Innovation is the key word companies need to survive and succeed in a competitive market world. But the know how to being innovative has so many variables that make it seem a mystery. This is a glimpse of the hard work of academics such as Professor Kostas to unravel the clues of innovation inside companies.
Interview to Entrevista a Konstantinos C. Kostopoulos, former Assistant Professor of Management at the EADA Business School
Your studies are focused on innovation, this can be a new product, service or even technique. But what would be the full meaning of the concept of innovation? What drives innovation in a company or a product?
Innovation can be broadly defined as the creation of new knowledge, which can then be incorporated into a new product, service, technology, or administrative process. Innovation, therefore, is more than new products. It includes, and at the same time, requires, departures from how we “are used to doing things”, it challenges the status quo and the way in which we create value for the organization.
The ability of an organization to generate innovation, that is to be innovative, can thus be considered as one of the few sources of achieving and sustaining competitive advantage. Being innovative means being able to renew ourselves (our product portfolio but also our management systems and procedures), in a way that differentiates us from the competition, in a way that the customers perceive us as unique and, as a result, are willing to pay a premium price for our market offerings.
There are multiple factors driving innovation in an organization. Relevant scientific and applied research, for instance, has emphasized the importance of factors such as competitive strategy, organizational structure (e.g., formalization, centralization, team-based forms, size etc.) and cultural characteristics (e.g., managers’ attitude towards change, and organizational climate) as important antecedents of the firm’s capacity to innovate. Moreover, increased attention has been paid to resources and capabilities such as financial capital, skilful employees, abundant information, as well as learning and entrepreneurship capabilities (e.g., risk taking, acquiring and assimilating new external knowledge, tolerating failure, experimenting with novel ideas etc.). Finally, the external environment of the organization can significantly influence the ability to innovate. It is generally argued that every company should be open to communication with customers, suppliers, distributors, institutional groups, and (even) rivals, in order to exploit opportunities to produce innovative forms of competitive advantage and adapt to changing market conditions.
A lot has happened since Ford Motor’s introduction of the moving assembly line in 1913 and the way management tendencies are put into practice. Which has been the biggest change you can think of in team management in particular?
Admittedly, we witness an ever-growing tendency to restructure work from individual-based to group-based activity. Hence, since organizations have become more reliant upon group-based structures, ad hoc project teams and ultidisciplinary design and development teams, understanding team effectiveness but also ineffectiveness is one of the most challenging and important questions that strategic management needs to address.
Teams are now widely recognized as the birthplace of innovation. To illustrate this, research has shown that between 70% and 97% of multinational firms employ cross-functional teams for innovation and new product development purposes. Organizations are constantly seeking to replace the traditional linear, sequential model of new product design with an integrative process, one major component of which is a multidisciplinary (often called cross-functional) team. Such teams draw their members from different organizational departments, thus having the ability to speed up the innovation development by improving cross-departmental coordination and reducing delays caused by the failure to include the necessary information from throughout the organization. Moreover, project teams and task forces are often used by innovative organizations to set the direction of changes, while a shift to team-based structures is simultaneously used to increase the flexibility of organizations to adapt to several firm or environment-driven changes.
Teams, however, are now confronted with a number of critical changes that challenge their functioning and success. Specifically, teams that undertake innovative assignments face increased complexity, ambiguity, and pressures to accomplish work within a limited amount of time and money. Furthermore, they have to manage a diverse workforce, with members coming from different functional, educational, even national backgrounds that may enrich the pool of resources but, at the same time, can create communication and coordination problems. In addition, many teams are currently comprised of people that “come and go”, meaning that their membership is temporary (as they have to accomplish more and more work) and thus the team boundaries are quite fluid. The temporary and borderless nature of a team can be problematic, since individuals need time to become familiar with each other before they can work together as an effective team. Finally, organizations often fail to implement structures that enable teams to succeed. Some organizational structures undermine teamwork, such as individually based rewards and department-based resource allocation.
All these challenges need to be carefully managed in order to put real successful teams into action. How did you get personally involved in this subject? What made you more curious or attracted to it?
I was instantly attracted by the concept of innovation, by its power to create value, to fuel market offerings that the competition cannot easily imitate, to explain extraordinary results across disciplines and industries (from medicine and physics to information technology and consumer products) or even across countries. It is quite striking the fact that countries that score high on innovation (e.g., Switzerland, Sweden, Denmark) also score high on various competitiveness indexes or are characterized by increased levels of social benefits and a high quality of their education system. Motivated by innovation’s capacity to create value, I then had the opportunity to participate in two large-scale EU-funded research projects that investigated the phenomenon of innovation within consortiums of organizations (companies, research institutions, technology parks, academic institutions, governmental agencies). I cooperated with big players in the field, and I was directly exposed to the benefits that innovation can create but also to the difficulties that usually come along with its development. In the context of those projects, I was able to identify the key factors that determine innovation success across different countries (and I did mention some of them previously) and rightly understand the importance of teams as the critical collective within which innovation usually flourishes. It is beyond any doubt that the most successful innovations (I mean those that are introduced into the market or find true application within an organization) are those developed by effective teams composed of people coming from diverse functional and educational backgrounds.
What would you like to transmit to companies in this matter? Any particular findings or anecdotes that could be useful?
It is of utmost importance for firms to understand the value of innovation, even if, at first, it seems like they invest too much without gaining the expected returns. Without renewing a company, even a successful one, sooner or later a competitor will emerge and will take the market share once possessed by our company.
