Technology and Innovation Management

Prof. Dr. Alexander Kock | Winter Term 2022/23

Winter 22/23 | Technology and Innovation Management | Prof. Dr. Alexander Kock | 1
 Principles of Organization
Ambidexterity
Stage-Gate Systems and Portfolio Management

Learning objectives:
• Understand the challenges of building an ambidextrous
organization
• Understand the principles and success factors of portfolio
management
• Understand the functionality, assumptions and limitations of
Stage-Gate systems

5. Organizing Innovation
 Organizing Innovation
Principles of Organization
Winter 22/23 | Technology and Innovation Management | Prof. Dr. Alexander Kock | 3
Principles of Organization

Differentiation between organizational and process structures

Organizational Structure Process Structure

• Analysis of subtasks of task executers and the relation • Specifies the chronological order of tasks
between them • Smart time coordination/ synchronization of subtasks
• The focus is on the rational aggregation and • Graphical representation via process plan
coordination of tasks
• Coordination of tasks
• Graphical representation via organization chart

à Integration of innovation activities in corporate à Definition of rules and decision/information processes

organization (e.g. centralized vs. decentralized R&D, (milestones, phases & gates)
innovation units) à Organizing innovation projects
à Internal structure of R&D/ innovation unit (e.g.,
definition of Roles and responsibilities)

Winter 22/23 | Technology and Innovation Management | Prof. Dr. Alexander Kock | 4
Principles of Organization

Advantages and disadvantages of different organizational models for R&D

Decentralized Model of R&D Centralized R&D Management Separate Service Units of R&D
• Close to the market • Knowledge concentration • Clear responsibilities for innovation
Advantages

• Flexibility • Cost advantages • Development of specific skills

• Allows cross-functional coordination • Coordination
• Immediate response to market changes • Support of long-term goals

• Redundancy, no synergies across • “Ivory tower effect” • Insufficient resources

Disadvantages

businesses • Transfer problems in project • No basis for long-term R&D platforms

• "Application Closeness” à neglecting implementation
the risk of long-term goals • “Happy engineering“ à Inefficient /
Ineffective

RWE, Thyssen-Krupp Siemens, Philips, Bayer, BASF Creavis, Novartis, Mineral-oil companies
Examples

Top Management Top Management Top Management

Division Division Division

Winter 22/23 | Technology and Innovation Management | Prof. Dr. Alexander Kock | 5
Principles of Organization

A mechanistic or an organic structure are suitable for different environments.

Mechanistic Organic

• Rigid and highly specialized • Flexible; less specialized

Task Definition • Well-defined goals • Unclear, short-term goals
• Exact job descriptions • No final task assignments

• Clearly defined bureaucracy • Controlling, authority and communication is done

Coordination & • Hierarchy in a complex interaction network (not based on
Control • Centralization of decisions on top superiority)
management level • Personal dependent organization

Communication Mainly vertical Horizontal and vertical

Commitment & • To the organization and its goals and values

To immediate superior
Loyalty • Problem-oriented thinking

Environmental
Stable with low technological uncertainty Dynamic, ambiguous, technological uncertainty
Context
Winter 22/23 | Technology and Innovation Management | Prof. Dr. Alexander Kock | 6 Burns & Stalker (1961), pp. 96
 Organizing Innovation
Ambidexterity
Winter 22/23 | Technology and Innovation Management | Prof. Dr. Alexander Kock | 7
Ambidexterity

Being only an exploiter or only an explorer is dangerous.

Overemphasis on existing competences (exploitation) Overemphasis on new competences (exploration)

• Overemphasis on improving existing products reduces • Overemphasis on exploring new competences risks
learning of new skills leading to obsolescence spending scarce resources with very little payback

Companies that only explore may not survive today, companies that only exploit may not survive tomorrow.

Winter 22/23 | Technology and Innovation Management | Prof. Dr. Alexander Kock | 8
Ambidexterity
For a successful short-term and long-term performance, firms need both
exploitation and exploration.
Definitions Firm Performance depends on Balance
Exploitation
• “such things as refinement, choice, production, efficiency, selection,
implementation, execution” (March, 1991)
• The focus is on reducing variety, increasing efficiency, and
improving alignment to current environments (short-term
performance).
Data from 279
Exploration manufacturing firms
covering the years
• “things captured by terms such as search, variation, risk taking, 1989-2004 from the
experimentation, play, flexibility, discovery, innovation” (March, 1991) S&P 500 index
• The focus is on seeking variety and increasing adaptability (long-
term performance)

Balance between exploration and exploitation provides optimal performance (esp. in dynamic environment).

