# Presentation: 668310

## Innovation, Standards, and Mature OrganizationsTed HabermannNOAA National Data Centers

*Vice Adm. Lautenbacher *

- Innovation, Standards, and Mature OrganizationsTed HabermannNOAA National Data Centers

- Mature Organizations

**Notes:**
Vice Admiral Lautenbacher was talking in a radio interview about management challenges in NOAA. In this quote he is beginning to describe how scientists in NOAA must learn management and leadership skills as they move through their careers. His point is that scientists have succeeded by developing scientific skills and that those skills are necessary, but not sufficient, when it comes to managing or leading others.

The interesting thing about this concept is that it applies to organizations as well as to individuals. Mature Organizations are those that have been around for some time. These organizations generally have a set of capabilities (resources, processes, and values) that have served them well over some time period. Those same capabilities, however, may not be appropriate or successful in the present world, which has changed considerably and continues to change. Organizations need to learn new skills just like the individuals in those organizations. 

## The Technology S-Curve

- We all know that new technologies emerge slowly, grow quickly (if they catch on) and then fade away. This common knowledge has been described as the technology S-curve.
**Why does it exist?**

**TIME**

**Visionaries**

**Luddites**

**Pragmatists**

**Notes:**
All of us have witnessed the rise and fall of so many technologies over the last several years that we have no problem understanding the S-Curve idea. This simple model has been used to help understand many technology and business situations. Why does it exist?

## The Chasm

- Moore has described the “chasm” in the adoption life cycle. He proposes that many new technologies do not make it across the chasm between visionaries and pragmatists. They fall into the chasm. The technology S-curve with the chasm might look like:

**TIME**

**Notes:**
The simple model is complicated by the fact that many new technologies do not make it across the chasm between the visionaries and the pragmatists. The early adopters enjoy the technologies, but they never become practical or accepted by a large segment of the population. They fall into the chasm.

## Technology Cycle

**TIME**

- Technological
- Disruption

- Era of Ferment

- Selection

- Dominant
- Design

- Disruption #2
- (destroys existing
- competence)

- (non-compliance
- cost increases
- with time)

- Network
- Effects
- Value = f(N2)

- Standards

*O’Reilly, C.A. and Tushman, M.L., The Ambidextrous Organizations, Harvard Bus. Rev, April 2004.*

**Notes:**
This brings up another possible explanation for the S-curve. The cycle starts with the introduction of a new, disruptive technology. This disruption leads to a period of experimentation and ferment during which many different approaches to applying the new technology are explored. Overall progress is slow because of this experimentation. At some point selection of a dominant design occurs and energy previously spent on exploring different design options is focused on using that dominant design effectively. Then a second disruption occurs, destroying the competence developed earlier and focusing energy once again into experimentation. 

## Types of Innovation - 1

*Sustaining / Incremental Innovation*: generally small innovations in products and processes aimed at existing customers.
*Disruptive / Discontinuous Innovation*: significant innovations generally aimed at unknown or non-existent customers.

**Notes:**
The organizational literature differentiates between a number of types of innovation. Some of this differentiation is useful. Sustaining innovation is aimed at existing customers and involves a series of small improvements along dimensions that are known to be important to those customers. Disruptive innovation, not to be confused with disruptive technologies, is not aimed at existing customers. It innovates along a dimension that is not important to existing customers.

These definitions were developed by Clayton Christensen using the disc drive manufacturing business as a clear example. In that case sustaining innovations increased the speed, capacity, or density of existing drives. Disruptive innovation involved decreasing the size of the entire disc drive, initially at the expense of speed and capacity. The customers for large drives made large computers. Size was not important to them as they wanted faster drives with more capacity. Making the drives smaller was a disruptive innovation. 

