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Innovation Management: The Leadership Role of the CEO

Case studies: Yahoo and Google

Master's Thesis 2009 61 Pages

Business economics - Business Management, Corporate Governance

Excerpt

Table of contents

1 Who will benefit from this research?

2 Overview of the research

3 Introduction

4 Literature Review
4.1 Current CEO Practitioner Views
4.2 Academic Research

5 Research methodologies
5.1 Research hypothesis
5.2 Data collection

6 Brief History of Yahoo until 2001

7 Terry Semel’s Role in Managing Innovation at Yahoo
7.1 Strategy and structure
7.2 Management Style
7.3 Acquisitions and partnerships

8 Financial Results

9 Innovation Outcomes

10 Brief History of Google until 2001

11 Eric Schmidt’s Role in Managing Innovation at Google
11.1 Strategy and structure
11.2 Management Style
11.3 Acquisitions and partnerships

12 Financial Results

13 Innovation outcomes

14 Discussion

15 Recommendation for Companies

16 Limitations and Recommendations for further research

17 Conclusion

18 References

Graph 1, Yahoo’s revenues,

Graph 2, Yahoo’s innovation tripartite

Graph 3, Google’s revenues,

Graph 4, Google’s innovation tripartite

Table 1, Yahoo’s revenues

Table 2, Google’s revenues

Acknowledgements - Words of Thanking

This thesis is the end of my long tour in obtaining my MSc degree in International Management, at University of Sussex. I have not travelled in a vacuum in this journey. There are some people who made this trip easier with words of encouragement and valuable advices for different places to search and expand my problem-solving skills and knowledge.

First a very special thank you to Dr. Joe Tidd

Dr. Tidd gave me the confidence and support to begin and work in this dissertation. Even though I had to do the most important part of my studies within a quite short period of time, I got a support through prompt encouraging feedbacks. Dr. Tidd challenged me to set my benchmark even higher and look for possible solutions. I learned to believe in myself, my work, and my future;

Thank you Dr. Tidd.

Many thanks go to my lecturers, Dr. Justin Johnston and Dr. Allam Ahmed, who have helped me with valuable speeches, explanations, advices and other means of support. Thank you for the kindness and assistance you provided during this academic year.

No words can describe thanks and gratefulness to my family who have supported me personally, professionally and financially.

Finally, I shouldn’t forget to describe the pleasant common journey with my precious friends and colleagues. We became a family, stood always together in workshops, projects and hot debates. Teamwork and spirit of cooperation always prevailed. This was an outstanding base to utilise and build upon. Thanks to all of you.

1 Who will benefit from this research?

This study will help the practising leaders, CEOs and managers, particularly those who are striving to further implement and drive forward the existing and future innovation capabilities mainly in private organisations. It will particularly be relevant for those companies who are continuously facing the need to allow, initiate, and implement proposals for change and innovation. Secondly, it will be helpful for postgraduate business management students and academics, and finally an insight to the existing and future research in similar fields.

2 Overview of the research

This research plans to show the importance of the leadership role of the Chief Executive Officer (CEO) in Managing Innovation. This has also attracted the focus of researchers analysing leadership styles and its relation to innovation. Innovation is a transition from traditional methods to modern ways of providing products, services, processes, business models and much more. However, factors that have continuously kept innovation ever-increasing have not yet been clearly identified. Effectively, CEOs have their own role in the process of managing innovation allowing, initiating and monitoring the processes, products, services offered by public or private sectors. Therefore, this dissertation plans to compare the CEOs leadership role in two leading online world companies Yahoo and Google that are rapidly facing the growing demands for modernisation of their offerings. The comparison will attempt to test a hypothesis that relates Yahoo and Google CEOs’ role in selection of strategy, acquisitions and management style, and its effect in innovation outcomes.

3 Introduction

In the era of globalisation, worldwide accounting practices are emerging, deregulation and practices that encourage business competition are becoming widespread, and finally tariffs and disputes between states are gradually disappearing (Hill, 2007). This environment is leading to constant and unpredictable changes increasing competitiveness, uncertainty, ambiguity and discontinuity for trans-national organisations (Irland & Hitt 1999, Hill, 2007). As a result, companies are facing the challenge of providing services and produce to remote areas of the world in maters of days. Further, these products or services are continuously having shorter life cycles making the entire business operation processes even more complex (Irland & Hitt 1999). Actually, Jonash (2000) illustrates this saying that ‘what worked in the past is less likely to work in today’s and tomorrow’s fast-changing business climate’. In other words, organizations have got to innovatively respond to these constant and dynamic changes by continually creating and reinventing markets, products, services and business models in order to successfully retain their competitive advantage (Catlin 2000, Delbecq & Mills 1985). Strong demonstration of this would be IBM's 2006 global survey of 765 CEOs, which shows that companies who have successfully undertaken the process of innovation have experienced a remarkable success (Pohle 2006). Google represents an outstanding example of this as well (Hamel, 2006).