Uotila, Maula, Keil & Zahra (2009) Exploration, Exploitation, and Financial
Winter 22/23 | Technology and Innovation Management | Prof. Dr. Alexander Kock | 9 Performance: Analysis of S&P 500 Corporations. Strategic Management
Journal (30), pp. 221-231.
Ambidexterity
Exploitation and exploration pose fundamentally different demands on the
organizational structure and leadership.
Exploitation Exploration
• Follow the rules and drive out the variance and slack • Break the rules and promote variance and slack
• Focus on serving existing customers and their needs • Serve new customers with new needs
• Manage and refine existing competences • Develop and lead new competences
• Make money now • Make money later
• Will more likely lead to incremental innovation • Will more likely lead to radical innovation
• Profits from a more mechanistic organization • Profits from a more organic organization

Terms associated with exploitation: Terms associated with exploration :

refinement, control, production, efficiency, selection, search, variation, experimentation, play, flexibility,
implementation, execution, disciplined Management, discovery, innovation, risk taking, tolerant of failure, long-
elimination of variance, short-term focus term perspective

Ambidextrous Organizations are aligned and efficient in their management of today’s business demands, while also
adaptive enough to changes in the environment that they will still be around tomorrow. (Gibson & Birkinshaw, 2004)

Winter 22/23 | Technology and Innovation Management | Prof. Dr. Alexander Kock | 10
Ambidexterity
Sequential ambidexterity means that phases of exploration and exploitation
alternate over time.
Sequential Ambidexterity Examples
• Long periods of exploiting punctuated by short bursts of
exploration
• Response to dramatic external or internal change
• More useful in stable, slower moving environments
• Often the case in the evolution of start-ups because of
the lack of resources to simultaneously pursue
exploration and exploitation

Basic Applied Product

Research Research Development

t-1 t t+1

Winter 22/23 | Technology and Innovation Management | Prof. Dr. Alexander Kock | 11 O’Reilly & Tushman (2013)
Ambidexterity
Structural ambidexterity means establishing structurally independent units
following a common vision and goals.
Structural Ambidexterity Examples
• Establish project teams that are structurally
independent units, each having its own

R&D Expenses
processes, structures, and cultures, but are Divisions
Total R&D
integrated into the existing management expenses
hierarchy
• Requires that the two types of business are held Corporate University
Technology collaboration
together through senior management team
• Requires integration, common vision and values, Today One product Two product Time to market
and common senior-team rewards generation generations (Absolute time scale
in the future in the future depends on business)

General
Manager
Existing Emerging
Business Business

Mfg Sales R&D Mfg Sales R&D

Winter 22/23 | Technology and Innovation Management | Prof. Dr. Alexander Kock | 12 O’Reilly & Tushman (2004);
Wegener, CTO Siemens Industry Solutions
Ambidexterity
Contextual ambidexterity is the behavioral capacity to simultaneously
demonstrate alignment and adaptability.
Contextual Ambidextrous individuals…
• take initiative and are alert to opportunities beyond the
confines of their own jobs. High
Country
• are cooperative and seek out opportunities to combine Performance
Club Context
Context
their efforts with others.

Social Context
• are brokers, always looking to build internal linkages.
• are multi-taskers who are comfortable wearing more
than one hat.
Low
Burnout
Performance
Context
Context

Performance Management

Winter 22/23 | Technology and Innovation Management | Prof. Dr. Alexander Kock | 13 Birkinshaw & Gibson (2004). Building Ambidexterity Into an
Organization. MIT Sloan Management Review.
Ambidexterity
Structural and contextual ambidexterity differ in their approach and
requirements.