## Unidata Objectives (1998):

- “These objectives either *respond* to users' current needs or *advance* Unidata toward meeting future needs effectively. Most of the "responsive" items are continuations of current Unidata objectives, and their importance is well established. *But only by looking beyond present needs to anticipate future ones, and by pursuing the most promising technical advances, can Unidata remain effective. This is true even though some of these advances involve uncertainties, and the demand for them may not be apparent as yet**”.* *Unidata, 2003 Proposal.*

- Sustaining Innovation

- Disruptive Innovation

*Clayton Christensen, The Innovator’s Dilemma*

**Notes:**
One of the best expressions of the difference between sustaining and disruptive innovation came from a Unidata proposal written during 1998. The proposal listed a number of objectives and divided those objectives into two categories: those that served the needs of current customers (sustaining) and those that served potential future customers that may not exist (low demand). At this time Unidata was considering transitioning all of their active development into Java. That was the disruptive innovation. Unidata clearly understood that this was risky and was trying to justify the risk to the funding agency.

## Unidata (netCDF) Evolution

*Disruptive Innovation:* Always includes a decrease in metrics for current customers so it is difficult for mature organizations.

- In the Unidata case we are now seeing the disruptive switch to Java play out. The capabilities of the Java version of the netCDF libraries have now surpassed the original C version.

**Notes:**
Like the decrease in drive capacity with decreasing size, disruptive innovation always involves a decrease in metrics developed for current customers. This is what makes it difficult for mature organizations to choose the disruptive track. In the Unidata  case, there was no existing code written in Java, so mature capabilities had to be re-developed in the new language. This resulted in a serious hit to the development effort as programmers learned a new language and re-developed the code. Now, five years later, we have reached the point where the capabilities in the Java version of the Unidata tools are clearly surpassing the capabilities of the original C version. The payoff associated with the increased risk is now becoming apparent.

## Types of Innovation - 2

*Component Innovation:* Making existing components better.
*Architectural Innovation*: putting existing components together in new ways.

- Mature organizations:
- Architectural Innovation usually involves organizational change

**Notes:**
Systems are made up, to first order, of components that are held together by architecture. Both of these can be the target of innovations. Component innovation makes the components better, architectural innovation connects existing components in new ways. When a program promises to build on existing expertise by pulling together best of class components in a new way, it is promising architectural innovation. Many NOAA programs make this promise. The cross-cutting goals may be a good example of this practice.

## Innovation & Technology Cycle

**TIME**

- Disruptive Innovation

- Product Innovation
- Design Competition
- Community-driven
- technology change

- Component,
- Architectural,
- Sustaining and
- Process
- Innovation

- What do we make?

- How do we make
- it (better)?

**Notes:**
How do these innovation types relate to the technology cycle? Many disruptive innovations are related to disruptive technologies (this is not, however a required characteristic). The period of ferment features development of new products and designs (product innovation and design competition) and changes to the new technology. During this time the question is: what do we make? Once selection occurs, components that use the new technology are created and improved and they are put together in new ways. The technology is evolved along dimensions that serve existing customers and processes are evolved toward increased efficiency. The question at this point is: How do we make it better?

## How Standards Change The Game

-  Expanded Network Externalities (Network effect turns on)
-  Reduced Uncertainty and Risk in Technology Decisions
-  Reduced Consumer Lock-In to Particular Components
-  Competition in the Market vs. Competition for the Market
-  Competition on Value vs. Features
-  Competition to Offer Proprietary Extensions
-  Component vs. Systems Competition

- Standards shift the locus of competition from systems development to component development. Specialists tend to thrive in the mix-and-match environment created by interface standards. Generalists and system (stovepipe) developers tend to thrive in the absence of standards.

- In the absence of standards:
- 1) there is no architectural innovation (no mix-and-match) and
- 2) the organization can not benefit from component innovation.
- Once a standard has been agreed on (selection), the organization benefits from component innovation and architectural innovation.

**Notes:**
	Standards effect many aspects of the technology development process. First and foremost, they allow network effects to happen. Individual components must be able to plug in order to take advantage of a network. Standards decrease the risk and uncertainty of technology development efforts significantly by increasing the predictability of the results. Standards increase choice for users of technology. They are able to build systems that address their needs using collections of standard components. They can also switch components easily as their needs evolve.
 	This freedom shifts the locus of competition towards components. This occurs because many of the challenges of architectural innovation are related to making things work together. These are lessened by the standards. The competition focuses on making the components that are reliable, perform well, and fit into the standards framework.
	Standards also effect the overall organization that is involved in the technology development project. Without standards, it is difficult for the organization to benefit from any innovation. Architectural innovation is impossible and component innovation can’t contribute to the overall technology evolution.