Many scholars have given different definitions for innovation; however, this research will refer on the characteristics of innovation most often used. Innovation consists of novel or improved product, process, technology or business model. Accordingly it can to be both technical (new technologies, services or products) and administrative (new policies, procedures, and organisational forms) (Van de Van, 1996,). Describing on this, product innovation is a creation of new functionalities of a product or a service mainly due to the activities of Research and Development and Engineer (R&D&E) department (Freeman, 1982). On the other hand, process innovation improves the manufacturing of merchandises or the delivery of a service (Abernathy and Utterback, 1978). It occurs in established industries (Loudon, 2001), and has to be reasonably open because process innovation is usually not developed within an organisation (Freeman, 1982). Similarly, technology innovation focuses on employing technical capabilities in business operation in a different or improved way. In technology innovation the challenge is to turn the investment into a competitive advantage since much of this technology may be available to competitors (Loudon, 2001). On the other hand, Business innovation focus on changing the link between an enterprise and the value chain, the structure of an organisation, the market segments aimed by the enterprise, and the way of operating business (Markides, 1997).

Nevertheless, the factors that drive and manage innovation have not yet been clearly identified and linked due to the fact that innovation is quite a complex process. The research projects that we carried out during my Bachelor and Master studies indicated that although organizations are well aware that they need to innovate in order to survive, they tend not to know which areas to change, how to change them, what scale of change to undertake, and most importantly when to undertake the change. Similarly, a research between 1980 and 1995 at Harvard have confirmed that out of 100 companies that have invested an average of $1 billion with the intention for transformation, only 30 percent have experienced an improvement in bottom-line results exceeding the costs of investment, and only 50 percent led to improvement in market share price (Tidd, 2006). Further, the fact that until 1997 the average life-time of companies was measured to last only as long as 12.5 years (Teresko, 1997), a rate that has not been significantly improved even today (Fortune 500, 2008), indicates that innovation is not an easy task to perform and if not appropriately managed leads to wasted effort and shorter life-time of companies.

The role of executive leaders by many scholars has been considered as one of the most important factors in driving and managing human capital and other assets of the company towards innovation (doing things better and different). Mainly, their role has been considered important when it comes to selecting the strategy, and encourage the involvement of as much company’ members as possible in the process (Tidd, Bessant, & Parvitt, 2005, Isaksen & Tidd 2006). Even though the current practitioner CEOs do also think that they have an exceptional role in innovation, only 2 to 5 percent conducted research of the entire leadership literature have particularly been focused on the executives role in this process (Zaccaro, 2001). More specifically, the literature shows how CEOs reflection and attention can affect followers and the environment for innovation. However, the literature does not further demonstrate other possible forms of managing innovation by CEOs.

The research methodology employed in this research is the case study, since it is considered as most appropriate to the nature of the study: revealing still relatively the unknown aspects of the relationship between CEOs leadership role in selecting the strategy, acquisitions and management style in one hand, and its effect on innovation outcomes on the other. To this end, Yahoo and Google have been selected. Both companies operate in the most modern and demanding sector with a great potential, and only Google is found on the list of the world’s 50 most innovative and successful companies, listed as the second most innovative (BusinessWeek, 2008). This, on the other hand, gives the impression that Yahoo’s leadership to innovation is not consistently leading the company towards the so called ‘evolutionary advantage’. This is another interesting opportunity to compare and reveal the above mentioned differences.

The research will approach the attempt to further explore the leadership role of the CEOs in managing innovation through firstly exploring the literature review, which consists of current practitioner CEO views, and academic research. Secondly, the research methodology by further exploring the academic research and summing up also previous literature review will build among the created hypothesis. Thirdly, data collection will explain why the research is built as a case study based among Yahoo and Google online companies. Fourthly, Yahoo case study will comprise of 1., Yahoo’s brief history until 2001, 2., Terry Semel’s (CEO of Yahoo) leadership role in strategy and structure selection, management style and acquisitions and partnerships, 3., financial results of the company until 2007 since this reflects the time when Semel was the CEO of Yahoo, and 4., Innovation outcomes of the company until 2007. On the other hand, Google case study will comprise of Eric Schmidt (CEO of Google) leadership role in strategy and structure selection, management style and acquisitions and partnerships, 3., financial results of the company until 2007, and 4., Innovation outcomes of the company until 2007. This will be followed by discussion section, which will sum up the cases and reveal the differences between two CEO leadership styles in managing innovation. Finally limitations, recommendations and conclusion will be the closing stages of the dissertation.