Structural Ambidexterity Contextual Ambidexterity

How is ambidexterity Exploration and exploitation activities are Individual employees divide their time between
achieved? done in separate units explorative and exploitative activities

Decision making about the

On the front line – by salespeople, plant
split between exploration At the top of the organization
supervisors, office workers
and exploitation

Define structure, make trade-offs between Develop organizational context in which

Role of Top Management
exploration and exploitation individuals act

Nature of roles Relatively clearly defined Relatively flexible

Skills of employees More specialists More generalists

In which contexts is structural ambidexterity better suited than contextual ambidexterity (and vice versa)?

Winter 22/23 | Technology and Innovation Management | Prof. Dr. Alexander Kock | 14 Birkinshaw & Gibson (2004). Building Ambidexterity Into an
Organization. MIT Sloan Management Review.
 Organizing Innovation
Stage-Gate Systems and Portfolio Management
Winter 22/23 | Technology and Innovation Management | Prof. Dr. Alexander Kock | 15
Portfolio Management
A balance between exploration and exploitation can also be achieved by
good portfolio management.
Innovation No project categorisation
leadership „Competition overall"
strategy
Project categorisation
23% 28% „Competition within Buckets“
high
77% 72%

35% 40%
low
65% 60%

n=223
Project portfolio success
low high

Successfully innovating firms protect their projects against cannibalization

Winter 22/23 | Technology and Innovation Management | Prof. Dr. Alexander Kock | 16 TU-Berlin, MPM-Study 2006
Portfolio Management

The ideal version of project portfolio management seems simple enough.

Idea Generation, Selection & Coordination, Controlling,

Decision Benefit Realization
Strategic Fit Consolidation Leveraging Synergies

Gate

Winter 22/23 | Technology and Innovation Management | Prof. Dr. Alexander Kock | 17
Portfolio Management

But it is different in real life.

Too many
Ideas are not projects in Root causes
No or delayed
identified or decisions parallel Ad-hoc initiated
forgotten projects • Lack of goal & decision
making clarity

? Synergies
are not
discovered
Projects on
fast track Projects do not
contribute to • Lack of transparency over
Gate strategy project portfolio

• Lack of responsiveness &

pro-activeness
Project
“Bootlegging” benefits
Projects do Projects Unexpected are not
not follow termination / realized
the official resource
decision conflict
path Too many
„Matrix-Conflicts“ incremental
Project delay and innovations
budget overrun

Winter 22/23 | Technology and Innovation Management | Prof. Dr. Alexander Kock | 18
Portfolio Management

There are three main objectives in portfolio management.

Maximize Value of Portfolio Balance of Projects Strategic Alignment of Projects

Allocate resources so as to maximize Restrict Portfolio Risk: Achieve Ensure that breakdown of spending
the portfolio in terms of some desired balance of projects in terms truly reflects business strategy – that
business objective, e.g., expected of, e.g., long vs. short term or high all projects are “on-strategy”.
net present return on net assets. vs. low risk, across markets,
technologies, and project types.

There may be conflicts and trade-offs between these three objectives!

Portfolio success must therefore be multi-dimensional.

Winter 22/23 | Technology and Innovation Management | Prof. Dr. Alexander Kock | 19 Cooper, Edgett & Kleinschmidt (2006)
Portfolio Management

The PPM process consists of four generic phases with different objectives.

Project Portfolio Resource Project Portfolio

Value Realization
Structuring Allocation Steering

Selection of project Allocation of Project portfolio analysis Benefits assessment &

portfolio necessary resources & reporting securing knowledge
Transfer company strategy Implement goal project Create transparency Secure usage and
to project portfolio and portfolio regarding (human) through continuous exploitation of project
make an optimal project resources, utilize the monitoring of the project benefits by the project
selection regarding value available capacities ideally portfolio in order to react customers and secure
Objectives

potential and the and secure long-term flexibly to changes and to generated knowledge
exploitation of synergies. capacity to act. realize synergies and acquired in projects for the
opportunities through organization.
coordination of projects.

Winter 22/23 | Technology and Innovation Management | Prof. Dr. Alexander Kock | 20
Portfolio Management

Different classical portfolio approaches exist.

