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Management innovation is defined as changing the framework conditions and how organizations are structured and managed, e.g. coordinating and controlling activities as well as setting goals and plans. Further, it is critical to competitiveness as mentioned by Gary Hamel.
While the term "innovation" in economic science is most times claimed for technical or procedural innovations, the prevalence of different types of innovation in the academic literature shows strategic, organizational, administrative and management innovations as very few researched.
Management Innovation has many diverse definitions, however all are described as new forms of organisation and process.
Examples of management innovations are heterarchical rather than hierarchical structures (Warren McCulloch), lateral rather than horizontal networks (Heinz von Foerster), "adhocratic" rather than bureaucratic structures (Alvin Toffler), cross-border knowledge network (Bernhard von Mutius) postheroical rather than heroical self concepts (Dirk Baecker). As managers determine the final decision on the distribution of resources, product and process innovations can be results of management innovation in this sense. When management starts to understand itself as communication in the sense of sociological management theory, innovations can be controlled either by classical (incremental) or post-classical (groundbreaking) management models. Management innovation also refers to the influence that management practitioners have on management management and other managers with innovative management models, or that management philosophy is based on managers (see Winfried.W. Weber).
In most companies, management innovation is ad hoc and incremental. A systematic process for producing bold management breakthroughs must include:
- Commitment to a big management problem
- Novel principles that illuminate new approaches
- A deconstruction of management orthodoxies
- Analogies from atypical organizations that redefine what’s possible.
Building on our conception of what makes management innovation unique, we develop a frame- work that highlights the four interlinked phases of the process and the roles played by two key sets of stakeholders. This framework is then fleshed out using theoretical arguments and examples from the management literature.
The horizontal dimension consists of four phases of the innovation process:
- motivation is concerned with the facilitating factors and precipitating circumstances that lead individuals to consider developing their own management innovation
- invention is an initial act of experimentation out of which a new hypothetical management practice emerges
- implementation is the technical process of establishing the value of the new management innovation in vivo (i.e., in a real setting), and
- theorization and labeling is a social process whereby individuals inside and outside the organization make sense of and validate the management innovation to build its legitimacy.
Motivation, invention, implementation, theorization and labeling—that collectively define a model of how management innovation comes about.
The motivation phase refers to the preconditions and facilitating factors that lead individuals in a company to be motivated to experiment with a new management innovation. It addresses the question “Under what conditions, or in what circumstances, do executives deem existing management practices to be inadequate for their needs?” The answer to this question is far from straightforward because it is necessary not only to identify the conditions under which executives search for new management innovations but also to specify the circumstances in which they choose not to adopt one of the existing solutions that can be obtained in prefabricated form from the so-called management fashion-setting community (Abrahamson, 1996).
Invention refers to either random or planned variations in management practices, some of which subsequently are selected and retained by the organization (Burgelman, 1991; Campbell, 1965). It is the phase in which a hypothetical new practice is first tried out in an experimental way.
The implementation phase consists of all the activity on the “technical” side of the innovation after the initial experiment up to the point where the new management innovation is first fully operational. Like Zbaracki (1998), we distinguish between the technical elements of the work and the rhetorical elements that are concerned with theorizing and labeling the innovation (dis- cussed in the next section). Our description of this phase involves making sense of the actions of internal and external change agents in implementing an in vivo new practice, as well as understanding the ways existing employees react to it and influence its implementation (Lewin, 1951).
Theorization and labeling phase
The fourth phase results in a theorized new practice— one that is retained and institutionalized within the organization. While an effective implementation, as described above, is clearly a necessary part of the process, the intangible and system-dependent nature of management innovation means that the results of the implementation are likely to be highly unclear for several years (Teece, 1980). We therefore expect that there will be an important rhetorical component associated with a successful management innovation. Key change agents will seek to make the case with constituencies inside and outside the organization that the new practice is legitimate, even though this new practice represents (by definition) a departure from the tried-and-tested offerings of the fashion-setting community (Abrahamson, 1996; Suchman, 1995).
Proponents of the institutional perspective take a macrolevel and comparative approach to make sense of the institutional and socioeconomic conditions in which particular management innovations emerges. Guille ́n (1994) examined the impact of seven sets of institutional factors on the introduction of new managerial ideologies and techniques across four countries; Cole (1985) focused on how the balance between labor market incentives that are mostly set by the state, the relative strength of industry associations, and the predisposition of organized labor influenced the introduction of small-group activities in different countries; Kossek (1987) examined industry- and firm-level influences on the emergence of human resource management innovations. Normative beliefs about what is progressive may drive management innovation, but those beliefs are also sub- ject to long Kondratieff waves of economic change in which new technologies occur and create performance gaps that then necessitate management innovation (Abrahamson, 1997; Barley & Kunda, 1992). 
In the early 1900s General Electric created the "industrial research laboratory" based on the model of Thomas A. Edison. 1903 Du Pont developed and used capital-budgeting techniques (e.g. ROI investment calculations) to compare the performance of different departments. Further, Procter & Gamble started to formalise its approach to brand management and introduced the concept of intangible assets in the early 1930s. In the 1970s VISA created a first example of a "near-virtual" company as a consortium of banks.
Long-run changes in competitive position in the automotive industry, e.g. 1960 Toyota with the Just-in-time production process innovation.
Another contemporary example is Whole Foods.
Twelve innovations that shaped modern management
- Scientific management (time and motion studies)
- Cost accounting and variance analysis
- The commercial research laboratory (the industrialization of science)
- ROI analysis and capital budgeting
- Brand management
- Large-scale project management
- Leadership development
- Industry consortia (multicompany collaborative structures)
- Radical decentralization (self-organization)
- Formalized strategic analysis
- Employee-driven problem solving
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- Becker, Lutz / Gora, Walter / Ehrhardt, Johannes, Walter / Ehrhardt, Johannes (2008). Führung, Innovation und Wandel. Düsseldorf: Symposion. ISBN 9783939707059.
- Weber, Winfried W. (2005): Innovation durch Injunktion, Göttingen: Sordon, S. 44ff
- Hamel, Gary (2008); Das Ende des Managements; Econ; Februar 2008
- Hamel, Gary (2007); The Future of Management; Perseus Distribution Services, Oktober 2007
- Burgelman (1991) and Zbaracki (1998)
- Hamel, Gary, The Why, What, and How of Management Innovation, Harvard Business Review. February 2006, Vol. 84 Issue 2, p72-84. 13p.
- Abrahamson, E. (1991). Managerial fads and fashions: The diffusion and rejection of innovations. Academy of Management Review. pp. 16: 586–612.