4 Literature Review

The increasing complexity of work processes and the evermore competitive business atmosphere have created new challenges for organizations, and their top managers’ style of leadership has accordingly become an increasingly central determinant of organizational creativity and innovation (Dess & Picken 2000, Irland & Hitt 1999). Simultaneously, globalization is decreasing the likelihood of gaining competitive advantage from organizational size or strength of assets. Instead, competitive advantage is increasingly being derived from organizations' utilization of employees' knowledge and skills (Isaksen & Tidd 2006; Tidd, Bessant, & Parvitt, 2005). Given this situation in which success relies heavily on human capital, selecting the right manager who will have the leadership skills, charisma and determination to lead a major innovation initiative is being considered as one of the most important decisions a CEO has to make (Deschamps, 2005). In other words, it is of dominant importance that executive leaders select the accurate strategy and create a skilled workforce that can constantly initiate, create and implement innovation (Kazama et al 2002). Therefore, in order to drive the strategy and implement innovation, leaders should listen to their employees by taking into consideration their needs or desired outcomes and create the context or situational readiness (Tidd, 2006). Basically, those senior leaders who manage to overcome the culture roadblocks by creating the climate for change, supporting risk taking, encouraging diversity, fostering collaboration and recognizing accomplishments are on the way to a more innovative destination (Pohle 2006).

4.1 Current CEO Practitioner Views

In the Rothfeder’s publication ‘The CEO's Role in Innovation’ Clive Mendelow, chief operating officer at Binswanger, a real estate services company, argues that an essential part to successfully run the process of innovation can be achieved by listening to customers (Rothfeder, 2005). Companies that produce to customer specification requirements have resulted to innovate in both products and processes (Medina et al, 2005). This is also considered as the main reason for innovation in Google. On the other hand, Brian Murray, operations group president for HarperCollins, highlighted that consumers may disturb innovation, so he favours to listen to customers, but to develop disruptive innovation at the same time (Rothfeder, 2005). Jane Friedman, chief executive of HarperCollins Publishers, favoured an acquisition strategy to proceed with new channels of performing business (Rothfeder, 2005), or joint venture as another form of getting ideas for innovation (Hill, 2007). Actually, acquisition process is considered a very convenient way for many companies to buy innovation, especially for those who have created a culture of reliability and risk-avoidance (Vella, 2008).

Chuck Knight, chairman emeritus of Emerson Electric, continued saying that he spends 60 percent of his time in planning sessions during which business units presented their ideas for new products and technologies, allowing him to stay involved in the company without directing the day-to-day implementation of these ideas. Similarly, Kumar, the CEO of International Specialty Products agreed that the CEO just needs to allow the innovation (Rothfeder, 2005). However, Teplitz, executive vice president of Ethan Alien Retail, expressed the importance for CEOs to be directly involved in the innovation process by initiating and implementing it (Rothfeder, 2005).

On the other hand, David Butler, director at Avaya Telecommunications Company, gave more importance to the clarity of goals and accountability (Rothfeder, 2005). Following this, many CEOs do not like the idea of highly decentralized organizations, such as Terry Semel the CEO of Yahoo. However, centralized companies have not been successful on the process of innovation (Hamel, 2007). The case of Google shows that innovation brings success and it can best be achieved if the CEO struggles to find a way to get the right degree of information networking while allowing business units to operate freely (Donlon 1996, Hamel 2007).

The conclusions raising from these interviews show that regardless the fact that interviewed CEOs operate in different industries or sectors (retail, software, service or manufacturing), they do have a significant impact on allowing, fostering and managing innovation. It also shows that innovation may happen if executive leaders create a convenient climate by listening to customers and employees, and finally it shows that executive leaders can acquire other companies in compliance with their strategies, in order to allow more disruptive innovation.

4.2 Academic Research

Many academic researchers have as well identified leadership as being one of the most important factors to influence organisations’ creativity to innovation. John Child in the year of 1972 held top managers and top-level leaders responsible for the general performance of the firm given that they have the latitude or discretion for the decision making process (Irland & Hitt 1999). Other scholars have similarly argued that leadership can most effectively influence followers and the general performance of organisation (Amabile, 1998, Hamel 2006, Mumford & Gustafson 1998, Jung 2001). Basically, CEOs are the heads of their enterprises in many ways. In any company, the “levers of power are uniquely concentrated in the hands of the CEO” (Nadler and Heilpern 1998, p. 9). Therefore, CEOs have the power, and certainly even the duty, to set the direction of the company (Mason, 1984).

