Course: MSc Engineering Management

Module: Managing People and Organisations

Innovation Management
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Abstract

This assignment is undertaken in partial fulfilment of the Module: Managing People

and Organisations which is prescribed as part of the MSc in Engineering
Management course. The assignment is to develop a systemic approach to
managerial decision making based on evaluation of Innovation Management
principles as applied to a high technology business acquisition.

Executive Summary

This report, prepared for the Chief Executive Officer (CEO) of a UK data networking
and IT networking equipment company, proposes a corporate wide programme to
provide a suitable climate for entering the HVAC market. The report reviews the
recent acquisition made by the company and critically evaluates the behavioural
aspects of high performing teams during business growth. It proposes approaches to
managerial planning which will lead to high employee motivation to enhance
company competitiveness. The report also evaluates training requirements for the
key departments based around an assessment of the business environment. Upon
completion of this evaluation, recommendations of corporate programmes to
influence cultural and organisational changes together with suggestions relating to
designing organisations that support creativity and innovation are made.

The report consists of five parts and four appendices, with references to other
literature listed at the end.
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Part - I

Managerial Planning and Goals

“One significant trend in the economic environment of late is the frequency of

mergers and acquisitions.”1 The recent venture to acquire and integrate a wireless
technologies and security systems firm is seen as a vehicle for strategic growth and a
prime mechanism for expanding into new markets. “The challenge is to create a new
design that can house both capabilities, derive synergies where possible, and enable
a strategic transition.”2

During the acquisition and integration period, one expects changes in human
resource practices, implementation of unfriendly downsizing and layoffs, emergence
of cultural differences and changes in the managerial styles which results in undue
stress on the employee, decrease in morale and motivation, high staff turnover and
loss of productivity.

To support this recent acquisition, the HR Department completed a process of pre

acquisition due diligence to ensure a smooth transition and prevent failure. This
involved an assessment of the cultural and organizational differences between the
two companies including analysis of the organizational cultures, role of leaders in the
organization, management styles and corporate structures. Steps taken by the HR
Department during this process are illustrated in Appendix 1.

To prepare the company for entering the HVAC market to produce eco-friendly
HVAC systems, the HR Department proposes the following:

It will firstly be important to define a goal, which is “the desired future state that the
organisation attempts to realise.”3 The goal should be simplified into a formal mission
statement which symbolises legitimacy to external audiences, describes what the
company stands for and serves as a source of motivation and commitment to the
employees. “A well defined mission is a basis for development of all subsequent
goals and plans. Without a clear mission, goals and plans may be developed
haphazardly and not take the organisation in the direction it should be going.”4

Strategic, tactical and operational goals would have to be set by senior, middle and
lower management respectively, together with plans of action required to achieve the
set goals. This would provide a sense of direction to employees, provide
performance standards, explain the rationale behind decisions to managers and help
with resource allocation. “Growth strategies can fail if resources are not realigned to
deliver new value in a changing market, and to handle increased complexity from
size, variety, and change.”5

To be beneficial to the company, the set goals should be highly ambitious, specific
and measurable, cover key result areas, linked to rewards and have defined
deadlines. Highly ambitious goals (stretch goals) get employees enthused, engender
excellence and compel employees to think in new ways that lead to bold, innovative
breakthroughs. “Motorola used stretched goals to achieve Six Sigma quality which
now has become the standard for numerous companies”.6 The stretch goals must
however, be as achievable as they are challenging.
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“Managers take a number of planning approaches, among the most popular of which
are; Management by Objectives (MBO), Single-use Plans, Standing Plans and
contingency plans”7. Although through the HR Department’s due diligence the
company is better positioned to break into the HVAC market, admittedly, this area of
business is relative new to the company. It may thus be prudent to consider adopting
standing plans, with contingency plans as back up for the future of the company.
“Standing plans, which are ongoing plans that are used to provide guidance for tasks
performed repeatedly within an organisation”8 are characterised by defined decision
boundaries, goal based policy and standard operating procedure and will be more
suited to a company entering new business territory. Problems with MBO arise when
the company faces rapid change and Single–use plans are only developed to
achieve a set of goals that are not likely to be repeated in the future. Contingency
plans define company responses to be taken in case of emergencies, setbacks or
unexpected conditions.

