The Steinhoff Saga Management review - University of Stellenbosch Business School

January – July 2021

Understanding the link between management innovation and competitive advantage

By Prof Marius Ungerer and Davida Buys

  • JAN 2021
19 minutes to read

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Management innovation is as important as others types of innovation

A significant amount of research has gone into technological, process, service and strategy innovation as ways to give companies a competitive edge. But what about management innovation? What role does management practices play in a company’s productivity and competitiveness? What are these innovative managerial practices, processes, techniques and structures that can be used to ensure sustainable organisation performance?

This article is based on the journal article titled A Case Study Analysis of Management Innovations in a Small and Medium Enterprise in South Africa in which the researchers explored the link between management innovation and organisational performance by conducting in-depth interviews with key role players in the case study organisation. This enabled the researchers to identify and describe these management practices that, based on the company’s financial performance (growth in net asset value over the past 10 years), is are giving them a competitive edge. What’s more, management innovation is difficult to imitate or copy because these innovations are not so visible to the outside world.

 

Taking a closer look at management innovation

In the global economy, knowledge work is seen as the primary source of economic growth. Therefore, organisations with the ability to develop and implement practices to build, share and leverage knowledge are predicted to have a competitive advantage. Management innovation is typically found to be such a practice.

The adoption of MI is organisation specific. Some researchers have found that those companies that pursue product and process innovations will in all likelihood also pursue management innovation.

… management innovation is difficult to imitate or copy because these innovations are not so visible to the outside world.

Management innovation has various dimensions – such as managerial practices, processes, structures and/or techniques. All of these dimensions were considered during this study.

  • Management practices: This refers to the ways in which work gets done in an organisation. This includes the daily activities of managers – such as developing talent, setting objectives, meeting stakeholder demands, and arranging tasks and functions.
  • Management processes: This forms part of the work of management, and includes planning, organising, leading and controlling. It also includes strategic planning and human resource management practices.
  • Organisational structure: This refers to the structure through which certain activities are directed to achieve results through the workforce, such as hierarchical teams or self-managed teams. In other words, organisational structure is the way organisations communicate with employees or how information flows between levels, and achieves results through teams.
  • Management techniques: These refer to the systematic and analytical methods or tools used to help with decision-making, measuring the effectiveness of innovation, and promoting creativity. The balanced scorecard is one such tool.

… organisations with the ability to develop and implement practices to build, share and leverage knowledge are predicted to have a competitive advantage. Management innovation is typically found to be such a practice.

Managerial principles and leadership

To ensure ongoing improvement and to achieve success, knowledge-intensive service organisations will use a different set of management principles than, say, traditional industrial organisations.

Companies that rely on knowledge work would typically want allocation flexibility (utilising capital and talent resources where best suited as opposed to power hoarding executives’ choices), competition in terms of ideas, and the transfer of power to teams so that employees can empower themselves. This means these companies’ leaders need to encourage innovation and distribute power to all levels of the organisation. These leaders need to communicate a shared vision, support internal change agents, and develop an organisational culture that supports risk-taking, allowing teams to try out new processes, practices or structures.

Management innovation does not come with a fixed recipe. However, there are best practices and principles that can help organisations to embrace management innovation.

The main research objective was to identify and describe novel management innovations. A secondary objective was to explore the impact of innovative managerial practices, processes, techniques and structures on the organisational performance of the organisation.

This study focused on the identification and description of management innovation practices, processes, structures and techniques as applied in one specific company. The case study organisation is a private equity fund operating in the property field. The consequences of the implementation of MI for the performance and longer-term survival of the organisation are also described. The target company is a property development and management business in South Africa that offers financial, investment and project management services to its customers. Established in 2003, this private equity fund specialises in commercial and industrial property procurement, development and management. The business primarily utilises knowledge workers such as lawyers, accountants, actuaries and project managers.

Management innovation does not come with a fixed recipe. However, there are best practices and principles that can help organisations to embrace management innovation.

How was the study conducted?

An exploratory research method was used to gain insight into management innovation practices in a knowledge-intensive company as the case study organisation. To gain a deep understanding of the MI practices, processes, structures or techniques in the case study organisation, in-depth interviews nine key role players using an interview guide were conducted. The aim of the interviews was to gain deeper insight and multiple perspectives into how the individuals practised management innovation on a daily basis. Thematic analysis was used to identify common themes across all the interview data.

 

What did the study find?

During the data analysis phase, the following organisational MI themes emerged within the four dimensions of MI that support sustainable organisational performance.

