Digital Innovation Labs as a new Organizational Design for Digital Innovation

Transcription

1 Digital Innovation Labs as a new Organizational Design for Digital Innovation Friedrich Holotiuk, Frankfurt School of Finance & Management, f.holotiuk@fs.de Daniel Beimborn, Frankfurt School of Finance & Management, d.beimborn@fs.de Introduction Digital innovation pays respect to the recent developments and incorporates digital technologies into innovations in process, products/service, and business models (Fichman, Dos Santos, & Zheng, 2014). Due to the novelty and disruptive potential of digital technologies, existing organizational designs seem to be insufficient to provide the right environment to both explore new innovations and exploit their potential for the firm s business (Yoo, Boland, Lyytinen, & Majchrzak, 2012). Firms fail to make needed adaptations and adjustments to their organizational design due to high uncertainties, the high pace of changes in the environment, and connected high risks. Hence, without needed adjustments, the balance between exploration and exploitation becomes increasingly difficult. Although these tensions can never entirely be eliminated, firms aim to actively manage them and in doing so try to maintain their competitiveness. To successfully balance exploration and exploitation is termed ambidexterity. Ambidexterity can be viewed in two different forms: structural ambidexterity refers to managing the balance by implementing dual structures, where certain units focus on exploration while others focus on exploitation (Ducan, 1976); contextual ambidexterity means to simultaneously balance by leveraging features of the organizational context within units or teams (Gibson & Birkinshaw, 2004). Although contextual and structural ambidexterity have provided advantages, both concepts might be less suited when it comes to innovation including digital technologies. The strict separation of exploration and exploitation seems unfitting as digital technologies are requiring a greater recombination of knowledge (Dürr, Wagner, Weitzel, & Beimborn, 2017). Furthermore, by separating exploitation and exploration ambidexterity cannot incorporate the quickly changing nature of digital technologies where innovations are constantly evolving (causing exploration and exploitation to be often intertwined). In recent years, firms have made a number of attempts to realize structural ambidexterity and invest in digital innovation capabilities by bundling required capabilities for the development of digital innovations in dedicated and often separated organizational structures. These newly founded units are separated from the remaining structure of the incumbent firm in different terms such as location, mindset, collaboration, and communication. As their primary focus is the development of digital innovation they are termed digital innovation labs (DILs). By concentrating resources in these labs, firms aim to im- 1

2 prove their digital innovation success. So far these new organizational structures have not been the focus of academic research nor have they been analyzed regarding their effectiveness and efficiency in developing digital innovation. However, they might prove as a solution to the outlined challenges of existing approaches to ambidexterity. Nonetheless, there is limited knowledge in academic literature to explain or support the phenomena of DILs. Hence, the following research question is derived: RQ1: How should Digital Innovation Labs be designed to realize ambidexterity and in doing so contribute to a firm s digital innovation success? Background To gain intended benefits [of digital innovation firms have to make] significant organizational changes (Fichman et al., 2014, p. 333). In the past, the inability to adopt new technologies and accordingly make changes to the organizational dimension has had severe consequences such as failed IT (Information Technology) projects (Bostrom & Heinen, 1977) or firms going out of business (Bower & Christensen, 1995). Digital Innovation Labs (DIL), are a promising approach to provide the needed organizational design for the development of digital innovation. Although the academic literature has addressed aspects around spin-offs or corporate ventures, there is a lack when it comes to the understanding of the design parameters and work routines of DILs due to the following reasons: First, DILs serve as a focused and separated unit for developing digital innovations with both an external (exploring new innovations) and internal focus (improving the existing business). Accordingly, the innovation development in DILs does not only focus on creating new business models (as it is the case for corporate ventures) but DILs do also aim to leverage the advantage of dedicated smaller structures (faster adaptation) within the incumbent. Second, often these smaller structures are only temporarily separated from the incumbent. However, the goal is to achieve a complete reintegration of the outcomes (e.g. innovations) or the workforce (e.g. teams or employees) at a later stage. Specifically, one core task of DILs is to reinternalize developed digital innovations into the incumbent to optimize the current business model (e.g. through digitalization of back-office processes). Third, incumbents utilize a new approach to innovation by creating separated organizational units for digital innovation, which is in contrast to other innovation processes. Traditionally, innovation has been integrated into the organizational structure (e.g. contextual ambidexterity (Ducan, 1976; Ebers, 2017)). Fourth, since digital innovation refers to new or substantially altered products, processes, or business models based on digital technologies (Fichman et al., 2014), it requires a much deeper collaboration of the different units and backgrounds; particularly, DILs relocate and collocate people from the business and IT units (e.g. cross-functional teams); this is different to previous organizational design such as spin-offs. Fifth, adjusted forms and procedures of collaboration in these labs (e.g. iterative software development, agile project management, and design thinking) are observable (often thereby also creating a new culture within this 2

