Managing digital innovation
Chapter 1
During the industrial revolution, labor was just treated as a factor of production. Taylor created
Scientific management: a system designed to study the work processes, define the most efficient
way to do each task and then pay for output > payment-by-result instead of per hour.
Gradually automation took over routine tasks. However the productivity paradox arose: where the
1970s investments in technology did not give as much more productivity as earlier on. IT does not
influence the quantity of work, but the quality and ability to innovate.
The importance of services is shown in car dealers: most profit is made of ‘by sales’ instead of the
actual sale.
Digital innovation allows products to be updated based on data about usage to create more sales,
which keeps people craving for something a little better, this is described by Brooks Stevens as
planned obsolescence (e.g. Apple). The Ford model T on the other hand, lasted incredibly long
without innovations. This brings the dark side/sustainability challenge of innovations: huge amounts
of waste/non sustainable products. Innovation that does address this challenge is industrial
symbiosis/circular economy: the sharing of services, utilities and by-product resources among
industries to improve the environment, while reducing cost or adding value.
Innovation, including digital innovation, is a human activity that involves people using and creating
knowledge. Definition of innovation by Andrew van de Ven:
‘Innovation is the development and implementation of new ideas by people who over time
engage in transactions with others within an institutional order’.
The knowledge gap is a gap between what research suggests we could do VS what we actually do. In
the knowledge economy it is recognized that firms need their workers brains (knowledge) since
relying on only a small part (scientists/managers) is slow and inefficient. However the view of
knowledge as a resource that can be managed remained widespread, which is referred to as
knowledge management (KM), and knowledge Management Systems (KMS). 2 types of KMS:
- Repository KMS depend on creating repositories of knowledge that others can access across
time and space
- Network KMS which connects knowledge workers across space so they can share directly
2 Basic aspects of KM are
- Knowledge exploration creating new knowledge for innovation
- Knowledge exploitation involves ensuring that knowledge is potentially available within a
firm and that beyond its boundaries it is accessed and used so that reinvention/repeating
mistakes are avoided.
Balance between exploration and exploitation is advised but differs between types of firms. Hansen
et al suggests splitting 80:20, in line with the idea that firms need to select either a cost leadership
(focusing on efficiency and being consistent with a repository KMS, a codification strategy) or
differentiation (focusing on innovation consistent with a networked KMS, a personalization strategy)
,Firms whose business model is based on fast-paced digital innovation or creating unique solutions for
customers (Apple) focus more on exploration whereas firms that provide standard solutions to
reduce costs (Walmart/McDonalds) focus more on knowledge exploitation. However choosing an
either/or approach is not always better. The use of exploration and exploitation at the same time is
being ambidextrous.
Polanyi makes a distinction between explicit and tacit knowledge:
- Explicit knowledge is known and can be codified, either on words, numbers or symbols. For
explicit knowledge to be shared, some overlap in knowledge of those involved is needed.
- Tacit knowledge is the idea that we know more than we can tell, e.g. once you can ride a
bicycle, but you cannot tell someone else how to in a way that makes them able to
immediately.
Explicit and tacit knowledge cannot be seen as 2 types of knowledge, but rather as 2 sides of the
same coin, they are mutually constituted. Many KM initiatives are flawed because they assume tacit
knowledge can be converted into explicit knowledge, which Polanyi did not believe.
According to Tsoukas and Vladimirou knowledge is
‘Knowledge is the individual ability to draw distinctions within a collective domain of action,
based on appreciation of context or theory or both’
This makes the ability to draw distinctions the essence of knowledge.
Cook and Brown provide a distinction in the nature of knowledge and how it is acquired by
- Possession, which treats knowledge as something individuals and groups have or own, based
on prior experience but separable from that experience
- Practice, which treats knowing as something people do that is context-dependent, always
emerging and socially situated.
Both tacit and explicit knowledge are possessed knowledge, however practice is needed to generate
this possessed knowledge. Acting knowledgeably emerges from practice and cannot be separated
from it. Being knowledgeable includes the development of a shared identity as well as shared beliefs
with other members of a particular knowledge community.
Cook and Brown see possessed knowledge and knowing in practice not as alternative or opposing
views, but rather as complementary, with knowledge possessed being a tool of knowing: they work
together in a generative dance: possessed knowledge influences knowing in practice while practice
changes the knowledge that is possessed. They still see practice as the engine of knowledgeability
however. This means possessed knowledge is always a product of past practice
Novices working alongside experts develop their skills and sense of identity associated with the
particular practice community this is called legitimate peripheral participation.
Chapter 2
Product innovation creates new products, process innovation improves management of internal
processes. Examples of process innovation:
- Business Process Reengineering (BPR). BPR involves rethinking organizational processes to
improve efficiency and effectiveness, done by ignoring the current and starting from scratch
with new ideas. A form of radical innovation.
, - Business Process Improvement (BPI). For example the Six Sigma system, a methodology
involving a set of techniques aimed at reducing process variability, to ensure the same
output each time. A form of incremental innovation.
Radical innovations can be disruptive, e.g. cars (instead of horse carriages) or CDs (instead of floppy
disks) and Airbnb (instead of regular hotel business).
If we look at the output there are types of innovation: process and product innovation. If we look at
degree of change we can distinguish incremental and radical innovation. If we consider impact we
can identify disruptive innovations.
Example of digital service innovation is Dropbox. From the firms perspective it is in incremental
innovation, file sharing applications have existed for decades. From the customers perspective it is a
more radical innovation, allowing people to work everyone at any time and collaborate.
Rogers identified a number of key concepts that help explain how new ideas diffuse. The concepts in
this model belong to 2 distinct categories:
1. Resources. Within resources he considers the following:
a. The innovation itself: the new product/service. A new idea will diffuse if it provides
clearly superior benefits. How much benefits it provides depends on the adopters.
b. Adopters, they play a key role in translating an idea into a valuable innovation.
c. In order for an innovation to diffuse, effective communication channels need to be
in place to support the transfer of knowledge.