To increase motivation, all levels of employees should be involved in setting goals as

much as possible. “A recent survey found that employees, who contributed ideas at
work, are more likely to feel valued, committed and motivated. In addition when
employees’ ideas are implemented and recognised, a motivational effect often ripples
throughout the workforce.”9 The use of performance dashboards is a must to allow
employees visualise how plans are progressing and help executives keep track of
key performance indicators. The standing plans adopted by the company should be
accompanied by event-driven planning. Event-driven planning is based on small and
large events with shorter range goals. It produces a sequential process allowing for
flexibility to adapt to market forces or shifts in the environment which the company
needs as it develops new products. The use of interdepartmental temporary task
forces with the responsibility of establishing specific goals and making plans for
achieving them should be encouraged.

“Goal-setting theory, described by Edwin Lock and Gary Latham, proposes that
managers can increase motivation by setting specific, challenging goals that are
accepted as valid by subordinates and then help people track their progress towards
goal achievement by providing timely feedback.”10

Also considered is Frederick Herzberg’s two –factor theory, which suggests hygiene
factors such as working conditions, company policy, interpersonal relationships and
pay influence employee dissatisfaction whilst motivators such as achievement,
recognition, responsibility and opportunity for growth influence employee satisfaction.
Based on this theory, the manager’s role should be to remove dissatisfing conditions
and then to use motivators to promote a greater sense of achievement amongst
employees. “The expectancy theory holds that people are motivated to behave in
ways that produce desired combinations of expected outcomes.”11
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Part II

Innovation Management

“Strategic management is that set of managerial decisions and actions that

determines the long-run performance of a corporation,”12 whilst “strategy is defined
as an action a company takes to attain superior performance.”13 To be competitive,
the company needs to develop strategies that emphasise its core competences of
data networking and wireless technologies, whilst developing the synergy from the
recent acquisition into a firm competitive advantage to deliver value to customers
within the HVAC market.

To this end, a situation analysis has been conducted with the current company
strategies as a basis and including a search for strengths, weaknesses, opportunities
and threats (SWOT). By considering factors from both external and internal
environment and using Michael E. Porter’s model for formulating strategy, it is
proposed that the differentiation business strategy is adopted. “The differentiation
strategy involves an attempt to distinguish the firm’s products or services from others
in the industry”14, it can be profitable because customers are loyal and will pay a high
price for the products. The distinctive features such as intelligent zone control and
wireless reporting system for the company’s HVAC products will favour the
differentiation strategy. “Examples of products that have benefited from a
differentiation strategy are Harley-Davidson motorcycles, Snapper lawn equipment
and Gore-Tex fabrics, all of which are perceived as distinctive in their markets.”15 An
overview of the strategic management formulation and implementation process is
highlighted in Appendix 2.

“Organisational structure is the pattern of relationships among positions in the

organisation and among members of the organisation.”16 “Organisational structure is
defined as (1) the set of formal tasks assigned to individuals and departments; (2)
formal reporting relationships, including lines of authority, decision responsibility,
number of hierarchical levels and span of manager’s control; and (3) the design of
systems to ensure effective coordination of employees across departments.”17

To meet the changing organisational needs of the company, a team network

structure is suggested for the company. A visual representation of the proposed
structure is illustrated in Appendix 3. “Cross-functional teams may be especially good
at arriving at new ideas that are both innovative and practical.”18 The team structure
also allows for better horizontal peer-to-peer communication. “Horizontal
communication is particularly important in learning organisations, where teams of
workers are continuously solving problems.”19

“A recent study demonstrated that business performance is strongly influenced by

how well the company’s structure is aligned with its strategic intent.”20 Cross-
functional teams will be particularly suited to the company since development of new
products, flexibility and service innovation will be paramount. The teams will also
provide the required horizontal coordination to complement the existing vertical
hierarchical structure. “Flexible horizontal structure enables organisations to
differentiate themselves and respond quickly to the demands of a shifting
environment.”21
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Most HVAC products are tailor made to specific design and environmental
requirements and a “small-batch and unit production technology as categorised by
Joan Woodard, a British industrial sociologist”22 would be most appropriate to meet
the company’s differentiation strategy. The small-batch and unit production
technology is best suited to an organic structure, a more horizontal structure with
decentralised decision-making authority which is directly related to the team
approach structure.

A major advantage of the team approach is the associated morale boost for
employees who will be enthusiastic about their involvement with large innovative
projects and will exhibit social facilitation. “Social facilitation refers to the tendency for
the presence of others to enhance one’s motivation and performance.”23 A major
concern will be potentially large amounts of time spent at meetings which will
decrease departmental efficiency for team members, however, this can be minimised
with the use of technologically advanced virtual communication networks which allow
remote interaction and discussion.
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Part III

Training Requirements

“All successful changes involve changes in people and culture as well.”24 “Two
specific tools for changing people and culture are training and development
programs, and organisational development.”25

Considering the new tasks and jobs created by the recent acquisition and in
preparation for entry into the HVAC market, a broad range of training methods is
suggested for the company as a whole, with specific methods outlined for each
department.

