continued focus on established lines of business (electromechanical cash registers) and its reluctance to experiment, NCR was outperformed by others. Likewise, Sharp was able to develop dynamic capabilities in the electronic calculator industry while Tl was held back by its limited managerial mindsets, which were narrowly focused on the semiconductor market.

* Hiqh-level learning: Dynamic capabilities, such as flexible manufacturing or fast product development, cannot be purchased off the shelf but require strategic vision, development time and sustained investment. …

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