Division of Research Graduate School of Business Administration May 1973 The University of Michigan IMPROVEMENT OF THE INTRAORGANIZATIONAL MANAGEMENT OF INNOVATION: REVIEW OF A CRITICAL PROBLEM Working Paper No4 75 by James D. Portwood ReseArch Fellow FOR DISCUSSION PURPOSES ONLY None of this material is to be quated or reproduced without the express permission of the Division of Research

AB3STRACT This paper is basically a two-part analysis of the management of new products within the firmT One part deals with identification of organizational factors found through empirical research to be critical for effective new-product development0 Since much of the literature would indicate that mismanagement of potential innovations rather than a lack of quality ideas is currently the most significant problem, much of this analysis is devoted to management variables such as decisionR making processes, communication links, and coordination However, structural and environmental variables which have been found to affect the aBhility of management to carry out these tasks have also been considered. The second part considers the possibilities and problems associated with using executive education programs as a methodology for dealing with newproduct management problems that may exist. Emphasis is placed on the necessity for a thorough analysis of the organization and its needs if any development or training program is to be effective, BACKGROUND This paper is the initial output of a continuing study of ways to encourage product innovation within the firm., The purpose of this first effort is to review the literature, gain some understanding of the process of innovation, and from all this suggest possible means of improving new-product management. At subsequent stages the author hopes to empirically validate a factor model of innovation and later to test the applicability of management education as a technique for enhancing intraorganizational innovation. This project has been supported by the Division of Research as part of a research program on the management of new-product ideas.

CONTENTS Introduction Key Problems Management Development and Training The Organizational Audit A Process Model of Innovation Proposal phase Evaluation phase Adoption phase A Factor Model of Innovation Implications Techniques Conclusion I 2 7 11 16 18 Z5 30 34 39 40 42

FIGURES 19 A model of factors contributing to individual behavioral. changes as a result of managemente ducation efforts, 14 2. The process of technical innovation. 17 3, A factor model of innovation. 35

Introduction Business firms today are faced with a rapidly accelerating rate of change in their relevant economic and technological environments. In this new context, few companies have remained successful without operational modifications' One area of impact recognized by several researchers, among them Pessemier, and; Lorsch and Lawrence,- has been the increased need for new and different product ideas, As Lorsch states,.",,.new and improved products are the key to corporate success, and in the long run, corporate survival. "This additional demand on the organization has not been without its problems. The attrition rate for new-product ideas is high in most organizations. Only the best ideas can be pursued given the limited resources of the firm. One study shows that 90 percent of all ideas are discarded before the developmental stage and that only a little more than 1 percent ever reach 3/ commercial salec -/ Even then nea-rly 50 percent fail after release. 1/ Edgar A, Pessemier, "New-Product Ventures, Business Horizons Vol oII, No. 4 (Aug'ust, 1968), pp. 5-19; and J. W. Lorsch and P, R Lawrence, 'Orga.iting for Product Innovation," Ha rvard Business Rs eview, Vol. 43, No. 1 (January, 1965), pp, 109-122. 2/' "Organizing for Product Innovation, " p. 109. 3/ Phillip Kotler, Marketing Manageent: Analysis Planning and Control (Englewood Cliffs, N.J,: Prentice-Hall, Inc., 1967), p. 316. * 1 ~

Key Problems Many researchers have claimed that these failures are due in large part to poor management of innovations within the firm, Bradenburg, for example, concluded that "Most new product venture failures are people4/ related problems. ",/ There is a great deal of evidence of management ineffectiveness where new-product programs are concerned n Johnson and Jones have indicated three basic management-related problem areas in 5/ the movement of innovative ideas from initial proposal to implementationr.4 -Classification-to determine the type of handling each newproduct proposal ought to receive. Coordination. -to assure continuity and cooperation in the evaluation of each new product from idea to market inr oduction. New knowledge, —to provide information for decisions on products with which the company has had no direct expe rience. Many of the difficulties identified in current research on new-product management will fit easily into one or more of these categories. Regarding the first category, Pessemier points out that many proposals are not handled at all either because management does not recognize the idea for what it is 6/ or is not able to "remove the critical barriers to its development0 "/ Such Bradenb —urg ---.,Goi wn.Sch 4/ Bradenburg, "'Going Down the Rathole with New Product Research, Business Management, Vol.40 (June, 1971), p. 18. 5/ Samual C. Johnson and Conrad Jones, "How to Organize for New Products," Harvard Business Review, Vol 35, No 3 (May, 1957), p 510 6/ "New-Product Ventures, t p, 7

-3 -omissions may be due to lack of interest or lack of knowledge, but in either case the problem must be resolved if the firm is to keep from losing many potentially profitable ideas, The need fqr coordination amohg the various departments and decision centers concerned with new-.product management has been widely recognized as critical to success. This point has been emphasized by Utterback, Knight, 7/ Lorsch and Lawrence,- and others. Coordination of the variety of organizational functions —',marketing, production, R & D, and management —dealing with innovations is seen as essential in order to keep a broad perspective on potential problems in the project, 8/ Several theorists, such as Gee, Moore, and Roberts,- have presented empirical evidence concerning the problems that can arise in coordination efforts; Gee has found that in many cases coordination suffers because of the lack of general agreement on the relationship of new products to the g-oals of the corporation. His results indicate that firms with the highest proportion 7/ James M. UTtterback, "The Process of Technological Innovation Within the Firm, Academy of Management Journal, Vol. 14 (March, 1971), pp. 75-88; Kenneth E, Knight, "A Descriptive Model of the Intra-Firm Innovation Process-,;" The Journal of Business, Vol. 40, No, 4 (October, 1967), pp. 478&96; and Lorsch and Lawrence, "Organizing for Product Innovationo 8/ Robert E, Gee, "How Often Do Research Objectives Meet Corporate Goals " Research Management, Vol. 13 (November, 1970), pp. 451-9; RItF. Moore, "Five Ways to Bridge the Gap Between R&D and Production, " Research Management, Vol. 13 (September, 1970), pp. 367. 73; and George A, Roberts, "Communication Imperative Between Manage. ment and R&D,"Research Management, Vol, 15 (March, 1972), pp. 67-72.

of shared goals among their departments had the fewest coordination problems and the best record in newrproduct development. Gee extends his argument to suggest that many problems in goal congruence result from a lack of understanding among functional areas about the roles performed by the other departments, He concludes that many of these misconceptions could be removed by better communication among the groups, The study by Roberts substantiates many pf the hypotheses proposed by Gee, In studying the communication links which he identified as important to innovation managemnent, Roberts found that where communication is lac-king or ineffective, there is conflict among departments, Roberts concludes that in many cases ineffective communication results from distortions brought about by "long lines" of communication. He sees that many of the managers in meaningful ways with other relevant groups, Roberts points out, "It is often those on the project alone who possess the knowledge and information necessary to -make new product decisions. " Thus Roberts sees a need, either to improve the knowledge and understanding of the communicators or to find more difrectf means of communication, 9/ James D. Thompson, Organizations in Action, (New York: McGraw-Hill Book Company, 1967), p. 110, 10/ "Communication Imperative, " p. 69

