Innovations on the Decline

Innovation-Sjoo-2014

According to new research from Lund University, research and development innovations are declining and productivity within Sweden’s technology companies is slowing.

An innovation is created when a new product comes on the market and changes a particular pattern. A smartphone is an example of an innovation which changed the market for mobile phones and which is currently leading to change within many other markets. This important difference shows how an innovation isn’t the same as an invention.

You might be able to say that Ericsson and Nokia invented the smartphone yet Apple was responsible for the smartphone innovation because they understood how the invention could be commercialized.

Innovations vs. Inventions

Joseph Schumpeter was responsible for defining the terms innovation and invention in the beginning of the 19th century. Innovations create new companies, new jobs and economic growth. However, an innovation isn’t solely a creative process – it is also a destructive one.

For example, when Apple or Google’s Android developed smartphones, new jobs and huge profits were made for those companies. At the same time, the mobile phone industry in the Nordic countries was practically eliminated. Schumpeter referred to this phenomenon as creative destruction.

Fewer Innovations

New research from Karolin Sjöö and others at Lund University shows that Swedish industry has become less innovative since the 1980’s (as demonstrated by the red line in the graph above). Even more concerning is the fact that productivity within research and development has declined sharply within the same time period (as demonstrated by the blue line). Swedish companies invest more but get less out of it.

According to Business Sweden, Sweden’s share of international exports has also declined. Researchers at Lund University have several theories for why innovations have been on the decline but none of them are completely convincing. However, there is other research that, together with our own research, points to an very important factor: projects.

Projects as Isolated Islands

At the end of the 1980’s and beginning of the 1990’s, Sweden’s industry increasingly used projects. Projects were described as the solution to every problem. There were early warning signs and many who paid attention to these signs.

Companies that had started working in project form early on (such as Toyota, which started working with projects in the 1950’s), noticed an increasing degree of sub-optimization. Projects and project managers were singled out as the reason. American research in the 1980’s named autonomous projects as a problem. Even Swedish research in the 1990’s warned of this phenomena.

A project can’t be seen as an isolated island, as Mats Engwall and Anna Jerbrant determined in their respective research. In all the companies we have studied there are significant problems with methods for managing research and development when using projects. All of these companies have significant problems with productivity.

There are problems determining how much work is actually going on and there are complaints about the lack of resources when what is actually lacking is control and focus.

Bureaucratic Project Models

The project was promoted as a modern form of working based on cross-functional work. In reality, projects are bureaucratic monsters that create greater distance between people. Process-based development models (see stage-gate models, waterfall models), suppress creativity and, counter to their intentions, create a slightly chaotic business.

Popular definitions of projects maintain that a project has a clear goal yet reality tells us differently. Our studies shows that no one really knows the goal of the project or that there are many differing opinions about the goal of the project.

An Agile Network Organization

Road to an agile network organisation
Road to an agile network organisation

The solution to the inherent problems with projects is not to stop using them altogether. Rather, the solution is to implement a structure that allows management to prioritize and re-focus the organization.

The solution is also to work with R&D at a strategic level, sometimes called a multi-project level. Toyota reformed their organization during 1991-1992 in order to have a more coordinated collaboration. These reforms were led by Takeshi Uchiyamada. As Chief Engineer within the new Pulse agile organization he developed a whole new kind of car: the Prius. He managed to accomplish this in record time – just 3 years.

As Chief Engineer in the new organization he was a part of strategy-focused management. This differed from the old organization in that the different projects didn’t have to compete with each other for everything from resources to clients.

While working on the Prius, Uchiyamada continued to develop his multi-project solution by holding daily stand-up meetings in an Obeya. We call these Pulse meetings in a Pulse room. Scrum has developed a similar solution for project management that makes it possible to replace bureaucratic models with agile solutions.

As you just read, I outlined what Toyota did: they continued to develop their team-based approach while at the same time introducing a concept that made it possible to work strategically. Operations need to be decentralized when using projects yet at the same time they also need to be coordinated.

The Handelsbankens Way

In the entry “The Handelsbanken Way” you can find information about what being decentralized yet still being under the control of management entails. Thanks to agile multi-project organization, Toyota starting using a tool that enabled them to be both inventive and develop new technologies (including hybrid-drift and fuel cells), while at the same time being able to commercialize these inventions and thereby produce innovations.

This might have been a more important step for Toyota than lean production. Just how important it has been is indicated by Uchiyamada’s career: after his role in the development of the Prius he has occupied several top posts, including head of development. Today he is the Chairman of the Board at Toyota Motor Corporation.

Increase Innovations!

The pulseroom where different teams has daily stand-up meetings.
The Pulse room, where different teams hold daily stand-up meetings.

There are some very frightening statistics that the researchers at Lund University are presenting today yet they come as no surprise to us. We know what the problem is. There are solutions that work and we know how to implement these solutions. Most companies have realized that they have a problem and during the past ten years, many companies  have taken the same steps as Toyota and implemented an agile network organization. It’s high time for the latecomers to upgrade their organizations because if they don’t there is a risk that Nordic inventions, like the smartphone, will become lucrative innovations somewhere else in the world.

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