strategy+business is published by PwC Strategy& LLC.
or, sign in with:
strategy and business
 / Fall 2005 / Issue 40(originally published by Booz & Company)


Recent Research

Professors Astebro and Dahlin examined 559 Canadian inventions generated by independent inventors at inception stage and followed up after the inventions had been commercialized. The inventions were as varied as a meat tenderness tester, an industrial crusher of recycled cans, and a mechanically integrated tree harvester. The inventions were analyzed in terms of four parameters: technological significance (the impact that an invention has on technological development); technical performance (measured by whether an invention fulfills a different function or works better than competing products); feasibility (technical soundness and completeness); and technical uncertainty (the likelihood that planned and future R&D efforts will resolve outstanding technical issues).

The research demonstrates that technical performance and uncertainty have a “significant and important” impact on the commercial prospects for an invention. On the other hand, feasibility, while important in patenting an invention, is relatively unimportant in commercialization. The ballpoint pen, for example, was patented and usable in 1888, but it wasn’t commercialized until 1945.

Professors Astebro and Dahlin also found that the more technologically significant the invention, the less likely it is to be commercialized. This is because genuinely significant inventions may be complicated, require a new production process, or appear complex and different to consumers. They are a hard sell. In fact, most of the inventions studied were of “modest” technical significance. Only 8 percent were rated as making a large contribution to technical change. For corporations, the message is that realistic rather than fantastic R&D is likely to reap the most dividends. Corporations are likely to profit more from an incremental advance than from a great leap forward.

The Paradox of E and O
Michael Beer ([email protected]), “Transforming Organizations: Embrace the Paradox of E and O.” (No URL. Paper available only from author.)

When it comes to transforming big corporations, there are two fundamentally different strategies, says Harvard Business School professor Michael Beer. He calls these Theory E and Theory O (where E stands for economic value and O for organizational capabilities).

Chief executive officers who employ Theory E are driven by one thing: increasing shareholder value. They often conclude that the way to generate the best shareholder returns is through drastic restructuring — to slash and burn. People are laid off, facilities closed, and the portfolio of businesses reshuffled. A good example of a pure Theory E approach was Al “Chainsaw” Dunlap’s attempt to transform Scott Paper (now owned by Kruger Inc.) between 1996 and 1998.

CEOs who employ Theory O, on the other hand, put their faith in developing the organization’s skills and culture as the vehicle to produce improved performance. This is by necessity a longer-term strategy. Andrew Sigler, CEO of Champion International (now part of International Paper Company), pursued this approach in the 1980s and early 1990s.

Which is the more effective strategy? Professor Beer argues that both E and O can boost performance. Theory E, however, does not produce long-term sustained improvements. The E transformation at Scott Paper, for example, resulted in some immediate gains for shareholders, but undermined the organization’s future. The O transformation at Champion International, by contrast, resulted in culture change and some improvements in performance, but negligible enhancement of shareholder value.

In the end, Professor Beer notes, neither concept on its own will deliver sustainable long-term improvement in shareholder value and organizational capability. A more effective strategy, he writes, is to combine E and O, switching back and forth between the two approaches to fit the company’s needs. Knowing when to apply one or the other theory is the key to being a successful chief executive.

This dual strategy is best exemplified by General Electric under Jack Welch, Professor Beer argues. In the early 1980s, Mr. Welch reshuffled the GE portfolio, following the principle that every business had to be No. 1 or 2 in its industry. Then he restructured, with the result that more than 110,000 GE employees lost their jobs. In all, GE cut costs by $6 billion, and the media dubbed Mr. Welch “Neutron Jack.” Pure Theory E.

Follow Us 
Facebook Twitter LinkedIn Google Plus YouTube RSS strategy+business Digital and Mobile products App Store


Sign up to receive s+b newsletters and get a FREE Strategy eBook

You will initially receive up to two newsletters/week. You can unsubscribe from any newsletter by using the link found in each newsletter.