Innovation at Novozymes 2002 Project

Novozymes

Management of Technology

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TABLE OF CONTENTS 1

CASE PRESENTATION........................................................................................................................................... 2 1.1 1.2 1.3 1.4

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KNOWLEDGE AS A BUSINESS RESOURCE IN NOVOZYMES ................................................................... 7 2.1 2.2 2.3 2.4

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NOVOZYMES’ ABILITY TO APPROPRIATE THE RETURNS FROM INNOVATION ................................................... 21 NOVOZYMES AND TECHNOLOGY SYSTEMS ....................................................................................................... 21 BALANCING COLLABORATION WITH UNIVERSITIES AND BUSINESS IMPERATIVES .......................................... 21 IMPROVING NOVOZYMES COMPETITIVE POSITION ........................................................................................... 21

NOVOZYMES, A TECHNOLOGY-INTENSIVE ORGANISATION ............................................................. 22 4.1 4.2 4.3 4.4 4.5

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THE COGNITIVE DIMENSION OF NOVOZYMES’ EVOLUTION AND TECHNOLOGICAL OPPORTUNITIES ................ 7 THE THREE COMPONENT MODEL ...................................................................................................................... 12 SCIENCE AND TECHNOLOGY.............................................................................................................................. 14 OPTIMIZING TECHNOLOGY POTENTIAL AND YIELD .......................................................................................... 18

KBR PERSPECTIVES FOR FURTHER DISCUSSION.................................................................................... 21 3.1 3.2 3.3 3.4

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CASE COMPANY: NOVOZYMES............................................................................................................................ 2 THE FOUR PHASES OF NOVOZYMES’ INNOVATION FUNNEL ............................................................................... 2 TECHNOLOGY OBJECT OF ANALYSIS: LIPEX ....................................................................................................... 4 PROBLEM DEFINITION ......................................................................................................................................... 6

INNOVATION STRATEGIES IN DRIFTING ENVIRONMENTS.................................................................................. 22 LEARNING .......................................................................................................................................................... 23 CREATIVITY ....................................................................................................................................................... 28 SKUNKWORKS.................................................................................................................................................... 32 MANAGERIAL IMPLICATIONS IN DRIFTING ENVIRONMENTS............................................................................. 33

TIO PERSPECTIVES FOR FURTHER DISCUSSION ..................................................................................... 36 5.1 5.2 5.3 5.4

TECHNOLOGY AND SOCIAL INTEGRATION ........................................................................................................ 36 KNOWLEDGE AND ACTION ................................................................................................................................ 36 NETWORKING AND NETWORKS AS COMPETITIVE ADVANTAGES ..................................................................... 36 PRACTICE, COMMUNITIES AND SOCIAL INSTITUTIONS ..................................................................................... 36

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REFERENCES ......................................................................................................................................................... 38

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APPENDIX I: ORGANISATION CHART........................................................................................................... 41

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APPENDIX II: INNOVATION FUNNEL ............................................................................................................ 42

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APPENDIX III: LIPEX TIME LINE .................................................................................................................... 43

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APPENDIX IV: THREE COMPONENT MODEL ............................................................................................. 44

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APPENDIX V: INTERVIEWEES AT NOVOZYMES ....................................................................................... 45

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Novozymes

Management of Technology

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CASE PRESENTATION

1.1 Case Company: Novozymes Novozymes has been chosen as our company of analysis due to numerous reasons, of which we will elaborate a few. Being a world leader within a competitive and infant industry such as the enzyme industry has required a sustained effort to innovate and market truly new products through a strong focus on applying knowledge in developing and utilising technology in its processes and products.

Due to its size, Novozymes provides a multi-faceted organisational context in which innovation takes place. However, because of a strongly divisionalised organisation (see Appendix I), it has been possible to subject a single unit, i.e. the research and development department, to a thorough analysis, yet still in the context of the overall organisational framework.