Another problem which Roberts identifies relates to a language barrier between functions'. Often communicators are unable to understand each other because neither party to the communication is able to translate necessary information into a common language. Moore gives an example in his discussion II/ of the '"translation gap" between R & D and production,- He found that problems arose in moving projects from R & D into production because those in production were not able to understand the technical language used by R & D managers in explaining details of the specific projects, Moore sees a need for a method of teaching both sides to recognize this problem of comrmunication and to agree on a more understandable level of information transfer, The problem of communication also relates to the third critical area in new.product management, that of knowledge utilization, IZ/ Many researchers, among them Aharoni, Bower, and Root,-' have 11/ "Five Ways to Bridge the Gap, " p, 367. 12/ Yair Aharoni, The Foreign Investment Decision Process (Boston: Harvard University Graduate School of Business Administration, Division of Research,.1966); JL Bower, Managing the Resource Allocation Process; A Study of Corporate Planning and Investment (Boston; Harvard University, Graduate School of Business Administration, Division of Research, 1970);. and H. Paul Root, "The Use of Subjective Probability Estimates in the Analysis of New Pro ducts "f Marketing Involvement in'Society and the Economy, Po.R McDonald, ed. (Chicago: American Marketing Association, 1970), ppo 200-07.

recognized that new -product decisions are shaped primarily by the form in which relevant knowledge is communicated to the decision makers, Any break down in communication, either accidental or intentional, can severely impede the ability of the decision maker to make an accurate assessment of the value of a given project, It is therefore imperative that those responsible for this type of communication be made aware of the consequences of mistakes and be trained to be as efficient as possible in assembling the necessary information. These precautions, however, will not necessarily solve the problem of knowledge utilization in the firm, Diehl points out that even the correct transfer of information to the pertinent positions in the organization does not guarantee correct decisions, He identifies threle "errors of emotion" which may still lead to problems 13/ in new product management,- First he suggests that just because inform mation is transmitted correctly does not mean the information itself is corrects Decision makers must be prepared to test information for inaccuracy and bias, Another problem Diehl identifies is best described by Churchman: "There is a big difference between having good information and using it. "-/ Diehl sees that the personal feelings of those involved in the project could lead them to inflate its advantages and ignore or withhold its disadvantages. The 3/ Rick W, Diehl, "Achieving Successful In 13/ Rick W:ehal, "Achieving1 S'uccessful Innovation " ichigan Business Review, Vol. 24, No. 2 (March, 1972), pp. 6-10. 14/ C, West Churchman, "Managerial Acceptance of Scientific Recommendations," in Information for Decision-Making, Alfred Rappaport, ed, (Englewood Cliffs, N.J.: Prentice-Hall, Inc,, 1970), p. 435,

-7 - decision maker should avoid emotional involvement in the project in order to assess objectively' the information provided him, A final problem Diehl suggests is that top management may promote a particular project. This situation puts undue pressure on the decision maker to pass the project despite any unfavorable information about it. All these problems and those in the other classifications relate more or less to human -behavioral variables, Man2agemenDevrelopment.nand.. Trainin In looking for ways to combat behavioral problems within the organization, corporations have been turning increasingly to the use of management: development and management-training programs to teach executives and supervisors better techniques of management and to propose top.management ideas and gain acceptance of them throughout the organization. In the past, management-development and management-training programs have dealt s uccessfully with many problems, such as communication, decision-making techniques, and goal congruence, that have been discussed above. The remainder of this paper will consider the possibilities and problems of using management development and/or training to improve the intraorganizational management of innovation. In discussing management development and training it should be recognized that these terms are used here in their broadest context to mean all the various forms of management education, The author, therefore, does not wish to imply that this paper will be limited to the analysis of T.4Group training or any of the other more specific change methodologies that have,

for some, become synonomous with management development. With these definitions in mind, the reader should have a better understanding of the scope of management education techniques which are analyzed below. As a beginning point, it must be noted that in spite of certain successes, past management-development and training programs have not had a high success ratio in terms of changing behavior on the job and in some cases 15/ (Fleishman and Sykes- ) have been detrimental to the operation of the firm. This fact should dictate a careful consideration of the type of program to be undertaken. Studies in this area have pointed out many common failures in the design or implementation of unsuccessful managemrent -training operations. One such problem is stated in a study by Eugene Schmuckler: "The important consideration for success of a management development program is that it 16/ satisfy a recognized need. " All too often such programs have had no operational objectives and no identfiable problem tQward which to direct the efforts of the participants, Carrol concludes from a study of managers that management education will be most likely to succeed "when they see the training as being' rtBlated to the problems that they themselves are concerned 15/ EA; I Fleishmlan, E F0, Harris, and HE<. Burtt, Leadershlpa ' Supe rvision in lndustry: An Evaluation of S.pe rvisory Tranin ing. rgrarpms, (Columbus: The Ohio State University Press, 1955); and A, J, M. Sykes, "The Effects of a Supervisory Training Course in Changing Supervisors' Perceptions and Expectations of the Role of Management, HuJ.xnan Re latons Vol. 15, No, 2 (August, 1963), pp. 177~243. 16/ Eugene Schmuckler, "Problems Involved in the Establishment of a Management Development Program," Personnel Journal, Vol 5-0' (October, 1971), pp. 790-95.

17/ with9, "- Thus it is clear that there is a need for giving direction and specific purpose to any program, Another major problem is that the organizational "climate" may not be conducive to change, ManagemLent education is designed to bring about change, however, a participant "frequently finds that organizational rigidities, atitudes of his superiors, and pressures of the job restrict new modes of behavior or the use of new management toQls and approaches that have been learned, "This lack of management support causes frustration and confusion, making the training program rtotally ineffective, The problem of intraorganizational envir onment or climate arises be'cause most significant problems in organizations are subject to numerous interdependencies withint the context of the firm. For example, March and Simon point out thatf organizational structure and policy systems act to limit alternatives 19/ in the behavior of organization members in order to avoid chaos, These same limitations may, however, also act as a barrier to change, thus impeding attainment of the objectives of a management-development program. 17/ Stephen J, Carrol and Allan N, Nash, "Some Personal and Situational Correlates of Reactions to Management Development Training," Acadey of Manageent Jour l, Vol, 13 (June, 1970), pp, 187.960 18/ P.R, Cone and RN, McKinney, "Management Development Can Be More Effective' California Management Review, Vol, 14 (Spring, 1972)-, p. 14. 19/ James G. March and Herbert Simon, rganati s (New York John Wiley and Sons, Inc., 1958), pp. 169-71.

