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Organizational Innovation and Learning
Nicholas A. Ashford
October 28, 2015
Topic Seven Objectives
 Explore the concept of, and motivating forces for, organization
innovation/learning
 Discuss the role of networks in organizational learning
 Consider the idea of enterprises offering more sustainable products
and services
 Discuss the difference between a cost-cutting versus
performance/quality strategy
 Contemplate the employment consequences of future ICT
innovation
Workers
Continuum
Independent and
contingent
workforce;
Little job security or
tenure; needed skills
and wages defined by
the employer
Collective/union
Representation; shared
decision-making;
technological literacy;
skills development;
Wages supplemented
by capital ownership
Roles of Corporations
Roles of Government
Continuum
Continuum
Minimal State/
Utilitarianism
Capitalist (laissez
faire) approach to
and markets
Rawlsian Government
Government acts as
trustee for stakeholders;
Interventionist approach
to policy and markets
Citizen &
NGO Concerns
Profit Maximization
Capitalist (laissez
faire) approach
Corporate Social and
Environmental
Responsibility (CSER)
Sustainable
Industrialization
Roles of Consumers
Continuum
‘Value’ Consumers
Purchasing based
upon the price and
perceived value of
products and services
Green Consumers
Purchasing based upon
the environmental and
social impacts of
products and services
Shareholders’
Concerns
Different Operating Postures that might be adopted by Government, Corporations,
Workers, & Consumers in the Context of Citizen, NGO, & Shareholder Scrutiny
An Expanded View of the Dynamics of
Technological Change
 Invention
 Innovation
 Technological, Organizational, Institutional, Social
 Sustaining innovation
 Disrupting innovation
 Intrinsic innovation
 Architectural innovation
 Diffusion of technology
 Technology transfer
 Product innovation / product-services innovation
 Process innovation
 System changes
Technological Innovation
 The first commercially successful application of a new
technical idea (or an invention)
Social Innovation
 Changes in the preferences of consumers, citizens, and
workers for the types of products, services,
environmental quality, leisure activities, and work they
require, and changes in the processes by which the
new preferences are selected
 Social innovations can alter both the supply and
demand for products/services
Organizational Innovation
 Organizational innovation and learning fall within the
field of organizational theory
 Organization innovation focuses on the changes in and
among various organizational aspects of a firm’s
functions such as R&D/product development,
marketing, environmental and governmental affairs,
industrial relations, worker health and safety, and
customer and community relations
Institutional Innovation
 Changes in and among various legal norms as well as
institutions/departments within a government with
regard to their functions and goals and the working
relationships and shared visions among them
Brief history of inclusion of environmental
sustainability in industry’s approach
 1960s: Industry’s view – environmental problems can be
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addressed through management and technology changes
1970s: Industry caught off guard – new environmental/
social regulation established (period of externally-directed
‘technical compliance’)
1980s: Industry incorporates regulations into core business
strategies and operations
1990s: Equalization of power between industry,
government, and environmental groups – industry views
environmental problems as something they can address
(with the involvement of stakeholders)
2000s: Emergence of CSER and voluntary mechanisms
Questions of Interest
 Why might firms adopt a defensive vs. a proactive
approach to environmental challenges?
 Do the majority of firms ‘follow’ environmental
regulations or exceed them through innovations?
 What does this imply for the role of government?
 Why might some firms seek to strengthen environmental
standards or create new environmental regulations?
 Should we be concerned with such action?
 Why might government intervention be required even if
firms are acting proactively?
Motivating Forces for Organizational
Change
 Increasingly stringent environmental legislation and
enforcement
 Increasing costs associated with pollution control,
waste disposal, and effluent disposal
 Increasing commercial pressure from the supply,
consumption, and disposal of both intermediate and
final products
 Increasing awareness on the part of investors of
companies’ environmental performance in view of the
cost implications associated with liability and the
“polluter-pays” principle
Source: Williams et al. (1993)
Motivating Forces for Organizational
Change, cont.
