Managing organizational paradoxes: a case in the financial industry.
| Autor | dos Santos, Suelen |
| Cargo | Research paper |
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Introduction
Large corporations typically have organized processes, own renowned brands and work with massive client bases. Conversely, they face difficulties when going through changes that take them out of their comfort zones, that is, they almost always seek innovation that enhances operation costs, and sometimes leave out the search for different alternatives that can be associated to higher risk and uncertainty.
In an environment with markets increasingly focused in digital businesses, incorporating new technologies has enabled activities such as client value proposition redesign and operations transformation. Regardless of the industry, there is a growing pressure for organizations to rethink the way they deliver client value while supporting themselves with more efficient operations at the same time. They start to face different kinds of competition, from major technology companies beginning to offer services beyond their core businesses, to start-ups: companies seeking a profitable and scalable business model, backed by technology and working in extreme uncertain conditions.
While considering innovation as a driving force for maintaining competitive advantage, Tidd and Bessant (2018) claim that, although organizations considered successful in managing the innovation process outperform their competition in terms of growth, financial performance, and quantity and quality of jobs generated, the work of managing innovation is not something simple to do. The means through which innovation is managed within companies consists in a complex, interdisciplinary process, which encompasses many of the organization's functional facets and activities (Silva, Bagno, & Salerno, 2014). Innovation process management involves risks and uncertainties, and consequently stumbles in resistance from people who may not understand potential benefits or feel they might be harmed by radical innovations. By radical innovations we mean those that, in the view of Salerno and Gomes (2018), create new business platforms, develop competitive differential and help to rewrite the game rules. Therefore, the balance between improving knowledge that exists, and that is currently applied within the organization, and the discovery and development of new opportunities and their consequent new businesses, becomes a fundamental requirement for keeping competitive advantage. Organizations are, ergo, compelled to seek innovations other than incremental ones, that is, those mostly focused on cost optimization.
Within this framework, this work aims at investigating how an incumbent company, playing in a highly regulated and commoditized industry, organizes its structure to systematically promote radical innovation.
Based on studies like Jugend, Araujo, Pimenta, Gobbo, and Hilletofth (2018), Sheng and Chien (2016) and Le,Lei, Le, Gong,and Ha (2020),itisnoticeablethatlittleisknown on how to develop structures that favor both incremental and radical innovation. The discussion about how companies should organize themselves to innovate in a more radical way is not recent and has already gone through issues around the adequacy of the classic organizational project concept, as well as through questioning the relevance of using separate management tools for conducting radical and incremental innovation processes. Prevailing understanding is that classic organizational structure concepts do not fit into the current hostile competition companies have been facing and, therefore, further analysis is required.
To answer the research question, a single case study was carried out at a major Brazilian bank. To that aim, we sought to understand the company's innovation history, its organizational structure, as well as the possible outcomes from organizational changes performed.
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Theoretical framework
2.1 Innovation
A broader understanding of the innovation concept sends us to Schumpeter's work in the first half of the 20th century, particularly in the 1930s, which approaches the matter as a foundation for economic dynamics comprehension.
Moving onto the 1950s, there is an emergence of researchers looking for answers to questions not addressed by Schumpeter, such as innovation sources, continuous improvement and innovative companies' characteristics (Figueiredo, 2005). Bagno (2014) traces an interesting line cruising through different aspects in the innovation concept evolution:
"(1) Highlighting it as organizations' competitive foundation (Hansen and Birkinshaw, 2007; Tidd et al., 2008); (2) discussing its information flows and organizational processes (Rothwell, 1992; Utterback, 1970); (3) adjusting organizational structures (Wheelwright; Clark, 1992; Salerno, 2009), (4) raising implications on portfolio management and project valuation (Mcgrath, 1997; Terwriesch and Ulrich, 2008); (5) discussing culture, creativity and motivation issues (Amabile, 1983; Perry-Smith, 2006); (6) introducing ways to manage risk and uncertainty in innovation projects (Loch et al., 2008; Rice et al., 2008); (7) permitting the innovation process to external contributions (Chesborough, 2003); (8) acknowledging technological trajectories' influence (Abernathy and Utterback, 1975; Figueiredo, 2009); (9) defining the very innovation concept (Schumpeter, 1934; Tidd et al., 2008); among many other important aspects (apud Bagno, 2014, p. 10).