## Why No Standards?

- The longer the market takes to determine a standard, the more expensive it will be for firms operating within that market. The more expensive this competition becomes, the greater the tendency for firms to cooperate at the beginning.

- The difficulty with this reasoning is that it is difficult for individual firms to determine how expensive or how long it will take the market to determine the dominant standard. Nor are companies willing to cede control of such an important aspect of their market early in a competition. *Booz Allen Hamilton, 2005*.

- The science community generally values sharing results
- more than they value sharing data.

**Notes:**
Booz Allen Hamilton just published a study of the return on investment of geospatial interoperability. Two of their conclusions:
Of the projects considered for this study, the project that adopted and implemented geospatial interoperability standards had a risk-adjusted ROI of 119.0%. This ROI is a “Savings to Investment” ratio. This can be interpreted as for every $1.00 spent on investment, $1.19 is saved on Operations and Maintenance costs.
Overall, the project that adopted and implemented geospatial interoperability standards saved 26.2% compared to the project that relied upon a proprietary standard. One way to interpret this result is that for every $4.00 spent on projects based on proprietary platforms, the same value could be achieved with $3.00 if the project were based on open standards.

## Innovation, Standards & NOAA

- There is a considerable innovation literature that can help NOAA learn the new skills required to innovate strategically and effectively.
- Technology is evolving from a computing tool to a communication tool. It is becoming an infrastructure technology.
- Standards are critical to building value of infrastructure technologies.
- Standards are critical to organizationally effective component and architectural innovation.
- NOAA must develop and use processes for selecting and applying standards.
- The requirements and approaches to planning are very different in the different phases of the technology cycle.
- Understanding and explicitly recognizing the differences in phases of the technology cycle and the differences in balance between management and leadership skills might help NOAA.

**Notes:**
Conclusions of Section 1.

## NASA Standards

## NASA Standards

## Organizational Capabilities

- = Sum of individual capabilities
- Resources
- Money and people, easy to change
- Processes
- Hard to change:
- Organizational boundaries facilitate current processes
- Current processes have worked in the past
- Values
- Hardest to change

## Good people, wrong process / values

- The reason why innovation often seems to be so difficult for established firms is that they employ highly capable people and then set them to work within processes and values that weren't designed to facilitate success with the task at hand.  Ensuring that capable people are ensconced in capable organizations is a major management responsibility in an age such as ours, when the ability to cope with accelerating change has become so critical.
*Clayton Cristensen, Coping With Your Organization’s Innovation Capabilities, in Leading For Innovation and Organizing for Results*

## Values Statements

- From a paper on standards:
- As an agency, NASA has particular needs, and so the SPG process is tailored for the particular pragmatic demands of the agency.
- As an agency, NASA has a technology adoption curve just as any population does even if, as a research agency, NASA may skew toward innovation and early adoption.
- NASA’s great advantage is that it sponsors a large pool of innovators

- NASA is here
- and life is good!

## What Approach?

- Where are NASA Standards Efforts?

*Clark and Wheelwright, Organizing and Leading “Heavyweight” DevelopmentTeams, 1992.*

**Notes:**
Note: The left and bottom axes reflect the questions the manager needs to ask about the existing situation. The notes at the right side represent the appropriate response to the situation on the left axis. The notes at the top represent the appropriate response to the manager’s answer to the bottom axis.

## Functional Team

| Members work completely in their principle function
Member tasks are coordinated by respective managers
Primary responsibility for project is passed from one function to another
 | Strength:  depth of experience, clear career path, well suited to tasks
Weakness:  similar solutions (lack of breadth), bureaucratic, not project oriented
 |
| --- | --- |

- Markets

- FM

- FM

- FM

- FM

- FM

- Working  Level

## Lightweight Team

- NWS

- OAR

- NOS

- NMFS

- NESDIS

- Markets

- FM

- FM

- FM

- FM

- FM

- Working Level

- Liason

- Project Manager and area of influence

| Project manager works with department liaison
Determines the tasks and responsibilities of the team members | Strength:  better coordination to ensure project completion, better communication.
Weakness:  weak project leader, weak focus for members. |
| --- | --- |

