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37/6 December 2004

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Special Issue

Michael Gibbert and Liisa Välikangas Theme Editors

Boundaries and Innovation

Charles Baden-Fuller Editorial

It is a pleasure to introduce the special issue on Boundaries and Innovation, edited by Michael Gibbert and Liisa Välikangas. They have brought together a fascinating group of writers from many different countries and perspectives to explore this issue.

Crossing the cognitive boundaries
It is well known that managers are cognitively constrained by their circumstances and their backgrounds. On the one hand, these constraints reflect the positive benefits of a deep understanding and individual capacity around a limited range of issues that enhance the organisation's capability. On the other hand, these constraints can also hinder the ability of executives to see their surroundings and respond to opportunities and threats.

Max Boisot and Ian MacMillan examine how the bounded mindset of ‘managers’ can blindside them to the opportunities as seen by ‘entrepreneurs’. They argue that these boundaries are rooted in ways of thinking about the probabilities and possibilities of events occurring. While entrepreneurs recognize ‘possible’ future states, managers have a much less expansive ‘probable’ horizon that blocks them out and leaves money on the table. They recommend companies adopt distinct approaches to these different paths towards future value creation.

In two very different papers we see how play and playfulness can break down barriers and allow innovative ideas and actions to flourish. Johan Roos, Bart Victor and Matt Statler use action-based research to show how introducing the tools of play executives (and boards) to overcome their inhibitions. This article shows how the practices really work to release the imaginative energies of managers towards innovative strategic ends.

Deborah Dougherty and Helen Takacs study innovative processes among product development teams in large organisations to show how ‘team play’ enables effectiveness. Team play allows individuals to cross boundaries that are erected by discipline, hierarchy and role. They explore why team play works so well and what others can do to replicate the experiences.

Crossing boundaries set by organisations
Organisations also appear to be constrained by boundaries. For example, competencies and capabilities show remarkable resistance to being moved across either internal or external boundaries. If one can overcome this challenge, new possibilities are brought about.

Samina Karim and Will Mitchell document how Johnson & Johnson have mastered the art of unpicking competencies and capabilities from acquired businesses and transporting them elsewhere within the firm. This is not easy. They explain that the process involves configuring and reconfiguring internal boundaries many times. They document in impressive detail J&J's achievements that suggests to me that J&J could be a best practice template.

Engaging with other firms to leverage internal advantages is always difficult and typically requires some kind of formal relationships. There are exceptions. Simon Grand, Georg von Krogh, Dorothy Leonard and Walter Swap explore how companies can engage effectively with open-source software (freely available) to leverage internal advantages. Their suggestions go far beyond the simple use of open-source, and they show how this can lead to new business models and new sources of competitive advantage.

In summary, this special issue has something for everyone. Its contributions range from the conceptual and provocative to the useful and immediately practical. It covers both the thinking and doing of management. Thanks to both editors and contributors for some wonderful offerings.

 

Michael Gibbert and Liisa Välikangas Boundaries and Innovation: Special Issue Introduction by Guest Editors michael.gibbert@uni-bocconi.it

Popular parlance has it that Necessity is the Mother of Invention. Entrepreneurs invent around resource constraints, and, when they have to be, problems get solved. Yet in many walks of life (including management) constraints are seen predominantly as negative – obstacles rather than catalytic opportunities for innovation. For example, inadequate resourcing is often cited as a reason for the lack of innovation in large companies: but such fiscal conservatism could just as well form an opportunity for entrepreneurship.

When they have to be, problems get solved

This tension between boundaries and innovation forms a starting point for this special issue. In particular, we seek to reconcile the nature of boundaries as catalysts on one hand and constraints on the other. But rather than focusing on constraints as something that cannot be overcome, something that is inherently negative, we hope to probe deeper into the enabling potential of boundaries: How do boundaries foster innovation? More specifically, we split this question in two sub-questions that guided our research:

• What are the types of boundaries that serve as an aid to innovation?

• How can we be more intentional about how we perceive and manage boundaries?

We have pondered these questions from a variety of angles. From philosophy, Cilliers tells us ‘we often fall into the trap of thinking of a boundary as something that separates one thing from another. We should rather think of boundaries as something that constitutes that which is bounded. This shift will help us to see the boundary as something enabling, rather than constraining’ (emphasis in the original). And from architecture, we appreciate Rittel's judgement that ‘constraints are not “natural,” objective, and unavoidable – in short, inflicted on us. Rather, they are the result of personal decisions. They are subjective. Different people will see different constraints and might come to different decisions. It depends on our fantasy, courage, resourcefulness, and the lack of respect, where we set our constraints.’

In the business literature, organizational constraints are echoed in the notions of innovation that happens ‘despite the system’ (to use Gary Hamel's term), or in a view of strategy as stretch and leverage. Whereas boundaries as corporate controls — whether milestones, resource constraints, or financial targets — are frequently used, they are rarely evaluated as enablers to innovation in their own right. Typically the purpose of such boundaries is to filter and select in order to facilitate resource allocation, rather than to drive innovation activity.