 Increasing training and personnel requirements,
together with additional information requirements
 Increasing expectations on the part of the local
community and the workforce of the environmental
performance of firms and their impact on the
environment
 The desire to become the ‘first-mover’ – to capture the
market
 Demand from ‘green’ consumerism
Source: Williams et al. (1993)
Corporate Social and Environmental
Responsibility (CSER)
 Moving beyond technical/regulatory compliance to
develop business/management practices that integrate
environmental and social concerns into the functions
of the firm
 A proactive (rather than defensive) approach
 Many firms now have dedicated staff focusing on the
firms environmental performance – particularly in the
area of climate change
 Fundamental change or “greenwash”?
Voluntary Mechanisms vs. Regulation?
 Evidence suggests that environmental performance
gains are greater when firms respond to regulation
(Bennear 2007)
 King and Lenox (2000) report that “U.S. chemical
companies that have signed onto Responsible Care
improve their environmental performance more slowly
than non-participating firms”
 Hence, CSER is unlikely to be sufficient … unless there
is a dramatic paradigm shift in the business mindset
(globally)
Organizational Learning
“The ability to learn faster than your competitors
may be the only sustainable competitive advantage”
(Arie de Geus; former Shell executive)
Limitations of the Neoclassical View
 Continuous process improvement is embedded in learning and
experience within the firm and cannot be acquired on the
market
 Firms do not have perfect information when they are selecting
technologies
 A firm’s ability to switch to more productive/efficient
technologies can be limited by previous capital investments
 The transfer and adoption of technology are not costless
Source: Stoughton (1996).
Organizational theory is critical to overcoming the
limitations of the neoclassical view of the firm and of
technological innovation as they relate to sustainable
development
Too much attention is given to market and institutional
failure (ignoring organizational routines and constraints
– compare NIMTOR and NIMTOO)
Environmentally undesirable behavior on the part of
firms is as much a matter of organizational failure as it is
one of markets that do not internalize environmental
costs
The Challenge of ‘Lock-in’
 Lock-in can happen as product lines develop and mature and
firms become more heavily invested in existing technologies
 Locked-in firms can miss important emerging
trends/technologies – i.e., their focus is on existing consumers
and on exploiting/improving existing technology
 Locked-in firms can try to break free from a sustaining
innovation trajectory by adopting an exploratory learning
strategy
 Networks can be a valuable source of information and hold the
potential to help firms overcome the challenge of “lock-in”
The Role of Networks
The Role of Networks
 Firms are embedded in networks
 Networks can help stimulate innovation and learning
through the dissemination of knowledge and/or skills
among network actors
 Interaction between different groups/individuals with
different views/perspectives/expertise is important
 But … networks can also serve to inhibit learning and
change (i.e., lock-in) and promote evolutionary rather
than revolutionary change
Networks and their functions
 Intra-organizational networks – planning, production,
new product development within the firm/
organization
 Providing internal sources of technical ideas and
information
Networks and their functions, cont.
 Trans-organizational networks – connecting units in
the supply chain (firms, suppliers, contractors,
customers, consumers)
 Providing external sources of technical ideas and
information
 Creating performance requirements and information
about market demand and opportunities
Networks and their functions, cont.
 Supra-organizational networks – firms, competitors,
NGOs, regulators, and outsiders
 Providing external sources of technical ideas and
information – these may differ than those from the
supply chain actors
 Creating performance requirements and information
about market demand and opportunities – these too
may differ from the existing supply chain inputs
Networks and their functions, cont.
 Environmental-worker-consumer-community
coalitions
 Shared decision-making can involve the firms and
their customers, workers, and community-based
groups
 Is transformation of the industrial state likely to
come from a bottom-up social revolution? See the
later discussion of the New Economics and Degrowth advocates)
Which type of network is likely to promote
revolutionary change?
 Intra-organizational networks (within the
firm/organization)?