-10 -In order to uinderstand the relationship of such factors to the success of a management education program designed to improve innovative management, one must first understand the relation of these factors to the innovative process itself, Richard Normann, in a study of organizational innovativeness, recognized three important organizational subsystems which have a bearing on Z0/ the success of firms in managing new-product operations:(1) The Cognitive System represents most of what has been considered under the term "people problems. " It includes the communications and internal information-handling processes, Also iincluded. are decisionmaking and problem.solving activities and the personal perceptions of the individual participants in the organization, This first system is one that is generally subject to modification using a management"developmeni management.-training program, Normann has found, however, two other relevant systems which affect the management effort but cannot be- dealt with in the program, (2) The Task System includes the formal structure of the organization, work.group composition, and types of specialization in knowledge or competence inherent in that: structure. The members of the organization exist within this structure and are limited by it,4 Normann sees that new-product introduction results in strains on the stability of this structure —the more innovative the product, the more strain is involved. If the structure does not change to accommodate these 20/ Richard Normann, "Organizational Innovativeness: Product Variation and Orientation," Administrative Science Quarterly, Vol. 16, No, 2 (June, 1971), pp. 203-15.

new products, the new products are not likely to be developed, Changes in structure must be initiated by top management, and any hesitation in applying necessary changes can work to reduce the effectiveness of any changes brought on by a management-education program, The third system is also closely related to top management and will need revision if change is to occur. (3) The Political System includes the goals of the system, the existing power and policy structures, and the vestedinterest groups which maintain the status quo, Normann has found that strong, stable political systems reduce the possibility for innovation because innovations generally demand changes in the existing power structure, Such changes are usually resisted by those in power0 Only the force of top-management's commitment to change, Normann concludes, will insu ininnovation within the firm, Thus no managementeducation program is likely to improve the success of the innovative process unless and until these other systems are also subjected to meaningful change. The question then arises, Is there any means of integrating the efforts to change so that all relevant aspects are considered? This author would answer in the affirmativeo The Organizational Audit Research itt the area of organizational analysis has already been conducted by Robert House as a step toward improving management-education 21/ programse --- He made a survey of over 400 empirical studies of management21/ Robert J. House, A Predictive Theory Of Management Developr ment- (Ann Arbor: The University of Michigan Bureau of Industrial Relations, 1966),

-12 development and management-training programs and drew several conclusions as to the steps necessary in designing a viable training procedure, Of particular interest is his suggestion that there must be a systeratic analysis or audit of the organizafion —its objectives, structure, environment, and personnel — previous to implementation of the development program. The analysis procedure begins with a determination of developmental objectives which are stated in operational terms so that specific organizational changes may be inferred. Next, the organization (policies, structure, and management attitude) is studied to determine its readiness for change of the kind implied by the stated objectives9 Top management is then consulted concerning problems identified by the analysis, and commitment is obtained from management to take the responsibility for making the necessary organizational changes. Finally there is an analysis of specific problems in the organization and a decision on the content of the management-education program. House sees several advantages in this process. The first advantage is that "This approach provides for a method of checking the validity of implied assumptions in advance of the design of the 22/ programo"-/ This is an important factor since any question on objectives or content should be answered before the program beginso Another advantage, and perhaps" the critical one, is the opportunity for gaining commitment to the program by top management through its participation in the structuring of the programo House sees this as the necessary prerequisite if managers 22/ Ibid,._ _s

* * ~~: go ^ ^. * ' ~ - 1 3 - are to be m6tivated to accept change and use it in the job situation, Several other advantages, such as identifying structural problems and generating objective measures of management performance, also lead to an acceptance of this method, The conditions and suggestions so far considered have applied to management programs in gene:ral; they should be equally applicable, however, to a program designed to encourage more effective management of innovations Although specific tools of analysis may be different and particular aspects of the organization may be looked at somewhat differently, the basic reasons behind the use of an organizational audit such as this remain valid9 As a summary of the organizational conteat outlined above, the model in Figure 1 describes both the position of the individual in the organization and his relation to the various subsystems specified previously. From the model, this author will show how an organizational audit may be used both to identify barriers to behavioral change in the firm and to direct the organiza3" tion toward a more integrated approach to management development and training. The model suggests that the component system most directly relatped to the effectiveness of management-education programs in influencing job - oriented behavior is the relationship of the individual participant to the program (See Figure 1, Relevant Personal Context. ), The importance of this relationship is confirmed by many studies of management-development programs. In one study, the researcher concludes, "benefit from manage ment development can be predicted, in part, by participants1 expectations

-14 - Ih*C*~I~~~~~~~asrrr.~~~~~UYIY~~~~~ I 3IYUI~~~~~*-I —~ I~~~~~~.. External Environment Existing Taesk Enoi ron ment: M __. lim"! -, - -- I "w"M% Attitudes of Top Management Speciflic News" Product Goals~ / / /:/ / r 1 r Generation of Development Objectives Attitude a of.Individnalfs: Superiors 1 M. Existing PolicEy Top Managerm Comnitmel, t/Action for,^^^e^an e 1 Management Education Program Individual Behavior dt Intraorganizational: Environment -7 1 qq - ---- -- --- — wIq dim. a _,_raulr~nwararsr~aumr w A & f Likelihood of Behavior, Change /Personal Expectations N A 0/ fet, /F I. ----. hhr 'IRelevant *Personal. Context ExiSting Powe r Structure, 4 L - Perceived Job Satisfa ction I —r. II.Ua ~ ~~ylr~rU L)~~L(~UU I~ram Personal Goals 1 ---l. ~ ~ ' Motivation to' A: Perform Relevant Reward. Syste Form, al ' Structublre, ~~ Rl~r*Maa~~~aarrr~~ aUIB~~a~~e~r~~. ~cP~~r-~ i,~;: Fig, 1 A odel of factors contributing to ndividu behavioral changesa a a result: of managenent e education efo rts,

-15 - 23/ prior to exposure to the program, i/ He also points out that a perceived need for change is critical in order for the participant to expect a positive benefit from the program. As the model explains, top management can affect these individual expectations through appropriate changes in the intraorganiza.. tional environment. The natural conclusion, given this causal chain, is that for best results in management education, top management must lay substantial groundwork prior to the initiation of the program. Participant motivation is also related to expectations concerning the program. There is some agreement among researchers as to what is necessary for motivation. "It appears that, by far, the most effective form of motivation consists of successfully convincing the trainee that the content of the training will be of value to him by assisting him to discharge his duties 24/ when he is on the job n"-/ Other motivating factors which have been identified are desire for promotion (a personal goal) and perception of a relationship between job performance and the individual' s relevant reward system. Many of these factors may be favorably altered by top management through modifying the etiplo'yees' job environment. 23/ Leopold W. Gruenfeld, "Personality Needs and Expected Benefits From A Manageement Development Program, Occuaional 'h - Vol. 40 (January-Aprilt 1966), p. 77. 24/ Krishna S. Dhir, "Problem of Motivation in Management Development," Personnel Journal, Vol. 49 (October, 1970), p. 839.