Yet the business literature routinely addresses many kinds of boundaries: geographic boundaries as globalisation, industry boundaries as strategy, organizational boundaries as theory of the firm, and human cognition as bounded rationality. Individual performance can be bounded by deadlines, attitudes to risk, and aspiration levels. But the connection between boundaries and innovation has been developed in only a few cases. For example, there are scholars today comparing the effectiveness of open source software with proprietary software, while others are studying the effect of different governance structures on economic performance. Game theorists are exploring the role of boundaries in the definition of a game, arguing that often these boundaries are drawn too narrowly, impairing players' ability to innovate around the game. International business research has been probing into the effects of environmental regulations on incremental innovation. These studies point up the need for further exploration – let this special issue be a step to this direction.

Boundary-less environments, devoid of stimulation, make innovation difficult.

Max Boisot and Ian MacMillan Crossing Epistemological Boundaries: Managerial and Entrepreneurial Approaches to Knowledge Management boisot@attglobal.net

It is possible to identify two distinct yet complementary epistemological paths to knowledge development. The first one is holistic and field dependent, and builds on the concept of plausibility, and we associate this path with an entrepreneurial mindset. The second is object-oriented and builds on the concept of probability; this path can be associated with the managerial mindset. We believe that both managerial and knowledge management practices have emphasized the second path at the expense of the first. To restore the balance, knowledge management needs to develop processes and tools – associated with scenarios and real options – that will allow it to operate credibly in possible and plausible worlds, so as to extract value from them. We propose a systems framework for thinking through the nature of such tools.

Samina Karim and Will Mitchell Innovation Through Acquisition and Internal Development: A Quarter-Century of Internal and External Boundary Evolution at Johnson & Johnson samina@bu.edu

This article discusses how firms innovate within and across firm boundaries by reconfiguring their resources and business units over time. Focusing on acquisitions and internal development as key aspects of business dynamics, the authors track the evolution of 87 product lines and 88 business units in Johnson & Johnson's medical sector from 1975 to 1997. The study highlights the dual importance of acquisitions and internal development as sources of value and innovation for a firm, along with the complementary role of business unit reconfiguration. The company commonly looked beyond its boundaries for new resources, acquiring most of its product lines and units during the period, and actively reconfiguring most acquired units in attempts to create new value, rather than simply leaving them to operate within their original boundaries. In addition, unit reconfiguration commonly preceded product line movement across unit boundaries, providing evidence of the embedded nature of resources within structure. At the same time, however, internally developed resources and units were more likely to be retained: indeed, stable internally created units, where business routines were most understood, were the most common sources of innovations. The underlying message of these evolutionary patterns is that innovation stems from maintaining a deep understanding of organizationally-embedded routines, while undertaking careful ongoing redefinition of unit and firm boundaries.

John Roos, Bart Victor and Matt Statler Playing Seriously with Strategy johan@imagilab.org

This article details two cycles of interventions and reflection in various executive development contexts led by the authors as facilitator/consultants. Their hunch that changing the constraints of strategy processes would also change the content generated was tested by changing the typical mode of work to that of ‘serious play’ and modifying the usual medium from verbal, computer and two-dimensional text and graphic by the introduction of 3-D media (LEGO bricks). The authors examine the potential for using serious play in the particular organizational challenge of making strategy, and highlight the capacity of ‘action research’ to contribute simultaneously to both academic understanding and practical value.

 

Deborah Dougherty and C. Helen Takacs Team Play: The Boundary of Heedful Interrelating for Innovation doughert@rbs.rutgers.edu

A central function of organizational boundaries is to help people know what they are to do with whom and how, which enables them to work together. Sustained product innovation in very large organizations requires that perhaps thousands of people across the organization know how to join up, participate in, and move in and out of many new product teams, so a boundary that can keep all these roles and relationships sensible is especially important for innovation. Using grounded theory building, we find that a boundary of team play enabled heedful interrelating and thus the easy formation of multiple teams over time in the large organizations we studied, while a boundary of detachment thwarted organization-wide innovation. Play embodies open, improvised, fluid and energized relations, while team play reflects the emergent yet dynamic space of heedful interrelating. Our study details how team play vs. detachment enable or disable innovation teams, and suggests how managers can implement or maintain the heedful social relations that are necessary for sustained innovation..

Simon Grand, Georg von Krogh, Dorothy Leonard and Walter Swap Resource Allocation to Open Source Innovation: Towards a Multi-Level Framework of Technological Innovation Beyond Firm Boundaries simon.grand@unisg.ch

Successful technological innovation depends upon marshalling sufficient knowledge resources to support continuous discovery, knowledge creation and technical development. Current perspectives emphasize innovation occurring either within firm boundaries or in the public arena. Open Source [OS] software development represents a third mode, where privately funded efforts contribute to the creation of a public good, which may presage future models of innovation. The authors develop a four-level management model of increasing private resource allocation based on a detailed discussion of how and why software and IT firms engage in OS development where, paradoxically, increased ‘public’ investment can lead to greater ‘private’ benefits. But each level implies greater outlay of private resources and increased dependency upon publicly available knowledge assets, so managers will need to select their firm's appropriate level of engagement carefully. Successful development of such knowledge entails understanding the nature of OS innovation and the distinction between freely available explicit knowledge and firms’ privately retained tacit knowledge, participating in the dynamic cumulative process of gift exchange inherent in acceptance as a relevant player in an OS community, and optimising firm-specific engagement over the four levels of investment and involvement to establish the conditions for knowledge creation and appropriation.


 

This issue is available in full on-line at www.sciencedirect.com

 
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