 Trans-organizational networks (within supply chain)?
 Supra-organizational networks (firms, competitors,
NGOs, regulators, outsiders)?
 Environmental-worker-consumer-community
coalitions?
Shared decision-making can involve the firms and their
customers, workers, and community-based groups and
facilitate consensus
However, networks can also foster bounded rationality
and create path-dependency and lock-in.
Is a industrial transformation likely to be
evolutionary or revolutionary?
 In the products offered?
 In the sources of energy? Is energy a product?
 In energy use? Here energy enables the
creation/manufacture of products and the delivery of
services.
 Are the incumbent firms likely to the innovators?
Implications for the Firm
(after Christensen)
 The firm’s organizational structure and the way its groups learn
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to work together can then affect the way the firm can -- and
cannot -- design new products.
Managerial decisions that make sense for companies outside an
established customer base make little sense for those within it,
and vice versa.
Regulation can ‘make a market’ by providing directions for
technological change and product attributes.
Regulatory requirements that are viewed as disruptive by the
firm often require disrupting technological changes -- and that is
why managers of firms that pursue sustaining innovation resist
regulation.
Established firms will try to influence regulation that can be
satisfied by sustaining innovations -- if not by diffusion of their
existing technologies => capture and lock-in
van de Poel (2000): Role of Outsiders
 An outsider: “actors not involved in technical
development or decision-making about technology
and not sharing the rules that guide the design and
further development of a technology”
 Categories of outsiders: [1] societal pressure groups,
[2] professional scientists and engineers, and [3]
outsider firms
 Outsiders can trigger radical (i.e., disrupting) technical
change if they get involved in technical development in
other ways than adopting the rules of the existing
regime (a failing enterprise often brings in an outsider
to “save the operation”)
Innovation and Customer Satisfaction
 Innovations that provide customer satisfaction in essentially the
same way
 GM foods, Nike’s “green” rubber – no adoption challenges are
presented to the existing customer base
 Innovations that are the same in basic concept but differ
somewhat in the quality/nature of satisfaction
 Ecologically-friendly dishwashing soap – some adoption challenges
may be experienced by the existing customer base
 Innovations that deliver customer satisfaction in a
significantly/wholly different way – or appeal to a different
attribute of the technology (such as leasing carpets; or hybrids)
 Requires a fresh prospective on how products/services can be
delivered with minimal environmental/social impacts – adoption
challenges might be significant (look for new emerging markets or a
customer base)
Determinants of Evolutionary Change
Willingness
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Towards changes in production (flexibility)
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Influenced by an understanding of the problem

Influenced by knowledge of options or solutions (diffusion)
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Influenced by the ability to evaluate alternatives
Opportunity/Motivation
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Gaps in technological/scientific capability (existing markets)
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possibility of economic cost savings in existing markets or new/expanded market potential
(industrial competitiveness)
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Regulatory requirements (making new markets)

Consumer/worker/societal demand (making new markets)
Capacity
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influenced by an understanding of the problem
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Influenced by knowledge of options (diffusion)
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influenced by the ability to evaluate alternatives
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Resident/available skills and capabilities (innovation)

Role of outsiders (deviants?)
Responses of Firms to Environmental
Challenges
Within Existing Firms/Sectors (Evolutionary Change)
 I – Changes in internal environmental practices
 II – Adopting and adapting better off-the-shelf existing technologies
(diffusion/incremental innovation)
 III – Development of new technologies and new applications of
existing technologies by existing firms (mostly involving sustaining
innovation)
Outside the Incumbent Firm/Sector (Revolutionary Change)
 IV – Replacement of the problematic technology (product or process)
by a new entrant (who most likely develops a disrupting innovation)
 V – System changes necessitating a reorientation and/or
reorganization of industry
Product-Services
 What is a product-service?
 Why might product-services hold the key to achieving
greater industrial sustainability?
 How might the transition to product-services be
stimulated?
