Gary Hamel: management innovation

Management innovation is innovation in management principles and processes that ultimately changes the practice of what managers do, and how they do it. It is different from operational innovation; which is about how the work of transforming inputs into outputs actually gets done.

Think of a company as a set of business processes that turn inputs into outputs. Business processes that turn labour and capital into services and products, for example. It is the business processes that govern the workflow. Things such as logistic systems, order processing, call centres, customer support, and manufacturing.

Surrounding the work of transforming inputs to outputs, however, is everything the managers do: pulling resources together, setting priorities, building teams, nurturing relationships, and forming partnerships. And it is innovation within this sphere that I'm interested in.

Toyota's lean manufacturing. At one level, you can say that lean manufacturing is predominately an operational innovation. But what sits a level or two above the operational changes is the radical management idea that there could be a positive return on investment through using the problem-solving skills of your employees.

A few decades ago, if there was an efficiency or quality problem in the business, companies sent in staff experts. They studied the system, and then rewrote the standard operating procedures. And the employees were asked to conform to those procedures.

The idea that a company would actually give its employees the responsibility for making those changes, that was just unthinkable. So, what looks like a purely operational innovation through one lens, actually turns out to stem from a radical new management principle.

In a big company you can't change what managers do in any direct way. You can only change it by changing the processes that govern their work.

Look at domestic appliance firm Whirlpool. The company has trained thousands of people to be innovators; they have many great new ideas. The challenge for the company is that the people running the core brands, like Kitchen Aid, Whirlpool, and other international brands; those people really are not very interested in this innovation.

They do not want to put engineering or marketing resources behind these new ideas. It is easier for them to crank one more dollar of earnings out of doing exactly what they are already doing.

Whirlpool acknowledged that while it had created a supply of innovative ideas, it had not created a corresponding demand from the senior executives to nurture those ideas.

So the organisation implemented a number of measures to remedy the situation. For a start it earmarked 15 per cent of its capital budget for projects that were truly innovative.

It sent a very clear message to individual managers: if you do not bring us innovative projects then we will starve you of capital.

Wall Street, the City, the financial markets, these hold Whirlpool to certain standards for growth, for margins, and other metrics. So why shouldn't the organisation apply metrics to its managers to encourage them to develop innovative management practices.

If you look at a hundred year period of industrial history, and typically it is management innovation that has allowed organisations to reach new performance thresholds -- more than any other kind of innovation.

The challenge is instilling management innovation into organisations. Often, the technology you need to do new things is there long before you change the management processes in a way that allows you to use that technology.

Look at something like Open Source development. It is made possible by communication technology, collaborative technology. Technology has made it easy for people to collaborate. Yet much of the technology used, such as the internet or Lotus notes, has been around for sometime.

The technology is available, yet, in many companies, it has done little to change the way power and information is distributed.

Most companies are exploiting the web in ways that build on existing practice, moving more information to the centre, for example. They celebrate the fact that we have the global, digital dashboard. Now an organisation can tell how many widgets it sold in Pyongyang the previous day.

Yes. But eventually a company like Google, or an organisation like the Open Source movement, breaks those habits and through management innovation uses the technology to allow things to be done in a different way.

Brand management is a good example. By 1929, Proctor and Gamble was already codifying its brand management knowledge. It recognised that, as you moved into a mass consumer society, the mere ability to produce a product and distribute it, would become less and less important to the consumer.

Before this simply making something that was 99.9 per cent pure, was a manufacturing marvel in itself. What Proctor and Gamble could see was that, increasingly, competition would encompass more than the physical attributes of the product, and the ability to deliver it, but it would include intangible aspects as well.

What used to be brand management has today mushroomed into corporate image consultants, managing IP, and a host of other things. But the whole thread of how to create value out of non-physical, intangible things starts with Proctor and Gamble. They were the pioneers. Although I suspect Unilever might have something to say about that.

The management innovation lab is an experiment in itself. For the sake of simplicity, there are two hypotheses. The first is that we can invent a methodology that will allow us to be much more purposeful about management innovation, and that will allow us to dramatically accelerate the evolution of management itself.

The second hypothesis is that we can help organisations learn how to experiment with new management principles and processes in ways that won't disrupt current success. In the same way that companies experiment with a new product, or with a new technology in a lab, we can bring that same experimental mindset to management itself.

The London Business School has given us a dedicated space. It is a setting that is built to encourage management innovation, to encourage the creative questions, to encourage learning from other disciplines, to allow really close experimental partnerships between what I would call scholar inventors, and progressive organisations.

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