Five Competitive Forces of Effective Leadership and Innovation

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Five competitive forces of effective
leadership and innovation
Charles McMillan

Charles McMillan is
Professor of Strategic
Management at York
University, Toronto,
Canada.

Introduction
How do organizations innovate? Are the main drivers the external environment impacting the organization, or a set of practices and processes within the organization? The unprecedented change in the global environment affects both organizational survival and management’s capacity to innovate. Climate change, the war on terrorism, digitization of production, global information flows, and the rise of new competitors such as India and China add to the mix of uncertainties, which Peter Drucker presciently called The Age of Discontinuity.

Organizations can apply uncertainties, some predicable or relatively probable, into their decision models, but most do not. Corporate managers take seriously the five competitive forces leading to organizational rivalry first articulated by Porter (1985) and widely adopted in corporate management and investment analysis. Despite the application of competitive forces and calculations for industry positioning, other factors determine corporate survival and success. Indeed, as long as firms focus on competitive rivalry, there may well be an economy of focus on organizational processes. What often separates many firms bordering on the precipice and those that innovate constantly stems from internal configurations of decision processes and design. This paper sets out a model of corporate innovation and the implications of the management processes of innovation.

The basic model
Organizational innovation forms the core metric of both organizational efficiency (more outputs from fewer inputs) and organizational effectiveness, i.e. long-term survival. In general, there is a difference between invention, the discovery of an idea, or innovation, the exploitation of ideas into organizational practice. The distinction between invention and innovation is similar to primary or basic research (carried out in government or university laboratories by scientists and engineers) and applied research, usually carried out in business firms (Simon, 1983). In reality, there is a basic continuum between many aspects of invention and innovation.

The author would like to thank
David Hickson, Gerry Mahar,
and Rodney Schneck for
comments on an earlier draft of
this paper.

DOI 10.1108/02756661011012741

In general, innovation comes from more than technological applications, even relatively simple ones like camera functions in a cell phone, or placing toner in a cartridge for a photocopier or printer. Indeed, innovation may be rarely detected by consumers or the public. It may be embedded in the product, or form part of the innovative processes within the organizational structure. Japanese firms, once seen as copiers and imitators, were true innovators because they took basic products or processes and made fundamental changes.

What are the internal competitive forces that foster innovation? Within organizations, competitive forces imply resource rivalry for personal attention, either for the parochial good

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of the individual, or for the good of the organization. Internal forces affect the core values of the organization, its DNA, through the social psychology of its members, the processes of decision flows, the formal and informal role sets of individuals and groups. Such issues impact how incentives are skewed towards executive advantage versus organizational advantage. By its nature, innovation is a process and a design change from one state to another, involving a range of social and behavioral process, from surprise, disruption, grand leaps, to the unknown or unforeseen.

The basic model is set out in Figure 1. The five forces of effective leadership are: 1. core organizational skills...
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