Popularity Contests: Why a Company Embraces One Innovative Idea but Shuns Another
It's hard to imagine that any of the world's top multinational corporations (MNCs) have something in common with the angst-ridden, clique-driven drama of a high school cafeteria. But like the adolescent years we all remember, a multinational gets just as caught up with popularity contests and in-crowds as teenagers, especially when it comes to sharing ideas and best practices within their own organizations.
MNCs often have built up a rich store of knowledge over the years in ways that smaller companies can only dream of. MNCs use their vast global reach to tap different markets quickly and exploit their on-the-ground knowledge to sniff out new ideas or products being used at rival companies in other parts of the world. "The advantage of being a multinational is exactly this knowledge access on a global basis," says Felipe Monteiro, a Wharton professor of management whose recent research looks at how and why new knowledge spreads within firms. "What is equally interesting is the gap between the potential for that [access] and the actual use of such global knowledge."
At the heart of the issue is how an MNC manages to close that gap. And a lot of that hinges on behavior and cognitive factors. "If we look carefully at the patterns of knowledge flows, you see that not [all parts of a company are] participating in it and it's not every kind of idea that gets acted upon," says Monteiro. In other words, a company's success is ultimately less about the availability of innovative ideas and more about the human beings who need to share them.
Following Corporate Superstars
Monteiro's first analysis of the complexities of corporate knowledge flows appeared in a paper, published in the journal Organization Science in 2008, titled "Knowledge Flows within Multinational Corporations: Explaining Subsidiary Isolation and Its Performance Implications" (PDF). The paper, co-written with Niklas Arvidsson of Sweden's Centre for Banking and Finance and Julian Birkinshaw of London Business School, examined if, how and when MNC subsidiaries shared sales and marketing knowledge with each other. Based on questionnaires sent to the 171 subsidiaries of six Swedish global companies, including Ericsson and Volvo, about how the subsidiaries interact with other parts of the company, as well as follow-up interviews with personnel at peer subsidiaries and headquarters, they found a very uneven flow of knowledge. According to the researchers, a subsidiary's willingness or ability to share know-how is influenced by its peers' perceptions -- accurate or otherwise -- about which of them are corporate superstars and which ones are not. The study found that subsidiaries perceived by others as being strong performers were, unsurprisingly, most frequently sought out as sources of help. What's more, the subsidiaries that perceived themselves to be high-flyers were also much more likely to seek advice. Subsidiaries that perceived themselves as underachievers, by contrast, shied away from seeking help, even though they presumably needed it the most.
"We suggest that subsidiaries with low group efficacy tend to be distracted by ruminations about perceived inadequacies and failures, which consume limited cognitive resources that are needed to process task demands effectively," the authors note in the paper. Self-confident and efficient, the strong performers are better at identifying problems and seeking solutions.
Behind the results of the research is a phenomenon that Monteiro says many executives and their management teams may be unaware of: isolated subsidiaries. From the vantage point of their corporate offices, executives back at headquarters may see a frenzy of knowledge sharing when, in fact, some subsidiaries are working in isolation and are not able to take advantage of the abundance of intellectual resources other parts of the firm have to offer, according to the research. Of the 171 subsidiaries surveyed, 22% learned about new product ideas or practices from their headquarters less than once a year, while 42% sent new product ideas and practices to their headquarters or to other subsidiaries less than once a year. More than 10% did neither.
What's the Big Idea
The findings of that study spurred Monteiro to re-examine the flow of new ideas through MNCs, but this time from a slightly different angle by asking why companies embrace ideas and abandon others when they first learn about them. Monteiro did this by homing in on organized efforts at what he refers to as "external knowledge sourcing." Such sourcing is prevalent at firms such as Procter & Gamble. Having introduced a program called Connect + Develop in 2000, the consumer goods MNC acknowledged that not all of its innovative ideas can, and should, be generated in-house. The C+D team uses technology and a series of on-the-ground networks to bring new ideas to headquarters, helping the company achieve its goal of acquiring 50% of future innovation externally by acquiring or working with smaller, nimbler firms.