Orientation training is a must for all employees, where they will be introduced to the
organisation’s culture, standards and goals. This form of training will help align all
employees towards achieving the goals and fulfilling the overall mission of the
company. Orientation training for managers is paramount since the behaviour and
attitude of managers will influence people throughout the organisation and lead to
cultural change.

More formal classroom based training is suggested for employees in the Marketing
and Human Resources Departments. It is expected that knowledge in modern sales,
marketing and advertising techniques would be most suitably passed on in the
classroom for the Marketing Department whilst the Human Resources Department
learn about new trends in recruitment, planning and human capital development.

Enhancing skill and knowledge in the Production Department may be achieved by

on-the-job training (OJT). “OJT is considered the fastest and most effective means of
facilitating learning in the workplace,”26 “one type of OJT involves moving people to
various types of jobs within the organisation, where they work with experienced
employees to learn different tasks.”27 With this form of cross-training, employees
originally skilled in either IT networking equipment, wireless security equipment or
eco-friendly HVAC systems would in a short time increase the number of tasks they
can perform without increasing the complexity of any one job. This form of job
rotation increases efficiency, creates flexibility and provides stimulation for
employees.

The Information Technology and Research & Development Departments would

benefit more from “self-directed learning, also called programmed instruction, which
involves the use of books, manuals or computers to provide subject matter in highly
organised and logical sequences.”28

“An excellent example of training is First Data Corp., which uses a multifaceted, team
based approach first introduced by CFO Kim Patmore to boost morale among
finance personnel.”29

“Organisational Development (OD) is a planned, systematic process of change that

uses behavioural science knowledge and techniques to improve an organisation’s
health and effectiveness through its ability to adapt to the environment, improve
internal relationships, and increase learning and problem-solving capabilities.”30 OD
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will be extremely useful to the company at this stage as it helps managers address
problems during mergers and acquisitions, organisational revitalization and conflict
management.

“Training is one of the most frequently used approaches to changing people’s mind-
sets.”31 OD activities and subjects, such as team building, quality circles,
communication skills, survey feedback and large-group intervention enhances
cohesiveness and problem solving through sustained and guided dialogue thus
reducing resistance to change. “Training employees helps them understand the
purpose and importance of a new strategy or helps them develop the necessary skills
and behaviours.”32

Successful managers need specific knowledge and skills as well as the ability to
adapt to changes in the world around them. “To thrive in today’s turbulent business
climate, individuals and organisations must be continuous learners.”33 “Learning is a
change in behaviour or performance that occurs as the result of experience.”34 The
learning process may be depicted as a four-stage cycle as illustrated in Appendix 4.
“In organisations in which continuous learning takes place, employees actively apply
comments from customers, news about competitors, training programs to increase
their knowledge and improve the organisation’s practices.”35
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Part IV

Strategic Leadership

Companies that pursue a differentiation strategy typically require strong marketing

abilities, a creative flair and a reputation for leadership. “Leadership is defined as the
ability to influence people towards the attainment of goals.”36 Of the several
contingency approaches which explain the relationship between leadership styles
and specific situations, the “path-goal theory where the leader’s responsibility is to
increase followers’ motivation and clarify the path to attain personal and
organisational goals,”37 is recommended for the company. The path-goal theory
suggests leaders can adopt four classifications of leader behaviour namely,

supportive; where leader behaviour shows concern for employee’s welfare and
personal needs.
directive; where leader behaviour involves planning and setting performance
goals.
participative; where leader behaviour encourages consultation with and
participation of employees in decision making and
achievement-oriented leadership; where leader behaviour sets clear and
challenging goals for employees.

All four styles of leadership will be required at various stages during the company’s
entry into the HVAC market.

Applying other approaches such as the Hersey and Blanchard model where the
leader adopts the appropriate leadership style after diagnosing the readiness level of
followers would be detrimental since it may be difficult to accurately judge employee
readiness levels as they integrate following the recent acquisition. Failure to
diagnose the readiness level accurately will lead to low morale and performance.
Fiedlers leadership theory assumes leaders cannot change their style of leadership,
finding the correct fit between an unchanging leadership style and the ever changing
business environment would be unrealistic.