Novozymes has been highly successful so far, as indicated by the data below, however, maintaining this position is a constantly challenging task, of both organisational and technological character. In the following we will briefly describe some facts about Novozymes. Novozymes A/S was established in November 2000 de-merging from Novo Nordisk A/S. Subsequently, Novozymes was quoted on the Copenhagen Stock Exchange in the year 2000.

Novozymes manufacture approximately 75 types of enzymes and with almost 600 different products they have the largest enzyme product portfolio in the world. Customers are not typical end-users rather large corporations such as Proctor & Gamble and Unilever, which are both major players in the detergent industry. Novozymes’ enzyme solutions cover more than 20 different industries where the main industries are the technical (detergent, textile, leather and the forest industry), food (baking, juice & wine, alcohol and oils & fats) and animal feed sectors (animal feed industry). Out of Novozymes’ total sales of DKK 5,3 billion in 2001: • • •

66% came from the technical enzymes (mostly for the detergent industry) 26% from food enzymes and 8% from enzymes for animal feed.

There are approximately 3400 employees represented in 25 countries of which 2000 are based in Denmark. The R&D facilities consist of nearly 700 people situated in Denmark, USA, Japan and China, the Danish site being the most extensive.

In 2001 Novozymes had a global market share of approximately 43% within enzymes in general and export accounted for roughly 98% of the total turnover. However, they have experienced an increased competition on the global market for biotech-based enzymes in recent years, their main competitors being the American-based Genencore and several Japanese companies. Despite this, Novozymes has retained a market share of 54% in 2001, within their core competence, being the detergent industry, compared to Genencore’s share of 36%, which secures them the position as the largest enzymes manufacturer on the global market. With a very few exceptions Novozymes has been behind every major discovery in the field of enzymes for the last 40 years.

In 2001 Novozymes used approximately 13% of net turnover on R&D and have introduced 41 new products to the market during the period 1996-2001. In 2001, sales of new products and concepts accounted for around one third of total turnover and a dedicated effort in R&D is expected to ensure that this pattern can be sustained and further improved. This reflects the significance of the R&D department and their ability to continuously develop new products to the enzyme market. To protect their innovations Novozymes makes use of extensive patent portfolio, which consists of more than 4000 active patents and patent applications.

1.2 The Four Phases of Novozymes’ Innovation Funnel In highly innovative industrial environments, organised innovation processes are necessary for corporations to control and manage product development. Most such procedures build up over time 2

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in a natural most-efficient manner to encompass the different and necessary chains in the innovation process. Today’s businesses keep a close eye on the market potentials derived from consumer behaviour to invent, produce and market new products. Previously Novozymes relied on basic research and pushed new products on the market, whereas today these products reflect the market pull. The innovation processes evolve naturally from the change and experience of the market pull to include the chains of today’s practice. Previously those procedures where hidden inside the mind of the group of employees, but slowly as the procedures become more evident and embedded in routines they also become more explicit. Since 1995 the innovation processes within Novozymes have become common knowledge of practise, and as an attempt to communicate this group hidden knowledge of existing practise it is now codified and illustrated as the innovation funnel model (also see Appendix II).

1.2.1 Idea Generation Prior to entering the innovation funnel, the idea-generation stage within Novozymes is a highly important initiator. The primary source of idea generation is the knowledge possessed by the scientists and engineers working at Novozymes. Ideas flourish in the creation of new products or process technologies. Secondly, ideas are generated in the academic environment from the continuous flow of scientific publications from public institutions. Thirdly, the miscellaneous, but vastly growing category comprises customer requests and feedback from other relevant stakeholders.

When a given idea is under appraisal by management there are two outcomes. It can be approved and consequently acquire the status as new lead, or may be rejected. However, it should be noted that ideas are never deleted from the accumulated pool of ideas. Management might conclude that despite the potential of a given idea the technology may not yet be present, let alone find it plausible to be developed in the near future. In turn, the idea is rejected but stored for future reappraisal.