The act of innovating has become an important corporate life feature. Nevertheless, the consensus on its relevance does not preclude the realization that virtually nobody agrees on what innovation actually is, and there is not even one unambiguous definition of the concept. In the dictionary, innovation definition is "to introduce something new", which may mask the fact that innovation can also consist in changing existing ideas (Goffin & Mitchell, 2005). Garcia & Calantone (2002) understand innovation as an iterative process, triggered by the awareness of a new market and/or a new service opportunity, leading to a technology-based invention and integrating development, production and marketing tasks, aiming at the invention's commercial success.
There are many conceptual nuances on the theme, and this work's objective is not to exhaust the discussion: the focus here is presenting key notions to the reader, as well as providing the idea that innovation is a manageable process (demystifying the thought that it is something that emerges with no explanation whatsoever), which involves several elements, from basic research to new products/services commercialization.
2.2 Ambidexterity
Organizational ambidexterity concept's seminal references come from Dunca's (1976) and March's (1991) texts. Primary research on the theme focused on organizational learning, and over time has expanded into strategic management, organizational design, organizational adaptation and innovation.
The present work adopts Raisch and Birkinshaw's (2008) definition, which classifies as ambidextrous companies able to align and efficiently manage current business demands, while being adaptable to changes in the environment at the same time. They simultaneously seek incremental and radical innovation, they embody stability and adaptability to organizational change, they induce autonomous strategic processes and they are efficient and flexible in operational design.
Matos, Silva, Lasmar, and Dias (2017) point out that in the almost three decades since March's (1991) work, there were a lot of periods in which the ambidexterity topic was either not discussed or approached in a shy scale with no relevant contributions. The authors detect that only after 2008 there was a real growth in the number of publications around the theme. Nonetheless, classic authors mentioned in this work keep constituting the foundation of recent literature on the subject (as examples, we can mention Wan, Cenamor, Parker, and Alstyne (2017), Mom et al. (2019) and Brix (2019)).
In a broad view, March's (1991) work focuses on proposing that two types of activities compete for attention and resources within organizations: exploitation and exploration; and that both should be aligned. Exploitation aims to meet current organization's needs and involves: (1) depuration, (2) choice, (3) production, (4) efficiency, (5) selection, (6) implementation and (7) execution of organization's core activities, which are the critical factors for short term performance. However, exploitation inherently deals with the risk of not accompanying competitive landscape changes: it is about incremental innovations, which seek to meet needs of existing markets or consumers through strengthening knowledge, abilities, processes and structures already in place within the organization. Exploration,on the other hand, is associated to new knowledge, acquired from the external environment and favors the drive for: (1) research, (2) variability, (3) risk-taking, (4) experimenting, (5) flexibility, (6) discovery and (7) radical innovation. Exploration generates new knowledge that challenges traditional approaches toward markets' and consumers' unmet needs, but under the shade of uncertain return on investment.
Incremental and radical innovation require different organizational models and demand proper balance among resource limitations all organizations have, like financial means, human resources and time. The organizational ambidexterity concept analyzes the inter-relations and the distinctions between incremental improvements and radical innovation initiatives, whether from a strategic, structural, metric or organizational point of view (Bessant, Lamming, Noke, & Phillips, 2005).
Karrer and Fleck (2015) qualify exploitation and exploration as equally relevant poles of the organization ambidexterity, being opposed and complementary, and demanding different ways of thinking. For those authors, there is also an organic complementarity between the two activities, as exploitation may generate sure and steady profit, which might them be...
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