1 E6 - The question may be asked, What role will the organizational audit play in facilitating the process just described? The audit is seen by this author as the necessary first step if top management is to make the correct changes in the intraorganizational environment. The purpose of the audit is to assess existing conditions in this environment with specific emphasis on how these conditions affect the ability of the organization to efficiently manage innovation. One consideration in appraising the viability of the existing internal climate as an environment for enhancing innovation must be the interaction of that environment with the personal characteristics of individuals in the firm.n If the audit igs to be most useful, appropriate operational variables relating to important problems in the management of innovation must be identified, and accurate measurement tools must be constructed to allow the gathering of objective data. The following sections will deal with the question of what constitutes the process of innovation in the firm and what individual and organizational characteristics enhance or inhibit this processo A Process Model of Innovation Several researchers have proposed process models of innovation, among them Knight-, Normann, and O'Connell, For our purposes, however, 25/ the model suggested by J. M. Utterback in Figure 2 would seem best suited25/ Knight, "A Descriptive Model, p. 438; Normann, Organizational Innovativeness, " pp. 204.08; Michael J. O'Connell, "Organizatonal Innovation: A Conceptual Framework"ts (Unpubli shed working paper, University of Wisconsin, Madison, 1972), pp, 3-4; and Utterback, "The Process of Technological Innovation, g p. 78, i'

I q Lo - s,: >. '. ' - _ Current State of Technical Knowledge * i aG. IS.1 _ Recognition of a need Recognition of a technical means to meet the need Snythesis of this information to create an idea or proposal for development I.-l: ' Proposal Division of the problem into separable subproblems Setting specific technical goals Assigning priorities to the goals Designing alternative solutions Evaluating design alternatives using goals and priorities I so, Original _ Solution ~ Inventionr 11~~gia tItP4'~C~~8 I Manufacturing, engineering, tooling, and plant startup required to bring the prototype solution, or invention, to its first use (process) or market introduction (Product) Coordination a.. - I.. L. a -5 a -1 IM -. ~ -Exm- --.............. 1.. ~."WO!1 - -: (Initiation) Current Economic and Social utilization (Diffusion) - a p -.A*~ei~eE ~ ~ ~ ~ ~ -IIP~-~ ~-qCql -aIIC " —LIBT9,I, i_~ f Idea Generation Subprocess Problem-Solving Subprocess Implementation and Diffusion S: u: Sbprocess;. A& _..... Fig. 2. The process of technical innovation,

-18 - In this conceptualization, Utterback emphasizes a critical point that must be considered before any attempt to improve the innovative process in organizations, namely, that innovation is not a simple, one-step operation; it involves several related but not similar activities. Donald Marquis lends agreement in this warning: Keep in mind that innovation is not really a single action, but a total process of related subprocesses. It is not just the conceptualization of a new idea, nor the invention of a new device, nor the development of a new market. The process is all of these things acting in an integrated way toward a common objective —which is technological change. 2i6/ This division into subactions becomes important when one realizes that efficiency in these various activities requires a variety of different and sometimes contradictory conditions within the organization, The nature of some of the tradeoffs suggested here will be discussed later, ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~.. Proposal phase Utterback identifies three distinct phases of the innovative process:(1) the proposal or initiation stage, (2) the evaluation or problem-solving 27/ stage, and (3) the implementation or adoption stage — In the proposal 26/ Donald G. Marquis, "The Anatomy of Successful Innovations, Innovation, Vol. 1, No, 2 (November, 1969), p. 29. 27/ "The Process of Technological Innovation."

-19 -stage, organizational and environmental needs are recognized and reconciled, and ideas for problem solution are explored. This phase ends with an individual or group in the organization mraking a proposal for a new product to fill the observed need. Several researchers have explored this process and suggested ways to encourage "'search and solve" activity in the firm. Many of these studies have dealt with the stifling effect on innovative proposals of structural rigidities which limit employee interaction and individual behavior. Shephard proposes that the innovative organization provide a "climate in which memnbers can view one another as resources rather than competitive threats: a climate of 2RI openness and mutual support. "'/ The rationale for such an environment is the belief that ideas are better generated when they are open to discussion and criticism in the formative stage. A related concept identified as encouraging innovation is that of role diversity of employees, i.e, employees with a wide range of responsibilities and contacts both inside and outside the firm, James Wilson states, 'The greater the: diversity within- the organization the greater the probability that members will conceive and propose major innovation " Donald Peters also provides empirical evidence of the advantages of variety in the organizational 28/ Herbert A. Shephtard, "Innovation Resisting And Innovation Producing Organization," Journal of Business, Vol. 40, No, 4 (October, 1967), p. 476.

4o20 29/ setting. Sutch diversity allows the employee a wider view of the organi zation and its problems, a definite advantage in generating ideas which must meet a number of constraints present in any complex system, Role diversity also provides a means for greater access to the human resources of the fixrm through freer,' more direct communication channels, 30/ Gordon and Morse, Knight, and O'Connell, 3 among others, have dete rmined Sthat free communication among critical individuals and groups in the firm tfends to greatly accelerate the innovative process, Utterback goes a step further in suggesting that communication channels outside the firmshould be encouraged to aid in the search process for new environmental demands and for new technical solutions to existing needs. He concludes that 'impediments to these information flows would certainly be expected to reduce31/ the effectivenesss of the innovative process within the firm. " 29/ James Q 'Wilson, "Innovatlon in Organizations: Notes Towa,.rd a Theory^," in-Appraches OrganaDe ed by James Do Thomp'son (Pittsburgh: University of Pittsburgh, 1966), p, 200; and Donald Ho Peters, "Commercial' In"novations From University Faculty: A Study of the Invention and Exploitation;"' of Ideas, Sloan School of Management Working Paper No? 406-69 (Camrbridge, Mass.: M 1o T., July, 1969)o 30/ Gerald Gordon and Edward V, Morse, "Creative Potential and Organizational Structure, " Proceedings of the Academ of Management (1968); Knight, "A Descriptive Model"; and O'Connell, "Organizational Innovation. 31/ "The Process of Technological. Innovation, " p, 83,