1.2.2 New Lead When a new plausible idea is generated and approved, the innovation enters the first phase, New Lead. The business prospects are considered by the Industrial Strategy Group (ISG), Research & Development Management (RDM), Patent Portfolio Group (PPG), and top management whether or not to incorporate this product in future research portfolio. ISG appropriates the product and evaluate whether the potential product is in line with Novozymes overall strategy. The RDM evaluates the technological constraints and consider the feasibility of further development before the process enters the second phase of the innovation funnel. PPG analyses the freedom to operate, i.e. the possibilities of patenting without infringing existing patents.

1.2.3 Discovery If the product passes the strategic and technological evaluation it enters the discovery phase, where hundreds of different associated enzymes are analysed. Once scientists have identified a class of enzymes with theoretically promising characteristics, the next step in the discovery process is to select the most suitable variant for the intended purpose. The first generation product often consists of several hundred variants with similar characteristics yet small differences in the way they perform. Through careful and time-consuming analysis of all the variants of the first generation product, those classes of enzymes matching certain performance criteria are selected for further research. Based on this second generation product, production cultures are produced, in order to 3

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test each of them for its efficiency level. If a single enzyme shows promising performance, efficiency and stability, a process of cleansing and formulation will be undertaken. Based on the results from the efficiency analysis of the second-generation product, the decision whether or not to market the product is taken.

Now that a single most promising enzyme has emerged, it is tested thoroughly in terms of toxicity to ensure that it does not have any unwanted negative effects. Since these tests are extensive and expensive they are only undertaken when all other indicators suggest a successful product. Just before the product enters the fourth phase, the PPG is once again on the case to ensure patents are in place for future appropriation.

1.2.4 Development The third phase of the innovation funnel is development, which in practice is cleansing, fermentation and up scaling of the enzyme production. Since the enzyme has only been produced in small amounts in the laboratory, Novozymes needs to know whether up scaling of the production process to reach market demand is possible. The enzyme is usually expressed in a microorganism such as yeast or fungi. Mediums of growth (i.e. sugar or Soya beans) are added to a substance containing these microorganisms, which secrete an array of enzymes and other bi-products including the target enzyme. This enzyme is then extracted from the substance through cleansing.

Along side the entire innovation funnel, incremental product and technology innovations are exercised in terms of parallel skunkworks. Further, a product may recycle the innovation phases and feedback in loops to correct failures and possible improvements disregarded. This is particularly the case between discovery and development.

1.2.5 Launch Finally the product is launched withal it entails. An important part is the customer feedback that again triggers the idea generation and collaboration. Besides it is important to mention that in most innovation processes customer collaboration is an ongoing necessity to ensure the product outcome fits the constantly changing market.

1.3 Technology Object of Analysis: Lipex Before describing the development of the enzyme Lipex, it is initially important to understand the hierarchy of innovations that preceded Lipex (see Appendix III for time line). During the middle of the 1980s the affiliate of Novo Nordisk responsible for the development of enzymes, Enzyme Discovery & Development, set about to produce a new enzyme. The idea was merely based upon the interest of a group of their core engineers and chemists (see Appendix V for list of interviewees). They believed it was possible to produce a fat dissolving enzyme that could be embedded with regular detergents. In addition it would have the added bonus of working under the specific circumstances of washing machines, such as high temperatures and high pH1 levels, remove the fatty stains the first time clothes were washed as well as being environmentally friendly.

Till this point in time, no enzyme product with these properties had been tested in the market.

However, certain chemicals had traditionally been used in combination with detergents for the same purposes with limited success.

Before the project could be authorised, top management had to evaluate the potential of the product.