Portfolio by McKinsey The Growth Share Matrix (BCG)

Market Portfolio Technology Portfolio

Technological attractiveness
B B
Market attractiveness

C rit
y
rit
y io D
pr
rio al

Relativ market growth rate

High
tp gic
r ke olo
M
a hn
T ec
A A
D C Question mark Star
Rel. Market position Rel. Technological position
Comprehensive portfolio
C ag B

Low
R& gre
Market priority

se D ss
le in iv
ct pu e
de iv t
R& fen e Poor dog Cash cow
R&
D siv D
in e in
pu pu Low High
A t t D
Relativ market share
Technological priority
Winter 22/23 | Technology and Innovation Management | Prof. Dr. Alexander Kock | 21 McKinsey (1982);
Stage-Gate Systems

Stage-Gate standardizes the innovation process to improve control.

Goals of the Stage-Gate Process Fundamental Concept of the Stage-Gate Process

• Recognize and terminate non-successful projects early • Subdivide the innovation process into a defined set of
• Reduce error rates discrete and identifiable phases (Stage)

• Increase effectiveness -> developing the "right" • Each phase contains a set of prescribed,
products and services interdisciplinary and parallel activities

• Increase efficiency (with a minimum of resources) • A gate forms the end of each phase

• Better documentation and process controlling • The gates control the process and represent quality
inspections: decisions about the further process
• Learn from experience (from previous projects)
• Gates have a uniform structure and consist of three
• Strengthen communication between departments and main elements: deliverables, criteria, outputs
team members by establishing a shared understanding

Gate 1 Stage 1 Gate 2 Stage 2 Gate 3 Stage 3 Gate 4 Stage 4 Gate 5 Stage 5

Winter 22/23 | Technology and Innovation Management | Prof. Dr. Alexander Kock | 22
Stage-Gate Systems

The Stage-Gate Process is a sequence of stages and gates.

Elements of the Stage-Gate Process Stages

• Gather information in order to minimize project risks
Project team collects
Activities information
• Reduce uncertainty faster than costs increase
• Activities run in parallel and are carried out by an interdisciplinary team
• Each phase is cross-functional: no department is responsible for its own
Integrated Integrated analysis of the phase but interaction is required
Stage

analysis project team’s results

Gates

Delivered
Result of the integrated • Deliverables: Results of completed activities, visible and standardized
analysis à Input for the gate
results • Criteria for Evaluation:
§ Must-criteria (knock-out questions (checklist))
§ Can-criteria (prioritize projects with a score system)
Gate

Go/Kill Go/Kill/Hold/Recycle • Outputs: Decision (Go/Kill/Hold/Recycle) + action plan for the next stage
decision point (time limit and released resources) + set deliverables for the next gate

Winter 22/23 | Technology and Innovation Management | Prof. Dr. Alexander Kock | 23 Cooper (2008)
Stage-Gate Systems
With the Stage-Gate process decisions can be made at the project and
portfolio level.

Single project decision Portfolio decision

Pass/Kill Prioritization

Comparison of the project with must Overall score of the project compared
and can criteria. to active projects and projects on
Does the scoring of the project standby. Go
overcome the gate? Resources are distributed.

Recycle Kill Hold

Winter 22/23 | Technology and Innovation Management | Prof. Dr. Alexander Kock | 24 Cooper (2000)
Stage-Gate Systems

Real-world example of the overall process from Carl-Zeiss AG.

1. Screen & Select 2. Evaluate & Plan 3. Validate & Demonstrate 4. Transfer & Realize

Passive
collection:

Tollgate I: Idea

Venture board
Process steps

Venture board
• single suggestion

Tollgate III:
Tollgate II:
• ext. input

board
• networks
Quantitative
Qualification Audit concept Concretization/verification Implementation/launch
assessment
Active screening:
• search fields
• strategy topics
Budget Ideas

70-130 20-30 8-12 4-6 2-3 1-2 1

10% 30% 60%

At the end of a phase:
Presentation of the idea to a
Resources

2-10 man-days / idea 2-4 persons over 2-4 months / idea 4-10 persons over ½ - 2 years / idea
decision-making body
Goal:
Selection of topics entering
Ø time

the next phase

3 months 6 months 1 year

Winter 22/23 | Technology and Innovation Management | Prof. Dr. Alexander Kock | 25 Slide from Dr. Markus Strehle, Carl Zeiss AG
Stage-Gate Systems

Effective gates are necessary to select successful projects for new products.