 Who would oppose the substitution of products by
product services?
 Is a shared economy in which more products are used
by previous non-users because they are shared -- likely
to be sufficiently offset by a reduction in individuallyowned products?
Determinants of Revolutionary Change
Willingness
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Crises/Tipping points/Visionary leadership
Towards changes in production (flexibility)
Influenced by an understanding of the problem
Influenced by knowledge of options or solutions (diffusion)
Influenced by the ability to evaluate alternatives
Opportunity/Motivation
 Crises/Tipping points/Visionary leadership
 Gaps in technological/scientific capability (existing markets)
 possibility of economic cost savings in existing markets or new/expanded market
potential (industrial competitiveness)
 Regulatory requirements (making new markets)  Changing the rules
 Consumer/worker/societal demand (making new markets)
Capacity
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influenced by an understanding of the problem
Influenced by knowledge of options (diffusion)
influenced by the ability to evaluate alternatives
Resident/available skills and capabilities (innovation) )  Building New Capacity
Role of outsiders (deviants?)  New actors, innovators, institutions, political
agendas
“Sustainable” Employment
 Premise: Citizens (as employees) have a right to benefit
from industrial transformations
 Challenge: How to achieve a fair division of the fruits of the
industrial or industrializing state, and a safe and healthful
environment and workplace?
 Solution: Requires environmental sustainability, but also
sufficient job opportunities, job security, and purchasing
power, as well as rewarding, meaningful, and safe
employment – i.e., sustainable employment
 Need to elevate employment concerns to the status of
environmental and economic development concerns
Innovation and Employment
 Observations (after Edquist)
 It is generally accepted that product innovations create jobs
 It is generally accepted that process innovations destroy jobs
 Employment opportunities are more likely if the new
products are cheaper and [1] consequently command a
sufficient increase in demand and units sold, or [2] the
increase in disposable income enjoyed by consumer is
spent on other products
Innovation and Employment, cont.
 But, job creation relating to new products might be
counteracted by job destruction relating to the older
products
 There is also a tendency for new products to be capital
intensive – i.e., less jobs are created
 The key to job creation is that growth in production (i.e.,
demand) needs to outstrip productivity gains (i.e., production
efficiencies achieved via process innovations)
 Outcome: We need to consume more (i.e., grow the
economy) to maintain employment!
 Should we pursue growth in products vs. product-services?
Strategies to Enhance Productiveness and
Competitiveness (after Charles et al.)
Cost reduction strategies
 Enhanced by increased scale of production and/or automation (and
excess capacity)
 Rigid, monopolistic production (promotes sustaining innovation)
 Shedding and deskilling of labor
 Where domestic markets are saturated/have excess capacity, trade
becomes the major focus
Innovation-based performance
 Enhanced by technological innovation and changing product markets
 Fluid, competitive production (lean production/HPWS?)