On the other hand, many scholars seem to have developed a very sceptical view towards this. Finkelstein 2005; Khurana 2002; Leonard-Barton 1992; Tripsas and Gavetti 2000; Hambrick, and Mooney 2005; argue that creativity requires some amount of time and cognitive resources, which is not the case with CEOs who are extremely busy and too deeply focused on day to day activities so that their availability for novelty and fresh thinking is consumed (Yadav et al, 2007). Likewise, Burgelman 1994; Christensen 1997; argue that the locus of innovation lies in the middle of the firm in the actions taken and procedures used by its middle managers (Yadav et al, 2007).

Nevertheless, these opinions seem to be much limited taking into account other scholar views and the responsibilities of current CEOs in innovative companies. For instance, exploring the findings Kazama, Foster, & Hebl (2002) in their work “Impacting Climate for Innovation: Can CEOs Make a Difference?”, found out that the more reflexive a CEO was rated, the higher the employee rated climate of innovation, and the more nontraditional the organizational practices, the greater the extent of change in the organization.

These results suggest that executives should take actions to let employees do things different, and in more nontraditional way. Apparently, CEO behaviors are related to organizational climate for innovation. Building on this, a research conducted later by Jung, Chow & Wu (2004) in 52 Taiwanese telecommunication companies showed that leaders can affect followers’ motivation and creativity in both direct (catering to followers’ intrinsic motivation and higher level needs) and indirect ways (establishing a work environment that encourages employees to try out different approaches).

Similarly, Van de Ven (1986) suggests that in order for innovation to occur in organizations, employee attention needs to be directed towards creating new products, processes, and services which is crucial to the organization's survival. He proposed that an important component to the difficulty of managing innovation is the difficulty of managing attention (Kazama et al, 2002). Therefore, Yadav, Prabhu, & Chandy (2007) examined the link between CEO attention and innovation outcomes, emphasizing the direct, positive role of the CEO in innovation. Specifically, these authors showed that CEO attention matters and that its effects on specific innovation outcomes persist and are evident over a long period. Using longitudinal data from the U.S. retail banking, they found that firms with CEOs whose attentional patterns exhibit greater future and external focus are (a) faster at detecting new technological opportunities, (b) faster at developing initial products based on these technological opportunities, and (c) better at deploying these new products than firms with CEOs who exhibit lower future focus. In addition, the findings suggest that firms whose CEOs direct more attention to the internal environment are slower at detecting new technological opportunities.

Nevertheless, the literature shows that current CEO views regarding the ways they can contribute to the process of innovation are different, and in addition, these views are not clearly aligned and supported so far with any of the academic research thereafter.

To sum up, many scholars have considered CEOs to set the general direction of the firm and focus the attention of its members on particular areas of endeavour leading the organization’s orientation towards innovation (Amabile 1988, Yadav et al, 2007). However, despite these potentials for executive leaders, and in particular for CEOs, to positively impact organizational creativity to innovation and better performance, little empirical research has investigated the existence and nature of this relationship (Jung et al, 2004). In addition, current findings provide only a limited view of the connection between leader actions and innovation outcomes, leaving many aspects of this relationship unexplored (Kazama et al 2002). Furthermore, Zaccaro (2001) argues that only a small percentage of the leadership literature (2-5%) has focused specifically on executive leadership’s role in innovation.

5 Research methodologies

The above hypothesized forms of CEOs role in managing innovation have not considered the importance that CEOs do have in selecting the strategy, management style and acquisitions. Therefore, to seek a better linkage between the CEO real actions and innovation outcomes, an important hypothesis is set up along the line of CEOs role in selection of strategies, management styles, acquisitions, partnerships or alliances and how these affects innovation outcomes and the company’s financial performance.

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Details

Pages
61
Year
2009
ISBN (eBook)
9783640575657
ISBN (Book)
9783640575435
File size
706 KB
Language
English
Catalog Number
v146838
Institution / College
University of Sussex – SPRU - Science and Technology Policy Research
Grade
2 (Second Class)
Tags
innovation mangement leadership role CEO Cheaf Executive Officer strategic management structure yahoo and google

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Title: Innovation Management: The Leadership Role of the CEO