Reasons for using Gates Characteristics of good gates

Inability to make tough decisions and focus resources • Appropriate balance between errors of acceptance
and errors of rejection (errors 1. and 2. type)
• Longer time to market • Project evaluation is characterized by uncertainty of
information and lack of reliable financial data
• Poor execution quality
• Each decision point is only a preliminary approval in
• Tasks in the initial phase are not fulfilled an ongoing conditional process
• Correct market inputs missing • Project evaluation includes a variety of objectives
• Uncertain and vague product definitions and therefore considers several decision criteria
• Market launches are mediocre • The evaluation method must be realistic, easy to
use and robust

• High error rates

• Long throughput times
• Low profits

Winter 22/23 | Technology and Innovation Management | Prof. Dr. Alexander Kock | 26 Cooper (2000)
Stage-Gate Systems
The evaluation criteria are in different in each Gate and increase in difficulty
throughout the process towards harder facts and figures.
Initial review Second review Business Case Evaluation of Business analysis
decision development before commercialization

Gate 1 Stage 1 Gate 2 Stage 2 Gate 3 Stage 3 Gate 4 Stage 4 Gate 5 Stage 5

Initial research Detailed research Development Test and validation Complete product
and market launch

Typical Criteria Example of Evaluation Method

1. Strategic fit and relevance • The gatekeepers evaluate projects in the gate meeting
on the basis of these 6 factors on a scorecard (scales
2. Product and competitive advantage
from 0 to 10).
3. Market attractiveness
• The Project Attractiveness Score corresponds to the
4. Leveraging effects for core business weighted or unweighted sum of the scores of the 6
5. Technological feasibility factors and is between 0 and 100. A score of 60/100 is
usually required for a "Go" decision.
6. Financial income vs. risks
Winter 22/23 | Technology and Innovation Management | Prof. Dr. Alexander Kock | 27
Stage-Gate Systems

Differentiate between qualitative and quantitative evaluation methods.

Qualitative Evaluation Methods Financial Evaluation Methods

• Comparative approaches (e.g., Q-Sort and Analytic • Payback and Break-Even Times
Hierarchy Approach) Break-Even Time

- Comparisons from a number of different proposals Cycle Time Payback Period

- Incomplete and subjective, no exclusion criteria 60

• Benefit contribution 40
Cash

Cumulative Cash Flow

Recovery
- Attractiveness index = benefit for the company *
20
Launch
Probability of success - costs 0
0 1 2 3 4

- Strong simplification, but no detailed data required

-20

-40
• Checklist (yes/no questions) -60

- Simple, but no weighting and subjective Time: Years from beginning of project

• Scoring
• Discounted Cash Flow
- Projects are evaluated according to a number of N
weighted criteria CFn n = Year
NPV = ∑ n
− Costs i = Interest rate

n=1 (1+ i)
CF = Cash Flow

Winter 22/23 | Technology and Innovation Management | Prof. Dr. Alexander Kock | 28 Cooper (2000)
Stage-Gate Systems

A more advanced quantitative evaluation method is a real options approach.

Option Pricing Theory

• Projects are gradually funded in
increments
Technological Commercial • At each gate, management actually
success success acquires an option on the project

Devlopment Pts Market launch Pcs • Decision problem is structured with a

€PVI decision tree
€D €C
• Repeated approach to calculate
Expected Commercial Value (ECV)

ECV = [(PVI * Pcs - C )* Pts - D]

Technological Commercial
failure failure

P ... probability
€D ... development costs
€C ... commercialization costs
PVI ... present value index

Winter 22/23 | Technology and Innovation Management | Prof. Dr. Alexander Kock | 29 Cooper (2000)
Stage-Gate Systems
Be careful when using financial methods such as Net Present Value when
assessing innovative projects.
Dangers of NPV
A too strong focus on financial
NPV method indicators such as net present value
implicitly makes this (NPV) can put highly innovative
Projected cash flow of comparison innovations at a disadvantage:
innovation
A Presumed cash flow by 1. Future cash flows are much
„doing nothing“ more uncertain and also strongly
discounted by NPV approaches
B
2. NPV assesses the benefit
Companies should compared to the basic scenario
make this of ”doing nothing", with the
C
Possible cash flow comparison
incorrect assumption that the
by „doing nothing“
current health of the company
continues

Stage-Gate Systems often drive out radical innovation in favor of incremental innovation

Winter 22/23 | Technology and Innovation Management | Prof. Dr. Alexander Kock | 30 Christensen et al. (2008) Innovation Killers. Harvard Business Review.
Stage-Gate Systems

Wrong application of stage-gate systems can also be problematic.