Distributed leadership leads to an organisational community that contributes to an environment conducive for creativity and innovation.

Organisational structure

  • Flat structure: The company has a flat organisational structure. The founder, who is also the CEO, appointed four directors over 14 years. These directors are involved in the day-to-day operations and long-term strategy, and are supported by approximately 10 supporting staff members. The founder is not involved in the daily operations. The directors are responsible for setting up meetings and chairing proceedings as a deliberate power-sharing signal by the founder to live the reality of a flat organisational structure. The work environment is characterised by collaboration and an informal structure. Information flow between levels is fast and effective due to the size of the company.
  • Self-managing teams: Results are achieved through collaboration and working together in parallel teams. Systematic work processes drive the overall monthly process, in which employees work side by side and rely on each other to do their respective parts. Employees have a high degree of autonomy. They work hard to ensure that their work is completed. Yet, they also support each other without hesitation. Self-managing teams form and meet informally when required.

 

Management practices

  • Overall: Enlightening human resource practices employed by the organisation include a focus on the skills of the knowledge workers, the roles and responsibilities of employees, job design, recruitment practices, employee development, flexible work arrangements, relationship management and performance management. The unique combination of practices provides direction for the day-to-day tasks, supported by clear roles and responsibilities. This enables the organisation to function in a unique way that is different from industry norms.
  • Skills and abilities of knowledge workers: As a knowledge-intensive organisation, each knowledge worker has a unique set of skills and experience that they contribute to the collaborative work environment. This includes financial, auditing, construction and project management skills, contractual and property law expertise, and property portfolio management and financial management know-how. This combination of competencies differs from industry norms, and helps to distinguish the company from others operating in the same field as they benefit from the collective knowledge of their employees.
  • Roles and responsibilities: The organisation does not work with formal job descriptions; it expects employees to work on a broad range of tasks. Employees are aware of their specific roles and responsibilities, but also that they are trusted to help fill gaps to get a job done. Employees take accountability for their work and assist each other to ensure that the monthly processes are executed effectively. The organisation regularly reviews roles and responsibilities to evaluate workloads and minimise task duplication. Employees are required to work on their own and in teams to ensure that the strategy is achieved.
  • Talent practices: Vacancies are determined based on strategic requirements such as the capacity to grow the organisation, address shortcomings in the knowledge base, and ensure long-term sustainability and efficient functioning of business processes. The company mostly employs people who have worked for the organisation in an external capacity beforehand as there will be “no surprises” in terms of the person’s abilities. Employees are selected based on their technical capability, personality and potential to fit into the organisational culture. Talent is developed through in-house training and succession planning. In-house training is based on knowledge sharing and on-the-job training. Knowledge sharing ensures that best practices are pooled and implemented. Also, knowledge sharing supports succession planning by ensuring that there are always two employees who can perform a particular function. The organisation supports a learning culture.
  • Flexible work arrangements: The organisation’s flexible working hours and annual leave arrangements suit both individual and company needs, and are in line with government regulations. This flexibility has a positive impact on employees. The flexible work practice is a key motivator for employees to join the organisation.
  • Relationship management: The organisation approaches all relationships as lifelong relationships, treats employees and external stakeholders with the utmost respect, and values relationships above short-term financial gains. Broker agents are important to them, and are therefore treated as their number one customers. They pay the agents’ commission immediately and never negotiate for lower commission rates. Their approach to building lifelong relationships with stakeholders is also reflected in the staff turnover rate which is “just about zero”.
  • Performance management: The organisation functions effectively without performance management indicators and appraisals because its overarching purpose guides every decision and action. As one participant said, “It’s not [only] about the rand bottom line; it’s about the big picture”. Another one explained that their decisions are “based on the long-term view”.

Long-term relationships with stakeholders increase the value-creating exchanges required to ensure sustainable organisational performance.

Management processes

  • Overall: Findings indicated that the organisation implemented core management processes – such as remuneration planning, resource allocation and project evaluation – in a distinctive manner.
  • Remuneration planning: Remuneration principles and increases are based on discussions between directors. Due to the relative small size of the organisation, the directors are aware of the commitment and efforts of the entire team. The organisation values key stakeholders like the broker agents. The brokers’ commission is paid as soon as the contracts are signed.
  • Resource allocation: The allocation of financial and other resources are based on peer-reviewed processes involving a multi-disciplinary team. There is no capital expenditure limit to evaluating projects; team members are made available and expected to support and evaluate all projects to ensure a collaborative approach to decision-making.
  • Project evaluation: Project evaluation in the organisation is based on a collective knowledge advice process. Technical requirements include due diligence investigations. Each employee contributes specific skills during project evaluations in order to ensure comprehensive, realistic and accurate offers. The evaluation and decision-making process is fast, effective and efficient, and enhances the competitive advantage of the organisation.