 Optimizing the use of human resources (labor)
 Upskilling of labor
 Important in both domestic and international commerce
Improving labor Productivity
Use/develop better hardware, software, and manufacturing
systems (substitution of labor by capital – including energy)
 Increase capital productiveness
 Workers’ share of profits are decreased / de-skilling of labor
Increase worker skills
 Increase labor productiveness
 Rewards to workers are increased since labor is more highly valued
Better matching of labor with natural/physical capital, and with
information and communication systems (complementarity)
 Increase joint labor and capital productiveness
 Skilled labor is intelligently designed into production and services
 Human-centered knowledge-based work
 Rewards are increased for both owners and workers
Conclusion
 Employment concerns are likely to increase in coming
decades
 Like the environment, employment needs to be considered
before embarking along new (sustainable) development
pathways
 An innovation-based strategy for (sustainable) development –
that seeks to promote radical (i.e., disruptive) innovation –
has the potential to generate sustained economic,
environmental, and employment (including increased wages)
gains, but employment changes have to be deliberate to
avoid the shedding of labor
 The 2nd Machine Age is not optimistic about ICT creating net
increases in high-wage, skilled employment
Role of Government
 Government needs to create winning forces and scenarios,
and provide an enabling and facilitating role by creating
visions for sustainable transformations (backcasting)
 There is a need for an ‘Industrial Policy for Sustainability”
 Direct support of R&D
 Tax incentives for the investment in sustainable technologies
 The creation and dissemination of knowledge
 The creation of markets through government purchasing
 The removal of perverse incentives of regulations
 The training of owners, workers, and entrepreneurs, and
educating consumers
 The direct creation of (sustainable) jobs
Industrial-Networks Theory
 Theory focuses on the network character of the firm and
its environment
 Innovation and learning are products of interactions
among network actors
 Networks provide access to important resources outside of
firm
 Network stability derived from trust, reliability, and actor
reputation and the fact that knowledge and/or skills
cannot easily be monopolized by one organization
 Networks offer economic opportunities that are not
predicted by the neoclassical model
Sociotechnical Networks (STNs)
 Technological innovation and learning considered from a
social point of view
 Emphasis is given to understanding the characteristics of
actor position and relations within a social network
 Discussion of the value of ‘strong’ vs. ‘weak’ ties between
actors
 Networks that span groups with different ways of thinking
can promote good ideas
 Network exit strategy is important – need to think about
future affiliations
Ecosystem Disruption
Climate Change
Toxic pollution
Resources
Increased environmental
footprint from the need to
increase employment &
industrial throughput
Environment
Development & environment
Trade & environment
Environmental/energy
improvements creating
employment
Investment & environment
Technological
change &
globalization
Economy
Work
Skills
Wages
Purchasing Power
Job Security
Health and Safety
Job Satisfaction
Number of Jobs
Changing international
division of labor
Changes in the nature of
work
Improvements in competitiveness,
productiveness, and the use of
physical, natural, & human capital
Economic changes (arising from
labor replacement & capital
relocation)
Financing growth and development
Modes of Learning
Constraints (Voluntarism to
Determinism)
Few constraints
Mode of Thought and Action
Methodical / Standards
Emergent and Subtle Values
Analytic: Learning characterized by
systematic and objective analysis of
available data. Few restrictions are
placed on actors.
Synthetic: Learning characterized
by an instinctive form of pattern
formulation that is internal to a
manager. Few restrictions are
placed on actors.
Action constrained
Experimental: Learning
characterized by bounded,
problem-driven assessments,
incremental experimentation, and
satisficing behavior. Experiments
can limit action.
Interactive: Learning characterized
by actors identifying patterns from
the contrasting ideas and conflicting
objectives facing them as they
interact with allies and rivals.
Political interactions can limit
action.
Action and thought
constrained
Structural: Learning characterized
by routines that standardize
information processing and
behavior. Routines constrain both
thought and action.
Institutional: Learning
characterized by institutional forces
such as laws, social norms, or
personal values that shape actor
thinking. Institutional learning
constrains both thought and action.
Source: Adapted from Miller
(1996, pp. 488-489).
When might management adopt a costcutting vs. quality strategy?
Cost Cutting Strategy
Quality Strategy
Low capital-labor ratios
(clothing)
High capital-labor ratios
(chemicals/pharmaceuticals)
Management is diversified
Management continues established
practices
Management relies on financial control
Management practices strategic planning
Firm stands alone or is not part of a
successful cluster
Firm part of successful cluster of
internationally competitive industries
Labor bargaining is decentralized
Highly centralized trade union movement
Limited state regulation
High measure of state regulation, especially
in the training of workers
Less environmental protection
Environment is protected
Source: Sisson (1995).
Where Are We on a Political and Value Map?
Government
Posture
Liberalism
Values
Solution space
Rawlsian
Outcome
Utilitarianism
Communitarianism
Rawlsianism
U.S. Political
Outcome
Bound the problem by
considering the ends
of the decision-making
continuum
Conservatism