My research shows that teams are indeed the birthplace of innovation. Findings indicate that those teams should be cross-functional (with members coming from different departments), ranging in size between 6 to 12 members, characterized by autonomy in decision making, and protected from traditional, ureaucratic practices. Their leader should be what we formally call “transformational”, that means delegating authority and power to team members, encouraging initiatives, providing constructive feedback, and orienting people towards challenging stereotypes and changing the way we do our work. Of particular importance is the role of establishing psy chological safety within such teams, meaning that members should feel free to express their views (or even fail) without the fear of negative criticism. Such a safety climate will help teams to gain the most from their members, and to resolve conflicts and disagreements (that inevitably emerge within innovation teams) in a cooperative (win-win) rather than competitive manner.
How do you think your research should be applied in Spanish and European companies?
Let me first note that the results of my research, as every empirical work in the field of management, are driven by theory but are then validated in real companies. Put differently, my research findings are generated by samples of teams that are working on real projects, are facing true difficulties, and are producing actual outcomes that help their organizations to perform better compared to their competitors. Consequently, research results can be readily applied by simply adopting and modifying practices that are already working in other companies.
That said, Spanish and other Southern European companies admittedly present some unique challenges. A culture of cooperation and teamwork is largely absent, and people often think that when they work within teams they have the “freedom” to underperform, the feeling that someone else will do the work for them. In this context, the selection of an appropriate leader is critical. I have often found in my research that a leader who can inspire, protect the team from out-group pressures, and reward not only individual but also group performance can make a huge difference. Identifying, hiring and sustaining such leaders is the key to resolving many problems arising in South European companies, and as a result apply many best practices in teamwork that research has highlighted.
Team work management and innovation in projects can be a long term objective. How can team management work in a situation of financial crisis?
Teams can undoubtedly help to bring changes, and overcome many of the difficulties that we now face as organizational entities and as societies more generally. Today’s crisis requires a cross-disciplinary approach, since many of its problems have roots in the failure (or incomplete application) of economic models but also in the failure (or lack) of effective social protection mechanisms against inequality. Teams that are composed of people from different educational and cultural origins are perhaps one of the few tools to manage and find novel solutions to these problems. When a crisis arises within a company, it is better to hear the voice of many different people than the opinion of a single person. And consider that this can be done with a minimum cost, since people are constantly working within teams (being part of a company’s department, part of an informal group, part of firm committee etc.) even if they do not realize it!
How would you define the perfect team after your findings? Could you name a project or a company that has a team with those characteristics?
An effective team that executes an innovation project is first -as mentioned many times before- cross-functional, open to new information and knowledge coming from inside but also outside of its boundaries, with an inspiring leader that tolerates failures, encourages risk taking, and supports members to participate in decision making and express divergent views. Such teams are actually working as we now speak in high-tech companies like Google and Apple, in more traditional companies like Levi’s or Coca-Cola, or even in research-leading organizations like NASA and CERN.
Cohesion among the team members can be key to effectiveness. A team that goes for a drink after work tends to be more effective?
In general, the more cohesive a group is, the better the internal team dynamics and performance tend to become. However, there are limits to the advantages of cohesion in innovation teams. Members, for example, can become so internally focused that they neglect the external environment and their own external networks, ultimately harming their ability to think “outside of the box” (or outside of the team’s rationale) and thus harming the actual performance of the team. In addition, cohesion might have another dark side. It can reduce members’ willingness to disagree, in order to maintain positive feelings and commitment to the group, a phenomenon known as groupthink.
In this sense, teams do not need too much of a good thing. In Europe failure can be translated as pure failure, but in the United States there is another way of approaching the concept. Do you think it is important to fail in order to suc ceed?
This is absolutely true, especially when we refer to innovation development. By its very nature, innovation includes mistakes, continuously going back and forward until an effective solution or course of action is identified. Many refer to innovation as a journey of many failures to arrive at a successful outcome! Famous pioneers and entrepreneurs like Bill Gates (Microsoft), Akio Morita (Sony), and Henry Ford learned a lot by failing themselves or by demonstrating tolerance to failure towards their colleagues. Thomas Edison when asked by a reporter about his numerous failures in inventing a working light-bulb he made the famous quote: “I have not failed 10,000 times. I have successfully found 10,000 ways that will not work”.
What will the future of team management be?
Teams will definitely continue, with an ever-increasing pace, to be the basic building blocks of modern organizations. The level of competition coupled with the mounting complexities of the business environment will really make their use a necessary condition for a firm’s success. In this context, I would like to stress three key factors that gain importance as we move forward to the next generation of organizational teams. Firstly, due to new technological developments but also to forces of globalization, we now observe a new type of teams that are utilized for innovation and other key tasks of organizations: the so-called virtual or geographically disperse teams, composed of members that are not physically co-located. I expect the use of this type of teams to be further enhanced in the future, posing new challenges on how to manage spaceless group dynamics. Secondly, and related to the previous point, there is a growing use of inter-organizational teams, where different companies and/or other institutions (e.g., research centres, universities, technology brokers) create teams in order to manage collaborative projects or more permanent cooperative agreements in the form of a strategic alliance or joint venture. Such teams are inevitably characterized by fluid membership and blurred boundaries, while their reliance on multiple organizational practices and values generate heightened complexities on how to manage team members.
Finally, teams –and innovation teams more specifically- are today confronted with the challenge to hold multiple and often conflicting goals and agendas. For example, team members have to experiment with new technologies, new methods of work, and novel scientific knowledge in order to create something that departs from existing market offerings. At the same time, however, they have to exploit their current skills and expertise so as to ensure that experimentation will finally lead to a concrete outcome (e.g., a new product, service, or technological application). Such simultaneous efforts towards exploration and exploitation –i.e., be ambidextrous- are indeed very difficult to manage, but will become a key ability for those teams that want to innovate and remain competitive in the future.