## Heavyweight Team

- NWS

- OAR

- NOS

- NMFS

- NESDIS

- Markets

- FM

- FM

- FM

- FM

- FM

- Working Level

- Liason

- Functional Manager

- Project Manager and area of influence

| Project manager has direct control over functional member task
Core group members work with project manager and functional members | Strength:  strong project focus, ownership and commitment of team members
Weakness:  generalistic problem solving, hard to staff, breaks down functions |
| --- | --- |

## Microsoft 

- Microsoft
- in 1995

- Apple
- Computer

- Balkan
- Peninsula

- Companies
- Employing
- Independent
- Contractors

*Christensen, C., M. Marx, and H. H. Stevenson, The Tools of Cooperation and Change, Harvard Business Review, Oct. 2006*

**Notes:**
Leaders who want to move their organizations in a new direction must first understand the degree to which employees agree on two dimensions: what they want out of working at the company and cause and effect, or how to achieve what they want. A high level of agreement on both dimensions, such as exists at Apple Computer, requires a completely different set of change tools than leaders will need in, for instance, low-agreement environments.

Employees in organizations in the upper-left quadrant share hopes for what they will gain from being part of the organization, even though each might have a different view of what actions will be required to fulfill those hopes. Microsoft found itself in this situation in 1995, when Netscape was threatening to become the primary “window” through which people would use their computers. Everyone in the company wanted the same thing—to preserve Microsoft’s domination of the desktop—but initially there was little consensus about how to do that.

Many companies that employ independent contractors and unionized workers, in contrast, are in the lower-right corner. These employees may have little passion for the goals of the company but are willing to follow prescribed procedures if they agree that those actions will produce the needed results.In the upper-right quadrant are companies whose employees agree on what they want and how to get there. Clear consensus on both dimensions makes these organizations’ cultures highly resistant to change: People are generally satisfied with what they get out of working in the organization and agree strongly about how to maintain that status quo.The final scenario is the lower-left quadrant of the agreement matrix, where participants do not agree either on what they want or on how the world works. The perpetually warring nation-states of the Balkan Peninsula exemplify this lack of agreement. We will return to each situation in the following pages.It’s important to note that there is no “best” position for managers to aspire to in the agreement matrix. To choose the right tools for fostering cooperation among employees, however, managers must assess where their organization lies. 

## Leadership

- Tools

- Culture
- Tools

- Power
- Tools

- Management
- Tools

- Extent to which people agree on cause and effect (how to get there)

- No concensus

- Broad concensus

- Extent to which people agree on what they want

-  Charisma

-  Salesmanship

-  Role Modeling

-  Coercion

-  Fiat

-  Apprenticeship

-  Strategic Planning

-  Vision

-  Tradition

-  Rituals

-  Fokelore

-  Democracy

-  Religion

-  Negotiation

-  Control Systems

-  Hiring and
-   Promotion

-  Financial
-   Incentives

-  Role Definition

-  Threats

-  Transfer Pricing

-  Measurement
-   Systems

-  Standard
-   Operating Proceedures

-  Training

**Notes:**
Leaders who want to move their organizations in a new direction must first understand the degree to which employees agree on two dimensions: what they want out of working at the company and cause and effect, or how to achieve what they want. A high level of agreement on both dimensions, such as exists at Apple Computer, requires a completely different set of change tools than leaders will need in, for instance, low-agreement environments. 

## Different NASA

- Standards Groups?

- Scientists?

- Scientists?

- Contractors?

*Christensen, C., M. Marx, and H. H. Stevenson, The Tools of Cooperation and Change, Harvard Business Review, Oct. 2006*

**Notes:**
Leaders who want to move their organizations in a new direction must first understand the degree to which employees agree on two dimensions: what they want out of working at the company and cause and effect, or how to achieve what they want. A high level of agreement on both dimensions, such as exists at Apple Computer, requires a completely different set of change tools than leaders will need in, for instance, low-agreement environments.

Employees in organizations in the upper-left quadrant share hopes for what they will gain from being part of the organization, even though each might have a different view of what actions will be required to fulfill those hopes. Microsoft found itself in this situation in 1995, when Netscape was threatening to become the primary “window” through which people would use their computers. Everyone in the company wanted the same thing—to preserve Microsoft’s domination of the desktop—but initially there was little consensus about how to do that.