-21. Although these suggestions may be beneficial in stimulating proposals for innovation, such activity would undoubtedly put a strain on the traditional management heirarchy present in most of today's organizations, Thus a commitment to greater innovation by a firm may necessitate a shift in the overall control structure of the organizationo Hage and Aiken have indicated that the innovative organization tends to be "lower in centralization, formal, 32/ ization, and stratification, "- Such structural alterations are sometimes hard to make, especially for large organizations; for this reason, alternatives to an overall shift have been proposed0 The most popular method has been to separate the proposalbgenerating function from the other functions of the firm0 Westfall, for example, suggests the formation of "venture teams, " small groups of eentrepreneural types who search for promising new-product 33/ possibilities. /The advantage of these groups is that they can get close to the source of ideas and information with few outside distractions and with 0sensitivity and flexibility in their approach Care must be taken, howeverr, in the composition of these groups to be sure that they have the necessary knowledge of:and contact with the line functions in the firm. Problems thatarise if this integration does not take place will be discussed later0. 32/ Jerald Hage and Michael Aiken, Social Change inComlex Organi.zationls (New York: Random House, 1970), 33/ Steven Lo Westfall, "Stimulating Corporate Entrepreneur ship in U.S. Industry, " Academy of Management Journal, Vol, 12, No, 6 (June, 1967),

2 z2 Regardless of the type of structural adjustments made,, however, it must be kept in mind that more than these a:djustments are needed to make a firm innovative. The proposals already discussed have one commoncharacteristic: there is some cost, either explicit or implicit, involved in their implementation. A case in point are the venture teams which would take resources that could be used on the line or for a greater profit margin. For such changes to be effective, therefore, management must show a commitment: to innovation to the extent of being willing to provide the resources for the search and research necessary to generate innovation proposalso March and Simon have used the term "organizational slack" to designate the financial and human assets asvailable aat the discretion of management for projects other than daily operatioan,/ There is a fair body of research which indicates-that such slack ahnd a willingness to use it are necessary prerequisites to new - product innovation, Martin Rosner, in explaining the necessity of such resources, concludes, "The existence of organizational slack means that the organization n afford to (1) bear the cost of instituting the innovation, (2) absorb failures, and (3) explore new ideas in advance of actual need '" Further proof comes from Wo-R, MacClaurin in his study of the rise of the 35/ radio ind usfryi. - His findings emphasize that the availability of speculative 34/ Q.garizaptions, p. 12 6, *...... 35/ Martin- M Rosner, "Economic Determinants of Organizational Innovation, Administrative Science Quarterly Volo 12, No 6 (March, 1968), p. 615; and Wo Rupert MacClaurin, "The Process of Technological Innovation," Anmerican Economic Review, Vol 40 (March, 1950), ppo 90 112,

funds (slack) had r-mch to do with the rapid pace of innovations in this industry in the 1920so This evidence indicates that management commitment in the form of funds for the search process acts to prime the innovative pump and to move the organization toward change. Another important facet of management commitment to innovation is the direction of explicit organizational goals toward innovation. Such open committment by management puts employees on notice to expect changes and to work for them. Karl Tietjen, in a study of characteristics of effective productplanning, found that '"there are distinct advantages to a conscious tangible expression of policies and objectives " in enhancing the innovative ability of 36/ the firmc Explicit goals may also have the advantage of directing the search for new products away from areas the organization is either unable or unwilling to enter, F:ainnally, clear statements of objectives can help the firm deal with the human factoirs present in any organizational a ctivity. The propensity of individuals and groups to generate new-product proposals may be-greatly affected by existing group norms and individual attitudes toward' the organization. Explicit goals will help the organization to focus group attention on the wishes of the managemento Such goals can be extremely important since, as Knight says, groups have been shown to have great influence through "having strong norms that either support or discourage 37/ creativity and innovation. "-/ The resistance of individuals must also be 36/ Karl Tietjen, Organizing the Product Plannin Function (New York: American Management Association, 1963), po 60, 37/ "A Descriptive Model," p. 481.

424 - contended with, as personal considerations tend to override those of the organization. Zalesnik recounts a situation in which a manager disco'uraged all efforts at idea generation because he feared he would look inadequate in 38/ comparison to his subordinates, --- Such problems have been dealt with by the use of managerent-training and management-development techniques. Here again It is evident that training can be useful, but only in the context of a larger effort, It has been suggested that changes in norms and attitudes towards more innovative approaches to job performance may be encouraged through changes in the employees' relevant reward system to tie that system more closely to innovative behavior. It has been shown that when "considerable prestige and social status is ateached to a person who innovates" more proposals are forth-. 39/ comring, A further refinement of this idea is suggested by O'Connell when he points out that organizational members can be made much more aware of the need for innovation " if the individuals and subunits are rewarded on the 40/ basis of total organizational performance rather than subunit performance9 - 38/ Abraham Zalesnik, "Power and Politics in Organizational Life- " Harvard Business Review, Volo 48 (May-June, 1970), po 54. 39/ Knight, "A Descriptive Model," p. 489. 40/ "Organizational Innovation," p. 7

This need for tying rewards to behavior will be shown as important not only in the proposal stage but also in the evaluation and adoption phases to be considered below Eyaaation hIse Eva l'uat i on pase In the evaluation phase a proposal for a new-product has been submitted, The organization must now gather information on the viability of the proposal and on possible alternatives, decide on criteria for decision making, and thenaccept or reject the proposal for further development. Here the key fa:ctors related to successful innovation concern the problemrsolving process and those who make the de-cisions These factors were considered in general terms in an earlier section; however, a more detailed analysis is in order. The consideration of this subprocess may be divided into three areas of focus: (1):the' quality of information available to the decision maker; (2) the criteria for analysis used by the organization, and (3) the objectivityand ability of the decision maker. The information- processing function is critical in decisioni making because in most cases the decision maker has little direct knowledge of the merits of the proposal and must rely on dataprovided by his staff or by the proposing group. Since the decision is likely to be only as good as the information available, the organization must en sure that communication links and date.-gathering techniques are the best possible A study by Thomas Allen provides a good example of the vital nature of highly