Other companies have followed suit, recruiting teams of idea "scouts" who scour the world to identify and acquire cutting-edge ideas from outside the firm. In a working paper for Wharton's Mack Center for Technological Innovation titled, "Going Far for Something Close: Explaining Stickiness in the Initiation of the External Knowledge Sourcing Process," Monteiro looked at the hurdles of getting external ideas accepted within companies -- or knowledge "stickiness," as it is sometimes called -- from the perspective of the scouts. But unlike previous research from other academics, which has focused on new ideas that companies try to implement, Monteiro also examined external ideas that were never acted upon.
After sifting through a database containing more than 100 external knowledge-sourcing entries (that is, assessments of external technologies) of a large European telecom services provider, Monteiro identified two distinct groups of ideas: those that were embraced when they were introduced to the company and those that were ignored. According to his findings, which group an idea falls into does not necessarily depend on its strength or weakness, but rather on the people and organizations absorbing them.
Safety in Numbers
A critical hurdle to getting the initial buy-in for an idea from business unit managers is "dissonant knowledge" -- knowledge that challenges a recipient unit's dominant logic. "The idea of [studying] knowledge dissonance is to try to separate the technical aspect -- can you understand it? -- from a more cognitive aspect -- do you agree with it?" Monteiro says. "You're more likely to act on opportunities that confirm what you're doing rather than opportunities that challenge what you're doing."
To illustrate his point, Monteiro cites the hypothetical example of a telecom multinational scouting two types of Voice over Internet Protocol (VoIP) services. Using very similar technology, Skype and Vonage provide a service that telecom managers can easily comprehend. But the two function differently. Skype uses an application that customers download on to their computers and a novel business model that allows basic calls to be made free of charge. Vonage, in contrast, requires a modem or a router and has a revenue model based on customers' monthly payments. If asked to choose between the two services, business unit managers would lean towards Vonage's model, because it is very much like a traditional phone service compared with Skype's model.
Likewise, Monteiro says ideas that have already been successful at another company or market are more likely to be embraced elsewhere than those that have no track record. He adds that this isn't necessarily a bad thing -- in the near term, at least. A certain amount of risk aversion, after all, can help as much as hinder a company. But because of the resistance at the beginning of the process -- when the only thing that might be wasted is time -- Monteiro's findings suggest that institutional inertia kicks in much earlier than previously believed. "This is not a story of failure," he adds. "What I'm showing is that it is easy for [a company] to import things that confirm what [it] already [knows]." Yet longer term, a firm that has trouble absorbing dissonant new ideas risks developing "core rigidities," Monteiro says.
"These findings ... suggest an intriguing paradox," he writes. "Even when scouting units are established thousands of miles from headquarters to access diverse knowledge, internal selection processes ... might be so strong that the organization ends up acting mostly upon market-validated opportunities consonant with its existing dominant logic."
What's important is to find a balance. "The paradox is that what's good in the short term, what's going to reinforce your business model, may not be good in the long term if a business is undergoing major changes," Monteiro notes.
Managing Knowledge Networks
Whether they have short- or long-term interests in mind, MNC executives and their teams can proactively manage knowledge-gathering processes. "It's [important] how you position [new ideas] internally," Monteiro says. His research findings indicate that the effort a scout makes looking for an external idea seems to matter less than how well she is able to sell the idea to a business unit. "Scouters' efforts to search within [the firm] for needs and constraints, translate the external technology into the MNC's internal language, and match the external opportunity to specific areas, all increase the odds of successful initiation," Monteiro writes.
Equally important, management teams can help ensure that some parts of the company aren't isolated from the knowledge-sharing processes. In their paper on isolated subsidiaries, Monteiro and his co-authors recommend setting up personal networks among subsidiary managers to improve contact and collaboration. A network could include a well-connected expatriate manager who is assigned to an underperforming foreign subsidiary to help it tap into resources in other parts of the company. MNCs also need to consider and compensate for language barriers -- which could, for example, be preventing a subsidiary's manager from engaging colleagues locally and at headquarters. Finally, transparency is critical, for both the 'in' and 'out' crowd. Sharing information regularly about performance can address why subsidiaries' perceptions tend to vary wildly when it comes to knowing which of their peers are successful and which processes are valuable.
But the most important step, Monteiro says, is recognizing that the market for information isn't perfect. "Sometimes, you will see knowledge being shared, and you don't realize that some players are doing a lot of [the sharing] and some not at all. It's not evident that it's all being done by the 'in' crowd and that the 'out' crowd is not doing anything."