The role of management control systems for breakthrough innovation

Estimated reading time: 7-9 minutes. What is the role of management control systems for breakthrough innovation? Innovation is not an individual concept. Incremental innovation is about improvements, while breakthrough innovation is about discoveries. Breakthrough innovations lead to a significant improvement or open entirely new opportunities.

A study reports the results of a comprehensive research project on the role of management control systems in order to increase both incremental and breakthrough innovation in multinational companies. The researchers focus on business model and technical innovation. The research project is based on quantitative research as well as case studies of leading global successful companies, such as Apple.

 

Breakthrough innovations through Startup corporation

The researchers expand the usual discovery / exploitation discussion and describe an “innovation paradox”. The factors that have led to the success of many companies to achieve organizational excellence and profitability through cost savings and various incremental improvements are the same factors that have prevented companies from developing breakthrough innovations.

The researchers present a new model for how companies can achieve breakthrough innovations in large, established companies. The researchers describe details in a process – “Startup Corporation” – which can be implemented in companies to bring together the benefits of startup companies with the benefits of large-scale companies. Established companies have significant resources, networks, and systems to achieve success, which are the key to successful Startup corporation. By combining the strengths of start-up companies with the strengths of established companies, large-scale enterprises can thus achieve breakthrough innovation.

Startup Corporation

Figure 1. Startup Corporation (Source: Davila & Epstein, 2014., p. 190)

 

The role of management control systems for breakthrough innovation through the Startup corporations

Breakthrough innovation simply does not happen by itself but needs to be controlled, and Startup corporation is a model to support this. In order for breakthrough innovation to take place, support is needed from leadership, culture, business strategy, intensity, and management systems.

 

Management control systems for breakthrough innovation

Figure 2. Management control systems for breakthrough innovation (Source: Davila & Epstein, p. 192)

 

Below is summarized how leadership, culture, business strategy, intensity, and management systems can support breakthrough innovation.

 

LEADERSHIP
Inspire employees to explore and experiment
To rely on employees to create new business opportunities
Encourage employees to trust you as leaders
Attention to employees for their efforts and dedication

CULTURE
Provide resources for innovators
Support employees to take risks, whether they succeed or fail
Seeing initiatives for breakthrough innovation as necessary for long-term survival
Balance technical and market insights for innovation
Open communication within the organization and its network

BUSINESS STRATEGY
Identify the roles of incremental and breakthrough innovation
Develop open networks for innovation hubs
Set boundaries that define the areas to be explored

INCENTIVE
Developing fair economic incentives
Inspirational vision that motivates employees to take risks and face uncertainty

MANAGEMENT SYSTEMS
Establish employment processes that attract passionate employees to the company
Maintain this passion through performance measurement systems
Link information systems with external networks
Create structures to support breakthrough innovation

 

References

Davila, T., Epstein, M. 2014. The Innovation Paradox: Why Good Businesses Kill Breakthroughs and How They Can Change. San Francisco: Berrett-Koehler Publishers

Epstein, M., 2016. Breakthrough Innovation: The Critical Role of Management Control Systems” In Performance Measurement and Management Control: Contemporary Issues. Published online: 30 Jun 2016; 3-16.  Available at https://doi.org/10.1108/S1479-351220160000031001