41/ developed resource and communication channels in successful problem solving, —/ Correct mechanics, however, still do not guarantee correct information-, It should be recognized that even the best structure may have builtt-in biases, a fact which must be understood by the decision maker. Pessemier and Root warn, "Managers must be sensitive to the interactions between models in use as these affect information collection and processing, and organizational 42/ structure as it affects the communication of information,, "- Here experience and training can be the best defense against mistakes. The decision maker must also learn to evaluate information according to its source. Those interested in the success of a given project will obviously wish to present the best picture possible. Bower, Whistler, and Hall have conducted research which supports the statement that information cannot be 43 / evaluated apart f rom the manager who is its source,-' In each study there is evidence that- there are those in the firm who formally or informally influo. ence the choice process by searching for and selectively presenting information, Perhaps what is needed are multiple information channels so that figures may be crossB-che cke;d, 41/ Thomas Jo Allen, "Information Needs and Uses, Annual Review of Information Science and Teqhnologynd ed. by Carlos AO Cuadra, Vol:".. 4 (Chicago: Encyclopedia Britannica, 1967)42/ -Edgar A. Pessemier and H. Paul Root, "The Dimensions of New Product Planning' Journal of Marketng, Vol, 37, NoO 1 (January, 1973), p. 11. 43/ Bowe-r "Managing the Resource Allocation;" Thomas Lo Whistler, "Measuring Centralization- of Control in Business Organizations " New Perspectives in Organiz..ainal Research, ed by WW. Cooper, H.J Lea-vitt; and M.W. Shelly (New:York: John Wiley and Sons, 1964), Chapter 18, pp- 314-33; and Wiifiam K, Hall, "Strategic Planning, Product Innovation, and the Theory off the Firrrm ' (Unpublished Working Paper, The University of Michigan, 1972).

Poor;' d e ci sions, however, may result not only from deficient information but also fro0m "poorndecision criteria, In the past it has been assumed that profit potential was the basic measure of proposal worth. This assumption has since been r'rep la ced by the knowledge that new product decisions may be based on a variety of financial and nonfinancial considerations. It would not be worthwhile in this paper to discuss specific criteria which enhance innova tion, since in many cases criteria must be adjusted to fit the individual organization. Studies have been conducted, however, on general procedural considerations rin the decision making process O'Connell points- to a need for clarity in the criteria for analysis, He concludes that "When the criterion for selectiontL is very vague or the cause and effect relation-ships are not stated, the organization may be reluctant to commit resources to any proposal, -. This reluctance to act on proposals which have not been analyzed according to specific goals may be traced to the general aversion of organizations to uncertainty. Jameis D, Thompson points out that one of the prime responsibilities of decision makers in the newproduct area is to reduce the amount of 45/ uncertainty:conniected with proposals which are brought before them. — 44/ "Organizational Innovation, p. 8. 45/ James Do Thompson, "Decision-making, the Firm, and the Market, " in New Perspectives in Or nzational Research, edp by Cooper, Leavitt, and Shelly, Chapter 19, pp. 334-48.

However, if'he" manager has no distinct guide-lines from which to draw conclusions, littlre confidence is likely to bd placed in his decision. For this reason Bower has suggested that new- product decisions be made "by the 46/ book," that is, by an objective, preplanned method of analysis — - Bower has two reasons for this suggestion: (1) objectivity increases confidence in the decision- and reduces fear of criticisna and (2) objectivity provides a means for suggesting alternatives to the original proposal, A note of caution comes from Pessemier and Root who point out that new-product analysis may often be a negotitiive rather than an objective. 47/ decision-making process — Proposals are championed by supporting.. groups as -fthey vie for the Irmited resources available in the firmto The proposal, then, is shaped to its final form by this barg4ining operationo They suggest; however, that this bargaining can be an effective means of new-product-decision making if it is "based on appropriate information " This type of problem solving puts a great deal of emphasis on having a decision maker who is ideally both able and objective, 0 A lack of ability or objectivity in the key managers who handle newproduct decisions can severely restrict successful innovatior in ithe firm 46/ Marvin Bower, "SNurturing Innovation in an Organization," The Creative Organization, ed. by Gary Ao Steiner (Chicago: University of Chicago Press, 1971), Chapter 10, ppo 169 81, 47/ "Dimensions of New Product Planniing, " p.- l,

Vroom specculateas that "a major source of ineffectiveness in large scale organizatioins'" is inability of decision makers to recognize and discriminate 48/ among stimuli which require different responses,.-" This inability indicates further evidence of the point made by Pessemier that human error plays a 49/ significantrole in the failure of many new-product ideasO- Vroom suggests a splution to this problem: "Insofar as the capacity to discriminate between stimuli can be modified by experience, it is possible for organizations to train 507 individuals to make discriminations required by their roles "-/ This ability to discriminate, thens is another facet of the innovative process which could be improved by' a managemrent deve lopment, management-training prograrm The objectivity of:managers is perhaps not so easily insured. It wa-s- sggested earlier that decision makers are subject to errors of emotion which may tend to impair their objectivity0 Alexis and Wilson concur in fteir study of organizational decision making: "The judgment of 51 / perceivers is often: distorted when a strong need is attached to an event"'-/ 48/ Victor Ho Vroom, "Some Psychological Aspects of Organizational Control "New Perspectives in Or anizational Research, edo by Coopers Leavitt, and Shelly, Chapter 5, p. 73. 49/ "TNew-.Product Ventures." 50/ "Psychological Aspects of Organizational Control," p4 75< 51/ Marcus Alexis and Charles ZO Wilson, OrganizationalDecisionmaking_ (Englewood Cliffs, N, J.o Prentice-Hall., Inc., 1967) po 68.

The lack of objectivity on the part of the decision maker results from a conflict between personal and organizational needs. As in the proposal stage, it is up to the organization to provide the individual with a situation which makes it to his advantage to have the same goals as those desired by the firm, Ado ---ptio....-.ha s'e' Once the decision to proceed with a new-product proposal has been made, the organization is still faced with the problem of implementing the project and integratiig it te ogoing ncns of the firm. Here production,marketing, and other line functions must be brought into the development process so that the product may be built and sold, In this phase, coordination becomes the key to success. In an earlier discussion of the coordination problem, evidence was; presented which indicated that misunderstandings about the rank of product innovation on the list of organizational goals can result in a lack of cooperation among. ope rating divisions. It was suggested by Roberts that the absence of a commoni language for communication among departments can aggravate the goal-congruence problem and also cause difficulties in transmitting necessary knowledge about the new product from the R & D department to the line functionso" — Further prooff of this point s offered by Guetzkow: 52/ '"Communication Imperative.