Many companies that employ independent contractors and unionized workers, in contrast, are in the lower-right corner. These employees may have little passion for the goals of the company but are willing to follow prescribed procedures if they agree that those actions will produce the needed results.In the upper-right quadrant are companies whose employees agree on what they want and how to get there. Clear consensus on both dimensions makes these organizations’ cultures highly resistant to change: People are generally satisfied with what they get out of working in the organization and agree strongly about how to maintain that status quo.The final scenario is the lower-left quadrant of the agreement matrix, where participants do not agree either on what they want or on how the world works. The perpetually warring nation-states of the Balkan Peninsula exemplify this lack of agreement. We will return to each situation in the following pages.It’s important to note that there is no “best” position for managers to aspire to in the agreement matrix. To choose the right tools for fostering cooperation among employees, however, managers must assess where their organization lies. 

## Organizational Challenge

- A new business with high growth potential (let’s call it NewCo) rarely coexists gracefully with the most closely related established business unit within the company (let’s call it CoreCo). The unnatural combination creates three specific challenges for NewCo: *forgetting**, **borrowing**,* and *learning*. NewCo must forget some of what made CoreCo successful, because NewCo and CoreCo have elemental differences. NewCo must borrow some of CoreCo’s assets—the greatest advantage it has over independent start-ups. And NewCo must be prepared to learn some things from scratch.
*10 Rules for Strategic Innovators: From Idea to Execution, Vijay Govindarajan and Chris Trimble, Harvard Business School Press, Boston, MA. 2005*

## Leadership Model: Positive Deviance

- Positive deviance says that if you want to create change, you must scale it down to the lowest level of granularity and look for people within the social system who are already manifesting the desired future state. Take only the arrows that are already pointing toward the way you want to go, and ignore the others. Identify and differentiate those people who are headed in the right direction. Give them visibility and resources. Bring them together. Aggregate them. *Barbara Waugh*

**Notes:**
Positive Deviance is a model of organizational change based on the premise that organizations already contain members that are instantiating the desired end state of a change process. These are the secret change agents in the organization. The idea is that these people can lead the change in the broader organization.

## Ted.Habermann@noaa.gov

## References

- Christensen, C., The Innovator’s Dilemma, Harvard Business School Press, 1997, 225p.
- Christensen, C., M. Marx, and H. H. Stevenson, The Tools of Cooperation and Change, Harvard Business Review, Oct. 2006.
- Clark and Wheelwright, Revolutionizing Product Development, The Free Press, New York, 1992, 364p.
- Govindarajan, V. and C. Trimble, Building Breakthrough Businesses Within Established Organizations, Harvard Business Review, May 2005, p. 58-68.
- Lautenbacher, C., Business of Government Radio Interview, http://www.businessofgovernment.org/main/interviews/bios/conrad_lautenbacher_frt.asp, 2005.
- Moore, G., Crossing the Chasm, Marketing and Selling High-Tech  Products to Mainstream Customers, Harper Business, 1991, 211p.
- O’Reilly, C.A. and Tushman, M.L., The Ambidextrous Organizations, Harvard Business Review, April 2004.
- The Positive Deviance Initiative, http://positivedeviance.org/
- Pascale, R.T. and J. Sternin, Your Company’s Secret Change Agents, Harvard Business Review, May 2005, p. 72-81.
- Tushman, M.L., Anderson, P., and O’Reilly, C.A., Technology Cycles, Innovation Streams, and Ambidextrous Organizations: Organizational Renewal Through Innovation Streams and Strategic Change, in Managing Strategic Innovation and Change, Tushman and Anderson, eds., Oxford University Press, New York, 1997, 657p.

## Background

## Team Structures

## How to Forget 

- Don’t assign status based on size.
- Rearrange the moving parts.
- Build a new dashboard.
- Dare to make complex judgments.
- Promote new thinking about success.

