Innovation Management and Failiure

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Innovation Management and Failiure

• Finkelstein and Sanford- The rise and Fall of
  Iridium
• Van de Ven- Central Problems In the Management of
  Innovation

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Learning from Corporate MistakesThe Rise and
Fall of Iridium Sidney Finkelstein and Shade H.
Sandford
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Concept and development of Iridium

• Motorola engineer first gets the idea behind
  Iridium in 1985
• Satellites would allow subscribers to make phone
  calls from any global location
• Motorola established Iridium as a separate
  company in 1991 and had its initial service in
  November 1998

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• Motorola experienced declining sales and needed
  technological success to protect its reputation
• Motorola invests 6,6 billion for satellite
  design, launch operations and management
• Strong top management team with many years
  experience from Motorola

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The Launch

• Spectacular launch Nov 1, 1998
• Handset costs 3, 000
• Cost per minute 3 - 8

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Results

• Devastating results by April 99
• Only 10,000 subscribers
• CEO quits before quarterly results
• Bankrupt August Friday 13, 1999

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Reasons for Iridiums collapse

• Cellular build-out reduces need for Iridium
• From concept to development
• 11 years

• Manufacturing problems
• Launching of service before enough phones were
  available
• Insufficient marketing and sales plans
• Delay in marketing teams in foreign countries

• Technological limitation and poor design
• Unable to use phone indoors
• Phone the size of a brick

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What really went wrong?

• Breathtakingly elegant and innovative technology
• Untenable business plan
• Why did they go forward with an increasingly
  flawed business plan?

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What was the problem?

• Problem 1
• Executives made decisions based on the size of
  previous investments

• Problem 2
• Staianos leadership a double-edged sword If I
  can make Iridiums dream come true, Ill make a
  significant amount of money.

• Problem 3
• The composition and size of the board of Iridium

• Lessons learned
• Evaluate long concept-to-development projects
  competitive landscape

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Discussion

• 1. How important is diversity and independent
  perspectives in corporate boards?
• Examples, think Norwegian!
• 2. Pros and cons with financial commitment.
• For example a leader with many stock options

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• Central problems in the Management of
  Innovation
• Andrew H. Van de Ven

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Introduction

• A conceptual framework
• Written in 1986
• FAQ from CEOs
• What environment/ culture/ infrastructure is
  necessary to be able to innovate?
• The reason for the massive emphasis on project
  organization and team work?

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Innovation.

• is defined as the developement and
  implementation of new ideas by people who over
  time engage in transactions with others within
  the institutional order.

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Important factors and their problems

• Ideas and managing them into good currency
• People and managing attention
• Transactions and managing part- whole
  relationships
• Context over time and institutional leadership

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Managing ideas

• Ideas are developed over time and in a social and
  political dynamic environment
• Implementation
• Good currency

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Managing Attention

• Psychological limitations to managing complexity
• Stability versus creativity/ change
• Need for Innovation

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Managing part- whole relationships

• Multiple functions from idea to reality-
  transaction between the different parts are
  difficult
• Impeccable micro structures into macro nonsence
• Self- organizing groups, redundant functions,
  requisite variety and temporal linkage

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Institutional leadership

• Need to transform the structure and practices in
  the organizational and institutional environment
• The goal is to create an infrastructure and
  culture for innovation and organizational
  learning
• - Negative feedback
• - Experimentation and selection approach
• - Preserving uncertainty and diversity

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Iridium- an alternative interpretation

• 400 MUSD for 25 of total stock share, 750 MUSD
  in loan guaranties, an option for additional 350
  MUSD
• 6,6 BUSD in contracts
• 50 MUSD in contracts per month with Motorola,
  lucrative, should be half
• SG Cohen has estimated the value of Motorolas
  total exposure to be between 1 1.15 BUSD

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• Motorola gained 750 MUSD in profits from Iridium
• Additional to this, Motorola have the patent
  protection for the satellite technology,
  approximately 1000 patents at the time when
  Motorola was entering the satellite communication
  industry
• Staiano CEO 1996
• Lack of focus

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Final discussion

• Is Irididium an example of bad management in
  Iridium or good management in Motorola? Could
  this have happened in Telenor- Opera? (How does
  the Iridium leadership differ from Van de Vens
  article?)
• Who had the financial commitment and strategic
  control in the case of Motorola/ Iridium,
  Telenor/Opera, and what does this say about the
  organizational integration?

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Everybody

• Can you relate Iridium and Opera to one of these
  organizational models?