ISG, RDM, the board of directors and PPG all had to produce a part of the total analysis. Despite the lack of knowledge of the market, and information about the final product, ISG concluded that it would be very profitable due to its nature. It would be a radical new way of producing detergents and it would give Novozymes access to new markets with vast unprecedented potential. This was 1

A measure of the acidity or alkalinity of a given solution

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also the impression of the board of directors, where the project was accepted and allocated the necessary funds. At the same time RDM with its group of scientists, engineers etc. concluded that the theoretical foundation was sufficiently sound due to their knowledge and prior experience with lipase generated on a skunkwork basis. Lastly, PPG had evaluated that although patent expenses would be considerable, the potential was the primary factor. In addition, the market for this kind of product would be new, hence there were no existing patents they risked infringing. Little was known about their major competitors’ progress in this area, but indications from the major ones in the US and Japan suggested that they too were planning similar research. Overall, the project was given the go-ahead. Soon thereafter, in the year of 1988 the development team had turned the traditional natural proteins called lipases into such an enzyme with fat stain dissolving properties.

They branded it Lipolase.

Subsequently, Novo Nordisk became the market leader within detergent lipases. Lipolase was considered a radical innovation by the industry, including competitors, customers and to a lesser extent their sub suppliers of growth medium and production technology. It was the first commercial enzyme developed by the application of genetic engineering and the first ever detergent lipase.

However, Lipolase didn’t work the first time clothes were washed as intended. Novo Nordisk kept Lipolase on the market, since their customers enjoyed the major profits from the claim value of Lipolase, while researching other variants; it was soon followed by two other lipase variants, Lipolase Ultra and Lipoprime. These were designed to work the first time clothes were washed, but instability of the enzyme caused the enzyme to fail. Needless to say, the development team was far from satisfied. Even though both new enzymes were marketed in 1997 neither became a success.

1.3.1 Lipex During 1997-98 the scientists at Novo Nordisk researched ways of solving the stability issue, and ended up with a solution where an amino acid, previously attached to the protein, became an integrated part of the protein, which stabilised the enzyme. This new variant was labelled Lipex.

However, the effectiveness of Lipex depended on the formulation of the detergent with which it was embedded. Novo Nordisk tried to sell Lipex on the American market, but failed since the American detergents were incompatible with Lipex. The marketing was cancelled and Lipex was dropped.

Not until early 2000 did Novo decide to overcome the market situation by testing Lipex with hundreds of different detergents under various conditions around the world. The idea of this came from newly hired members to the project team with similar backgrounds as the existing scientists but with different insight and experience. The testing and improvement of Lipex resulted in extensive documentation of the effectiveness of the enzyme and helped convince the market of its potential and was then re-launched in April 2002. Lipex now worked during first wash of clothes, hence the stability issue was solved and with a variety of fluid and powder detergents. In addition, Lipex works well at low and high temperatures, which is a particular advantage in Asia and Latin America.

Today, albeit the Lipex project is considered closed and the project team responsible for its development has been disbanded, some of the original scientists and engineers continue to improve its effectiveness and functionalities (through skunkworks). However, this is mostly due to the personal affection value rather than due to desires from management or feedback from the market.

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Novozymes 1.4

Management of Technology

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Problem Definition “By legitimizing the diversity of a multidimensional organization, management creates the core of an organization flexible enough to respond to environmental change.”

Christopher A. Bartlett, U.S. business and management writer

The quote by Bartlett extracts the core of our main contention and paradigm, in relation to the managerial responsibilities we, as students of business academia will face in the future. Regardless of the adjective used to describe the main characteristics of time, we believe, that the world in which we all live is dynamic; it changes, maybe not constantly, let alone with the same speed, but change it does. We know the changing world has potentially large implications for technology- and knowledge intensive business operations, calling for a degree of flexibility in all organisations, in order to respond to changes in the environment, in which the corporate world operates. Flexibility calls upon the use of neo traditional means, such as improved reliance on- and anchoring of new knowledge, deriving from ongoing learning and creativity processes. In addition, we also believe that traditional means, such as economies of scale and scope still play a role.

In this specific context of knowledge and technology, we find the enzyme Lipex, developed by the Detergent R&D Department in Novozymes, an interesting choice for this project, because it provides us with an option to analyse and associate our contention and profound interest, in a practical organisational context. Novozymes operates on an international scale, and is undoubtedly a very successful company and a cornerstone of the Danish economy, at least measured in relative terms. The international aspect and sheer size of operations, only fuels our interest in examining how Novozymes has reached this level of success, while competing with foreign players, remaining flexible and coping with environmental change. Indeed, Novozymes seems to diverging on several dimensions, but exactly how will be the focal task of this project.