Problems with the Stage-Gate Model Example of Good Gatekeeper Rules

1. Gates without teeth • All projects must pass the gates. no special treatment or bypass.
2. Hollow decisions at the gates • Scheduled gate meetings should be attended by gatekeepers. If a team
3. Who are the gatekeepers? cannot deliver the agreed work packages for the gate on time, the gate
should be moved and re-scheduled.
4. Inappropriate behavior of
gatekeepers • If a gatekeeper cannot attend, a representative can be sent to decide.

5. Set up portfolio management • Gatekeepers should avoid decision meetings before the gate (premature
without a Stage-Gate process evaluations). The gate meeting presents new data and raises new questions.

6. Too much bureaucracy in the • A decision must be made on the day of the gate meeting
initiative process (Go/Kill/Hold/Recycle). The project team must be informed about the
decision, personally and with justification.
7. A lot of work without direct added
value in the stages • If resources are allocated by the gatekeepers (personnel, time, money),
these commitments should be strictly kept.
8. Too much trust in software solutions
• Gatekeepers must accept and follow these rules.
9. Expect the impossible from a
process
Winter 22/23 | Technology and Innovation Management | Prof. Dr. Alexander Kock | 31
Stage-Gate Systems
The effect of process control on efficiency is likely to be inverted
u-shaped and depends on the degree of innovativeness.
optimum
Relationship between Process Control and Success linear

Efficiency
• Organizational theory considers the linear relationship
to be unrealistic.
inverted u-
• With increasing regulation intensity, decreasing shaped
marginal returns of process control are to be expected.

Intensity of process control

Interaction with the Degree of Innovativeness
• For incremental innovations, the process and the result
Incremental

Efficiency
is more predictable than for radical innovation.
innovation
• A higher control intensity can be expected to be more
efficient with incremental innovations.
• With radical innovations, intensive process control is Radical
perceived as unhelpful and rather as a bureaucratic innovation
burden. The efficiency is lower.
Intensity of process control

Winter 22/23 | Technology and Innovation Management | Prof. Dr. Alexander Kock | 32
Stage-Gate Systems

Empirical findings show an heterogeneous, multi-layered picture.

Schultz et al. (2018) Sethi and Iqbal (2008) Salomo et al. (2007)
• Stage-Gate is beneficial for Stage Gate systems can restrict Process formalization is beneficial for
innovation performance flexibility and inhibit learning, incremental and harmful for radical
• Service industry does not use it so especially in turbulent environments product development projects
much but can profit more from
Stage-Gate systems
of
e 1
1

e n
Innovationsgrad

egr atio0
D nov
0

Further Findings
In -1-1

• A high degree of innovation and intensive process control are not contradictory 0.50 0.5

0.20.25

Succes
• The use of formal instruments is successful if it is combined with the granting of Erfolg
5

autonomy to act 0.000

-0.2-0.25
5
• Monitoring and process control, in particular through keeping milestone -0.5-0.5
0
planning, timing, project structure planning, budgeting and employee -1

Pr-1
oces
participation, has a positive effect on success s for 0
0

maliz
ation
Prozessformalisierung 1

1
Salomo et al. (2007)

Winter 22/23 | Technology and Innovation Management | Prof. Dr. Alexander Kock | 33
Stage-Gate Systems

Summary and Implications

Summary Implications
• Stage-Gate Systems are in essence beneficial Formalization per se does not prevent innovation, but
(increased success rate, reduced uncertainty, higher • Complement formal control with informal control
development speed, etc.) (autonomy, cross-functional collaboration)
• Wrong application can be dangerous • Prefer target results and milestones over strictly
• Inherent problems with the system (too much prescribed procedures and strict phase structures
formalization, high reliance on financial criteria) can be • Radical innovation needs different evaluation criteria
harmful for the company‘s overall innovation system and control systems
and reduce innovativeness of products

Winter 22/23 | Technology and Innovation Management | Prof. Dr. Alexander Kock | 34