3 internal entity). This has so far not been covered in the literature in the context of DILs research has so far treated organizational restructuring and digital innovation separately. Although the focus on digital innovation seems promising, there is a vast amount of literature which stresses that innovation should not be the only focus of a firm. Organizational ambidexterity has been conceptualized as the capability to successfully manage between exploration and exploitation (Andriopoulos & Lewis, 2009; Ducan, 1976; He & Wong, 2004). First, exploitation aims to excel at day-to-day actives and at the successful execution of current projects. Firms are aware that once innovations mature and prove to be successful, they are becoming part of a firm s daily operations and have to be exploited in everyday business projects. Second, exploitation ensures an effective business and ensures the short-term existence of the firm by using the current products and services. If successful at both, high organizational ambidexterity allows to successfully manage exploration and exploitation (He & Wong, 2004) by simultaneously pursu[ing] both incremental and discontinuous innovation [...] from hosting multiple contradictory structures, processes, and cultures within the same firm (Tushman & O Reilly III, 1996, p. 24). Conceptual Model We propose that DILs provide new opportunities for firms to realize ambidexterity. New approaches to ambidexterity are needed as with digital innovation exploitation and exploration become more interwoven. Because the pace of innovations has increased due to digitalization, the time between implementing an innovation (exploration) and testing and capitalizing it (exploitation) has decreased, making it a necessity to integrate exploration and exploitation more densely. Uncertainty remains on how to achieve the alignment of the two, without integrating both on an individual level but keeping the dedicated focus of the two for two separate units. It could be solved by integrating people on a temporal basis and managing an efficient flow of information and knowledge. Hence, people could temporarily join units for exploration in the DIL and later rejoin the remaining organization to lead the exploitation of these innovations. Consequently, the design of DILs has to provide a new form of organizational design with adequate methods, lean processes, flexible structures, an innovation-oriented culture, and a proper setup of teams which allows this approach of temporal ambidexterity. Temporal ambidexterity focuses on a switch between exploration and exploitation in a temporal sequence but has not yet been analyzed outside startup firms and, hence, the potential remains unknown (Ebers, 2017). DILs are expected to provide a foundation for temporal ambidexterity and first promising cases can be observed in the financial service, utilities, and automotive sectors (Keles, 2017; Kreimeier, 2017). DILs are an approach to realize higher ambidexterity by overcoming current challenges of too strict separation of exploration and exploitation. Although the need for an organizational design of DILs exists, the optimal design parameters remain unknown. We are analyzing the design along five dimensions. First, the links to other teams and organizational units as well 3

4 as the level of collaboration define the degree of integration. The embeddedness of DILs is determined by their role and location within the current organizational structure of the firm. Second, leadership provides guidance to the DIL and sets the direction, defined by the level of hierarchy and authority and the type of coordination. The delegation of power, reporting lines, and task designs reveal the balance between centralization and decentralization of decision making in the DILs. Third, goals are defined by the organizational aspiration and the level of objectives communicated to employees. Incentives, values, and beliefs determine the motivation of employees. Fourth, culture is shaped by the level of risk-taking, speed, and openness. Fifth, the different backgrounds and competence, as well as the cross-functional know-how within DILs, provides multiple options for team setups. The firms capability to acquire the needed skills for their DIL either internal or external from the market ultimately defines the type of skills available in the DILs. The right choice and implementation of these design parameters can provide temporal ambidexterity and help firms to overcome common challenges of developing digital innovation (e.g. the four competing concerns (Svahn, Mathiassen, & Lindgren, 2017)). Method Due to the novelty and complexity of the topic, we have chosen an explorative case study approach to address the research question (Eisenhardt, 1989). We have conducted a first case study in a large financial service provider where we have collected 11 interviews with managers responsible for the DIL. We are extending our data set along two dimensions: first, multiple case studies will be conducted to allow for cross-case analysis as well as to assess labs in different contexts/ industries. Second, multiple observation periods are planned for each DIL in order to capture longitudinal effects and changes over time. Within each case, the particular focus is on design parameters, the key decisions to set up the DIL or to realize organizational changes, the resulting organizational design, as well as the DIL s impact on the firm s capability to explore and exploit digital innovation in a temporal sequence ( temporal ambidexterity ). For each case, we aim to conduct at least three interviews: the head of the DIL, project manager or journey lead within the DIL, and a manager from the remaining organization who is interacting with the DIL. To ensure the examination in various research direction, we followed Eisenhardt (1989) and designed a semi-structured interview guideline with open-ended questions. Outlook Digital innovation is a novel concept with implications on how firms develop innovations in presence of ubiquitous digital technologies (Nambisan, Lyytinen, Majchrzak, & Song, 2017). As an outcome of our research, we aim to provide a clear understanding of DIL design parameters and their impact on digital innovation success through providing a new form of ambidexterity temporal ambidexterity. After all, temporal ambidexterity aligns exploration and exploitation in a novel way by efficiently and effectively switching between the two to be more responsive to digital innovation. 4

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