The project consists of two major analyses, covering the two courses Knowledge as a Business Resource and The Technology Intensive Organisation, each providing its own theoretical framework and inspiration. We see both frameworks as complementary, which can be associated to our focal task, while conducting our analysis from two different perspectives. This will result in a broader field of understanding, within which we can answer the following: How has Novozymes achieved their dominant position on the international market for detergent enzymes, and how can they continue to sustain and possibly expand it through existing and new competitive advantages in a dynamic environment.

Since each perspective perceives our dynamic paradigm from different theoretical terms, we find it helpful to elaborate the overall problem formulation, within each of the two. Viewing change and dynamics as…

1. …shifting opportunity sets (Klevorick et. al., 1995), we examine how such determinants as evolving cognitive design spaces, knowledge spillovers, and economies of scale and scope, help to improve our understanding of Novozymes’ present competitive advantages, and how increased attention to these determinants could help shape the future.

2. …drifting environments (Kreiner, 1996), we examine how such organisational mechanisms as learning, creativity, and skunkworks have played a crucial role in shaping the organisation, and formation of a competitive advantages, and how these mechanisms should play a renewed strategic role.

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KNOWLEDGE AS A BUSINESS RESOURCE IN NOVOZYMES

Novozymes, being a complex and multifaceted company, provides numerous objects of analysis to the eager student of technology related projects and organisations. However, in order to get a thorough understanding of the basic drivers of the success and innovative capabilities Novozymes has exhibited over a long period of time, we have chosen to examine a few key contributing factors, which all play an imperative role in positioning Novozymes as the dominating player in the enzyme market. Having identified and discussed these drivers, we are presenting a number of perspectives, looking beyond the scope of our project, as there are many other aspects contributing to the success of Novozymes.

Our analysis is drawing extensively on the body of literature presented in the course curriculum.

However, we find it appropriate to involve external literature, which provides us with the theoretical framework to subject Novozymes to a more nuanced analysis. This literature includes: Henderson & Cockburn (1996), Henderson et. al. (1997), Nightingale (1998) and Arora & Gambardella (1994)2.

2.1 The Cognitive Dimension of Novozymes’ Evolution and Technological Opportunities Two main features of Novozymes’ environment have a major influence on its innovation strategy: First, the national system of innovation in which the firm is embedded, which in part defines its range of choices in dealing with opportunities and threats; and second, Novozymes’ position compared to competing firms, which in part defines the innovation-based opportunities and threats that it faces (Tidd et. al., 1997). In our first endeavour to understand the success of Novozymes, we commence examining the set of opportunities available to Novozymes. We look at the environment and technological regimes in which Novozymes is operating, including the design space and design language (Stankiewicz, 2000) developed within the organisation to exploit the set of opportunities and technological change. We do so initially in retrospect to get a better understanding of the changing technological opportunities and the inherent changing technological regimes. We analyse the distinct patterns corresponding to the four distinct technological regimes to understand why Novozymes was able to gain competitive advantage from the evolution of the design spaces and design languages within R&D and the production of enzymes.

2.1.1 Path Dependencies and the Opportunities Affecting the Emergence of Novozymes Viewed in a national historical perspective it is worth considering why the enzyme industry emerges in Denmark and why Novozymes evolve within a company like Novo Nordisk. Frederick Grant Banting, Charles Best and John Macleod did the discovery of insulin in 1922 and developed a method of isolating clean insulin. The following Nobel price rewarded research in the nucleotide sequence of nucleic acids by Frederick Sanger, who determined the structure of proteins, especially insulin. Denmark, previously being a highly sophisticated agricultural nation, a broad understanding and expertise was developed within the field of pig production and the natural occurrence of insulin in pig stomach, and consequently the former research in protein structure and basic scientific knowledge in the use of insulin as a medical cure of diabetes, resulted in Novo Nordisk being one of the first and leading companies within the insulin industry. As argued by Porter the evolution of the enzyme industry may be due to national path dependencies and the co-evolution of supporting industries within the dairy and beer industry, from where insulin and enzyme producers sourced skilled workers (Porter, 1990). Novo Nordisk adopted deep scientific knowledge about the structure of proteins and insulin and consequently contained the basic knowledge to expand into the innovation of enzymes. Hence, Novozymes can be argued to emerge due to national path 2

Page 523 – 532.