- How to Forget

**Notes:**
Don’t be insular. NewCo should hire outsiders in key management roles and strongly consider an outsider to head the business. Outsiders challenge institutional memory and are instrumental in building new competencies. Don’t assign status based on size. NewCo should report at least one level above CoreCo in order to reduce the pressures on NewCo for short-term results and to ensure that CoreCo does not hoard resources. Rearrange the moving parts. NewCo should reconsider how major business functions such as marketing and product development interact. Established patterns of interaction within CoreCo are usually incompatible with the new business model. Build a new dashboard. The company should not base NewCo’s performance on CoreCo’s metrics. Doing so reinforces CoreCo’s formula for success, not NewCo’s. Dare to make complex judgments. The company should not judge the performance of NewCo’s leader too heavily against plans. Promote new thinking about success. NewCo’s leader should create a unique set of beliefs about actions that lead to success and regularly reinforce them. CoreCo’s beliefs may not apply in NewCo’s environment. 

## How to Borrow

- borrowing.
- Find common ground.
- Be careful what you ask for.
- Co-opt CoreCo.
- Be alert to tremors.
- Force authority uphill.

**Notes:**
Balance the yin of forgetting with the yang of borrowing. Create links, yes, but only to lend NewCo a crucial competitive advantage. Avoid links where conflicts are severe. Avoid links to the IT or HR departments. Find common ground. Reinforce values that NewCo and CoreCo share. In most cases, CoreCo will have some values that are inconsistent with NewCo’s business model. Still, the senior management team can facilitate cooperation by creating a “metaculture” composed of more general values. Be careful what you ask for. To promote collaboration, reconsider individual incentives. Evaluate and reward CoreCo managers, in part, according to their willingness to cooperate with NewCo. Avoid strong incentives tied strictly to CoreCo’s short-term performance. Co-opt CoreCo. To eliminate resistance from CoreCo’s general manager, make borrowing as painless as possible so that he can focus strictly on CoreCo. Replenish CoreCo’s resources when NewCo borrows heavily. Set transfer prices high enough to ensure that CoreCo will consider it a priority to help NewCo but not so high that NewCo cannot realistically achieve profitability. NewCo’s profitability is a powerful symbol. CoreCo will always be more enthusiastic about helping when there is evidence that NewCo is succeeding. Be alert to tremors. Assign a senior executive to anticipate tensions between NewCo and CoreCo and to intervene should those tensions become destructive. The senior executive must be willing to commit a lot of time and energy and must be influential and respected within the corporation. She must continually explain the rationale for the differences between NewCo and CoreCo. Force authority uphill. Unless NewCo is in danger of damaging one of CoreCo’s assets, particularly a brand, empower NewCo in its interactions with CoreCo. Without intervention, power will naturally shift back to the larger, more entrenched CoreCo. 

## How to Learn

- Protect predictions.
- Avoid being defensive.
- Do less, faster.
- Analyze through a new lens.
- Measure what you don’t know.

**Notes:**
Don’t try to mix oil and water. Hold separate meetings for evaluating the business performance of NewCo and CoreCo. These meetings must be handled very differently, and combining them can be impractical, if not destructive. Protect predictions. Ensure that executives involved in NewCo’s planning process understand the importance of improving predictions and are aware of how this learning process can go astray when predictions are ignored, are manipulated, or become rigid. Avoid being defensive. Evaluate the leader of NewCo not on results but on his ability to learn and make good decisions. Though accountability to plans is an effective practice in mature businesses, it can be crippling in new high-potential businesses. If NewCo’s leader is held accountable to the business plan, he will become defensive once targets are missed—a highly likely outcome in any strategic experiment. He will have a hard time being open and candid and may even hide information, perhaps even taking the senior management team out of the learning process altogether. 
Though accountability to plans is an effective practice in mature businesses, it can be crippling in new high-potential businesses. Do less, faster. That is, simplify plans, but plan more often. Each cycle through the planning process creates a learning opportunity, so planning more frequently increases the learning rate. To make a higher frequency practical, plans must be simplified. Detailed plans (broken down by region, product line, sales channel, and so forth) are useful for mature businesses, but NewCo should focus on resolving critical unknowns, which can be accomplished at a more aggregate level. Analyze through a new lens. Compare predicted and actual trends. Because strategic experiments are dynamic, rates of change are often more valuable information than current results. Measure what you don’t know. Identify metrics that are most useful in resolving critical unknowns. These are usually nonfinancial measures and are rarely the most closely watched metrics at CoreCo.