The functional specialties like sales and engineering must have an adequate language for communication of their problems to each other, so the bands of assumed constraint may be broken and innovation achieved.O3/ If misunderstandings and barriers to communication do exist, conflict among the departments is likely tp arise and not likely to be resolved., This resentment, if left unresolved, results in the rise of subgroup norms which hinder the operations of other groups and make coordination very diffic'ult. Without the perspective and overview of the whole organization provided by the interaction among departments, individual subgroups become reluctant to cmn promise, a process which Normann considers essential to coordination in the new-product process. J. D Thompson provides a rationale for this reaction 54/ in his discus'sion of organizational aversion to uncertainty - Each depa.rtment, in the absence of knowledge of other department functions, wishes to insulate itselif fro m uncertainty. The result is that production wants a Ionstant production flow; marketing wants line variety and short delivery; and the financial department wants low inventory. The outcome of these conflicting demands is di"'astrous if coordination is lackingo 53/ Harold Guetzkow, "The Creative Person in Organizations, in The Creative Organization, edo by Steiner, Chapter 2, po 40. 54/ Normann, 1"Organizational Innovativeness;" and Thompson, "Decision-making, the Firm and the Market "

The suggested solution is to train those respon sible for interdepartmenta l communication to 'understand each other and, further, to get line managers involved as a group in the product development at an early stage so that problems 55/ may be anticipated before the product is introduced, This solution is' likely to head off successfully interdepartmental conflict between general management and functional hierarchies over organizational change resulting from product" innovation, In considering the impact of innovation on the structure of organw izations, Herbert Shepherd e.xplains that any of the necessary changes "are likely to run counter to certain vested interests or to violate certain territorial rights."- Zalesnik puts this problem into perspective: Whatever else they may be, business organizations are political structures in that they provide a base for the development of managerial careers and a platform for the expression of individual interests and motives, 57/ Each organization, then, has an existing power structure which has: a large colmmitmtent to the status quo. New products require shifts in that 55/ Tietjen, Organizing Product Planning Function, po 60 56/ "Innovation Resisting and Innovation Producing Organization, p. 4200 57/ "Povoer and Politics," p. 47.:

power structure because they demand scarce resources and provide new power bases for those responsible for the products' success9 Those in power who are unwilling to see their power reduced will fight the innovations, The result may be a sort of 'organizational inertia" as the struggle for power 58/ paralyzes the firm. -- Even where there is no open conflict, resistance may remain; as Sayles points out, "Hidden behind the consensus for innovation may be, and usually are, diverse and conflicting interests in the organizationo When there are many bases of power in the organization this problem of resistance can become complicated, In a study of retail stores, Sapolsky found that Diversity in department store structural arrangements, the decentralization of 'iecision-making authority, and the existence of a large number of equally powerful subunits frustrated attempts to implement innovative proposals 60/ Here. is one 'of the contradictory situations alluded to earlier, The open.and decentralized type of structure w'hich has been identified as enhancing the 58/ Peter QG. Peterson, "Some Approaches to Innovation in Industry.." in The CrseaStive.Organization, edo by Steiner, Chapter II, p. 185'. 59/ Leonard R, Sayles and Margaret Ko Chandler, Managi.n La-rge:r Systems (New York: Harper-Row, Publishers, 1971), pO 39. 60/ Harvey Mo Sapolsky, "Organizational Structure and Innovation, Journal of Business, Volo 40, No. 4 (October, 1967), p. 509.

-34 -ability of the' organization to propose and evaluate innovations, now makes it difficult to get innovations implemented. The strong leadership from the top and the singleness of purpose so essential to gaining compliance from the various power centers irn the firm is absent in the decentralized firm, If the whole process of innovation is to be carried through there will obviously need to be some tradeoff between these two opposing structural demands, The relevant criteria for deciding on what this tradeoff should be will be discussed in the next s'ection. One consideration that should be kept in mind is -that perhaps the prFoblem can be dealt with by other than structural means, Theorists 'in the area of motivation, such as Atkinson and Lawler, have indicated that performance is more likely to conform to desired patterns if members se'e personal goal attainment promoted by good performanceo Thus the organization must restructure the firm so that individual power centers see innovation as expanding rather than restricting the scope of their con' t r o 'L ' ' ** *** **** *.. *, ^ *... ** ^ **** ****. tr ol-. In order to::understand the relationships among the inter- and intraorganizational variables which have been identified as impacting on new-product development, the author has outlined a factor model of irnnovation,o The model and an explanation of the relationships are discussed below, A Factor Model of Innovation The model (Figure 3) contains all the organizational processes and characteristics previously discus sed, such as organizational climate, decision-, making and coordination functions, and the organization's human-perceptual

-Organizational IntraC... 4-Te dency — -I:; Tenden:cy Variables..'...':.i.-. I; -: — V-:-:e ":. - to Innovate* I t " -A',ok",-. 1 ~ ^ -: I tyro a. Coordination f F.unctional Departmnents Current PFormal & Int. Power Struct. Fig. 3. A factor model of innovation.

characteristicso Also included are a group of variables not previously considered: the environmental variables —relative firm size, market structure, and relevant technology0 Of all the factors suggested in the modelthese variables are unique in that they are relatively permanent conditions faced by the organization and, for the most part, beyond its control0 These variables become significant because, as Merton points ouut, the rate of innovation depends on things outside the organization —its environment and marketo o In an effort to diagnose the more or less innovative organization, therefore, one should diagnose the environment of which it is a part, the kind of competition it is subject to. 1/ The conclusion that may be drawn from this statement is that while there are some organizational characteristics which generally make a firm more able to innovate there are also factors in the fironms envronmet which may make it. undesirable for the organization to acquire these characteristics, For example, organizations that are srnall relative to other firms in a particcular market may find it too expensive to develop their own innovations; or a firm in a relatively stable market, perhaps a market in which it is the only firm, may find that the cost of innovation cannot be economically justified. These are situations in which the organization might wish to forego the flexibility and increased tendency to innovation which result from an open structure in order to gain the advantages of accountability and predictability that are characteristic of a more bureaucratic form of management0 61/ Robert Ko Merton in The Creative Organization, edo by Steiner, po 194"

Research into the effect of size on a firm's propensity to innovate indicates that the effect varies with the type of technology in the firm's industry A study by Mansfield implies that in industries where the complexity of technology makes the innovation process relatively expensive most of the innovation is conducted by larger firms which can afford the risk of failure, On the other hand, in environments where the cost of innovation is relatively low and returns initially small, the smaller firms tend to lead the wayo Westfall suggests that such findings may be the result of more organizational inertia in the larger firm and of the fact that innovations must show a 'probability of larger returns to interest the largest firms in an industry. Collier presents research which s upports these contentions and in addition offers the idea thatsize may also affect technology. He suggests that as firms become larger they tend to have more cost-efficient but less-changeable forms of technology.The funtctioning of a firm's relevant market is another variable which has been studledO For example, Mansfield shows that firms in a moret competitive ma:rket environment tend to be more innovative. Another 'aspect' of market"function is suggested by Enos in his finding that the number of 62/ Edwin Mansfield, "Size of Firm, Market Structure, and Innoovationf Journal of Political Economics, Vol. 71, No. 6 (December, 1963); Westfall,.St "Stimulating Corporate Entrepreneurship, " p. 242; and Donald W, Collier, "An Innovation System for the Larger Company, Research Managemel, Volo 13, No, 5 (September, 1970), pp. 342-3,