 

Management techniques

The organisation implemented management methods that enable efficient and effective decision-making, open communication between employees, and constructive conflict resolution.

 

  • Decision-making: The organisation uses specific processes for distributed and effective decision-making. Business information is available to all, and the decisions are based on the collective knowledge and skills of the team. As one participant said, “We are constantly all on the same system and using the same information.” Employees are encouraged to collaborate, ask questions and add value to business processes. They believe in an open door policy and in empowering staff to “come up with ideas”. Employees are aligned with the purpose of the organisation, which guides the decision-making process and the nurturing of relationships. One participant explained it as follows: “Our goals are aligned, so it is to maximise property value without upsetting stakeholders or at the loss of [value] or taking advantage of somebody or something to maximise it, that wealth must happen naturally and not abusively in any way.”
  • Conflict resolution: Conflicts are resolved through constructive debate and open communication. The effective management of competing perspectives is critical to ensure comprehensive, realistic and accurate offers to external stakeholders. The collaborative nature of project evaluation and resource allocation processes requires employees to be responsible and accountable for their functions and contributions, and to encourage constructive debate. However, it can also be the source of conflict. Constructively debating competing perspectives enables the organisation to explore new possibilities.

 

Did the innovative management practices lead to sustainable business performance?

For this study, organisational performance was evaluated. The financial and shareholder performance indicator used was growth in net asset value (NAV) over time due to the private equity fund nature of the case study organisation. The market performance benchmark used was the organisation’s performance against the national vacancy rate of the South African Property Owners Association (SAPOA).

Over the years, the case study organisation continued to grow despite challenging economic circumstances such as thestormy 2008 economic crisis”. They did well even when “a lot of property consortiums in the country collapsed due the nature of the investment they made”.

The company’s financial data indicated that it has been successfully growing its NAV over the past decade. According to one of the participants, this can be ascribed to the company’s “… collaborative, joint goal seeking where the goal is to maximise net property wealth”.

What did the study find?

Findings from this exploratory study indicated that the combination of key management innovation aspects – such as leveraging collective knowledge of employees, valuing stakeholder relationships and participative decision-making processes – contribute to organisational performance.

This study focused on the identification of original management innovations as implemented in a case study organisation. A secondary focus was to explore the influence of innovative managerial practices, processes, techniques and structures on the organisation’s performance. From the results obtained, it can be concluded that successfully implemented MI practices, processes, structures and techniques have a positive influence on sustainable organisational performance:

  • A diverse workforce that leverages collective knowledge for project evaluation and decision-making contribute to a flexible and responsive organisation.
  • Strategic talent selection helps to build a strong knowledge base.
  • Clear roles and responsibilities lead to employees taking responsibility and accountability for their work, without the need for performance agreements.
  • Distributed leadership leads to an organisational community that contributes to an environment conducive for creativity and innovation.
  • Long-term relationships with stakeholders increase the value-creating exchanges required to ensure sustainable organisational performance.

 

As the world enters the Fourth Industrial Revolution, much attention is given to process and technological innovations to ensure competitive advantage. The contribution of management innovation to create flourishing work environments is still largely ignored in business and by scholars. Management innovation is a necessary condition for opening up the collective genius in an organisation, but not sufficient. According to business thinker Frédéric Laloux we also need the will, determination and insight of leaders to show the way and create space for innovative and human-centric ways of managing (Laloux 2014:239).

 

  • Find the original article here: Ungerer, M., & Buys, D. (2021). A Case Study Analysis of Management Innovations in a Small and Medium Enterprise in South Africa. Journal of Contemporary Management, 18(1), 93-120. https://doi.org/10.35683/jcm20060.98
  • Prof Marius Ungerer teaches strategic management, leadership and change management on programmes such as the MBA, the MPhil in Management Coaching and the PGDip in Leadership Development at USB. He is also an annual Visiting Professor at the NUCB Graduate School, International MBA Program, Nagoya, Japan, and a visiting faculty member of the University of Johannesburg.
  • Davida Buys is an MBA alumnus from the University of Stellenbosch Business School.

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