The path-goal theory is rewards oriented and the result of fitting the leadership
behaviour to the situation is greater employee effort, motivation and corporate
culture. “Corporate culture plays a key role in creating an organisational climate that
enables learning and innovative responses to threats from the external environment,
challenging new opportunities or organisational crisis.”38

“Innovation requires ambidextrous leaders who can simultaneously control and

promote freedom. Managing employees in a way that encourages innovation
requires leaders to acknowledge and reward risk-taking behaviors, not just
successful outcomes.”39

“Culture is both a dynamic phenomenon that surrounds us at all times, being

constantly enacted and created by our interactions with others and shaped by
leadership behaviour, and a set of structures, routines, rules and norms that guide
and constrain behaviour.”40
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Adoption of a task culture is recommended for the company. “Task cultures focus on
accomplishing the job in hand, and to bring together the appropriate people and
resources to make the project successful. Flexibility, adaptability, individual
autonomy and mutual respect based on ability are the most important organising
principles here.”41 The task culture is very much a small team approach with small
groups cooperating together to deliver a project. Performance is judged by results
and achieving objectives, this type of culture is reflected in team based organisations.

“One of the key consequences of a strong corporate culture is that it increases

behavioural consistency across employees in a company.”42

Managers need to identify and solve employee’s problems, “to handle this
responsibility, managers need to understand organisational behaviour (OB) – that is,
the ways individuals and groups tend to act in organisations.”43 The two attitudes that
relate to high performance are job satisfaction and organisational commitment. The
first step towards improving job satisfaction is by matching the employee with the job
characteristics. The use of the Myers-Briggs Type Indicator (MBTI) to define an
employee’s personality type should be adopted when selecting employees and
managers. The provision of adequate working conditions and competitive pay will
improve job satisfaction. “Managers can promote organisational commitment by
keeping employees informed, giving them a say in decisions, providing the necessary
training and other resources that enable them to succeed, treating them fairly and
offering rewards they value.”44

Although the challenges and competition of a fast changing business environment

will never be stress-free, supporting employees by encouraging regular breaks and
vacation, flexible hours of work and nutrition counselling for example should be the
priority. On-site exercise facilities and quiet rooms or meditation centres where
employees can take short breaks are recommended.

The Q12 metric, a twelve point questionnaire, developed by Gallup researchers is

recommended for use in pinpointing problems with motivation within the organisation
and to evaluate its managers.
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Part V

Conclusion

In conclusion, the decision to enter the HVAC market should be embraced and
pursued collectively by the leaders, managers and employees of the company.

Setting up of goals and adoption of standing plans as proposed will lead to high
employee motivation within the company. A differentiation strategy coupled with a
team based structure will enhance the company’s sales potential.

An effective training method for each department together with utilisation of the goal-
path theory within a task based culture will ensure gains in employee satisfaction and
an established reputation for providing excellent customer service.
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Appendices

Appendix 1: HR Activities Undertaken During Recent Merger and Acquisition

1. Pre-deal

• Identification of the people-related issues and planning for due diligence.

• Assessment of people and working out the organizational/cultural fit.
• Educating the deal team on HR implications of a deal.

2. Due Diligence

• Estimation of the people-related ongoing costs, transactional costs and savings.

• Identification and assessment of all cultural issues.

3. Integration Planning

• Development of employee communication strategies

• Design of key talent retention programs
• Planning and leading integration efforts
• Development of a new strategy for the new entity
• Helping the organization cope with change
• Defining an organizational blueprint and staffing plan.

4. Implementation

• Management of ongoing change and employee communications

• Advising management on dealing with people issues
• aligning total rewards and other HR policies
• Monitoring the process of organizational and people-related integration activities
• Ensuring the capture of synergies via incentives.

5. Review Progress

• Appraise performance
• Redefine goals for the future
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Appendix 2: Strategic Management Formulation and Implementation Process

Existing
Goals and
Plans

Internal Situation External

Factors Analysis factors
(SWOT)

Refine Options and

Choices (Force Field
Analysis) to Produce
New Goals and Plans

Formulate
Corporate
Strategies

Implementation
of Strategies
and Evaluation
of Outcomes
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Appendix 3: Proposed Team Network Structure

CEO

R&D Production Marketing HR IT

Manager Manager Manager Manager Manager

Project Project Project Project

Team Team Team Team
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Appendix 4: The Learning Process as a Four-Stage Cycle

Concrete Experience Reflective Observation

(Feeling) (Watching)

Abstract Conceptualisation
Active Experiment (Thinking)
(Doing)
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