63/ innovations tends to be greatest in an industry where the market is expanding o-/ These resu-lts seem accurate, since in the former case competition from other firms would tend to spur the organization to get ahead of the pack, and in the latter case an expanding market would generate slack in the industry and also give promise of greater returns on innovation. The final variable which has been identified as part of the environment is the relevant technology in the industryo Perrow has found that in industries where operational technology tends to be fairly stable, programmed, or roub tinized the tendency to innovate is less than in industries where technology must deal with more exceptions or is in a state of fluxo This relationship of technology to intnovation is a reflection of a similar relationship between industry innova — tion and the d.egree of turbulence in the whole environment O Connell concludes that innovatioon is more likely to occur in uncertain environments because pre64/ programmed solutions do not exist to deal with problems that ariseo — This lack of preprogrammed soLutions sets off a search-for-solutions process which 63/ — Man$sfield, "Size of Firm, Market Structure; ' and John Enos-, "Invention and Innovation in the Petroleum Industry, The Rate and Direction of. Innovaftve A:ctivity Economic and Social Factors, edo by RR o Nelson (Princeton, No Jo: Princeton University Press, 1962)o 64/ Charles Perrow, OranizationalAnal sis: A Sociolo ical View (London: Javistock Publications, Ltd., 1970); and O'Connell, "Organizational Innovation, " po 5.

.39., ends with an innovation' Thus the environment may be viewed as affecting the innovative process in significant ways...,......... Impli cations. In orde r to determine the effect of these environmental, variables on the efforts of those trying to improve the organization's innovation process: these variables should first be included in the organizational audit proposed by-this author as a first step toward change, Since environmental characteristics can make it unprofitable for a firm to attempt innovation, perhaps a study of the environment is the most logical place to begin analysis. What is needed is a means of classifying firms according to type of environment and from this classification deciding the potential advantage to the firm of an improved climate for innovationu Emery and Trist provide a possible methodology for classifying the environment of firms on a continuum from turbulent to patternedo Although this measure is relatively rough, it could indicate the constraints to innovation that exist in the environment, The second step in deterrmining the value of innovation to the firm brings to mind a suggestion by Rensis Likert that what is needed in any change effort (improving innovation could be considered.& a subset of organizational change) is a computation of the: e conoxmiecs 65/ of change ---" an assessment of the cost to the firm of institung a more open 65/ F, E. Emery and R, L. Trist, "The Causal Texture of Organiw zational Environments, Human Relations, Vol. 18 (August, 1963), ppo 20-26; and Rensis Likert, New Patterns ofManagement (New York: McGraw-Hill Book Company, 1961).

system of control, new communication networks, etc. The cost of such change would be measured according to such variables as the amount of resistance. expected, value of control lost, and the increase in uncertainty. All these costs must' be balanced against the value of expected return on the innovations which come as a result of the change. Although this type of analysis is imprecise and subject to judgmental error, if it could avert a change effort by showing the change to be undesirable, it would be worthwhile. T eechniques If it is valuable to continue with an effort to improve the intraorganizational management of innovation, the next step is to design and implement the organizational audit, Although each audit should be designed to fit the particular organization, there are general rules to be observed for all cases, The first is that those conducting an organizational aud4it should hold no preconceived notion as to what is right for the compatny. The fact has been alluded to previously in "this paper, but it is worth repeating: "We caan scarcely assume that the dynamics of innovation are the same for all formal organizations regardless of typeo 0 / Thus it is possible that what may make one firm more innovative may create chaos in anothe r. Those conducting the audit should also realize that they are dealing- with 66/ William M. Evan and Guy Black, "Innovation in Business Organizations: Some Factors Associated with Success or Failure of Staff Proposals, Journal of Business, Vol. 40, No, 4 (October, 1967), p, 520.

-41 -individuals not simply an organization0 The analyst may be variously viewed by those in the firm as a troublemaker, a knowledgeable specialist, or a helpful friend' How he is viewed depends largely on the amount of trust the members of,the group have in him. Since the a o unt of information the auditor is likely to gain hinges on the cooperation of those on the lineD his first effort should be winning the acceptance of those with whom he must deal, Watson and Glaser have advised that the best way for the auditor to dispel suspicion is to bring the managers into the audit process as soon as possible: "Their participation can be invaluable for pinpointing troublespots, 67/ collecting facts, and suggesting improvements 0 ' — Another recommendation is that the auditor identify formal and informal power centers in the firmo By working with these centers, he can possibly avert conflicts in the shiftf to the innovation-encouragement form of operation and also later when more changes are necessitated by the resulting increase in new products.. In considering which functions and organizational roles should be analyzed, the auditor should remember this point: it is generally agreed that the various aspects of the organization, such as task structure;:political structure, and human component, are interrelated and that changes in one are likely to result in changes in the others. In order that the analyst avoid 67/ Goodwin Watson and Edward Glaser, "What We Have Learned About Planning for Change," Management Review,: Volo. 54, No. 11 (November, 1965), pp, 34-47. Ii 11

-42- unadticipated consequences arising from changes he may suggest, he must first consider the implications of those changes for the other components- of the organization and then expand his analysis to include any component likely to be affectedo For example, if a change is made in the organization's structure necessitating shifts of responsibility, it would be logical to assume that the result could be some form of reaction from the managers affectedo In order to understand the dynamics of the change, the auditor should get feedback from the affected members, It will obviously be difficult for the auditor to anticipate all the repercussions of such changes, but he should make the effort. Perhaps the worse mistake would be to mxove too quickly from the audit to the actual change program. Any effort at adjusting structure or beginning a management-training program before the organization is sure of the right course can make later change efforts difficulto Managers involved in an abortive change process that is later modified or scrapped tend to become sceptical of any future efforts. Conclusion. After the audit is completed and the results fed back to top management to work out problems and gain acceptance, the change program should beready for implementation. The analyst should be forewarned, however, that thet. possibility exists that top management, even at this late date, may decide not to proceed with the suggested changes. Wallenstein cautions that

top management, in considering the larger framework of total operations, may find that'a shift of objectives to redefine the relevant environment is more 68/ acceptable than the indicated organizational changes,. — He suggests that management must have the final decision and that it should not be up to the proposer of change to sell the idea to those in charge, for change that -is difficult to introduce is not likely to be effective, Assuming, however- the case of management acceptance, the audit may then serve as a guide for the content of training programs and for decisions regarding changes in organizational structure or functions, This paper has tried to relate the analysis of an important problem with some suggestions for its solution. The process is as yet only an outline, but it is hoped that some of the proposals here can be used as the first step toward relieving the problems associated with the intrafirm management of innovation 68/ Gerd D. Wallenstein, Conceptual Practice of Product Plannin (New York: American Managerent Association, 1968).