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dependencies but also due to the emerging design space developed as a result of insulin R&D, and because the national system of innovation (Edquist, 1997) provided the necessary supporting industry. The advance of scientific understanding and skilled specialists, the technological advances originating in the beer and dairy industry, the national system of innovation, plus the establishment of the enzyme market collaboration especially with P&G are all factors combining the initial set of opportunities (Klevorick, 1995) providing ground for Novo Nordisk’s involvement in the enzyme R&D and succeeding production. In the sections ahead, we will go in further depth with the character and determinants of the technological opportunities in relation to Novozymes evolution.

But as a first conclusion, the extent to which Novozymes is able to exploit the set of opportunities depends on the path of the particular firm (Tidd et al. 2001), on supporting industries and technologies, in addition to firm specific characteristics. Firstly, we will look closer at one of those characteristics being the cognitive dimensions forming Novozymes in the first set of opportunities.

2.1.2 The Evolution of the first Technological Regime The challenge of the company is to constantly absorb opportunities and exploit those in the competitive environment. The capacity to do so partly originates in the cognitive dimension. The accumulation and transition of technical knowledge and the relationship between the knowledge base of technology and the character and dynamic of technology development processes evolving from the R&D of insulin and other protein structures, established the infantile state of Novozymes’ knowledge base and origin. Initially a craft regime, so to speak, evolved from the experience of Novo Nordisk (Stankiewicz, 2000). Enzymes were developed through basic research and already established craft techniques, and craft products materialized slowly through the progressive accumulation of experiences and rituals. The R&D processes were characterised as deliberate offline experimentation and occurred largely as trial-and-error variety. Chance discovery and serendipity thus played a large role where thousands of enzymes had to be tested to encircle the potential protein structures, as declared by Allan Svendsen, computer scientist in Novozymes. The design space of the craft regime was poorly developed symbolically and the operands were badly articulated. Scientists, for example, used random screening since no formal procedures existed as oppose to today’s computer guided screening. The knowledge base expanded and became more abstract but remained in the beginning mostly as tacit, idiosyncratic experiences and know how within the heads of assigned specialists. Only slowly did the codification of the knowledge diffuse to become an evident part of Novozymes’ knowledge base (Boisot, 1998). These preliminary footsteps were important, to build the grounding knowledge of the operations behind Novozymes’ competitive advantage, and to establish the basics of the consequent development into the next stages of technological regimes.

2.1.3 The Second Opportunity Set From our analysis it is evident how the evolution of Novozymes, through the craft regime, was mandatory before it could evolve into its present state. This section will introduce the transition from the prior identified opportunity set into the present, in which Novozymes operate today.

We believe to have identified a new second opportunity set. This section is dedicated to illustrate the emergence of the second opportunity set from a variety of theoretical aspects. It is a complex matter to substantiate our argument for this second opportunity set, which to our belief has emerged over the past decade in the history of Novozymes, since its evolutionary characteristics involve many changing factors. We start by focusing on some of the most important theoretical work available, concerning opportunity sets3. Klevorick et. al. (1995) identify three sources for opportunity sets, which we find particular relevant for our analysis.

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He terms it technological opportunities.

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First, advances in scientific understanding and technique are, for a knowledge intensive organization such as Novozymes, of the essence. During the infantile stage, in the first set of opportunities, Novozymes underwent major progression in the accumulation of knowledge and the design space became symbolically better articulated. The scientist gained the necessary understanding of enzymology through the maturation of its underlying sciences. Furthermore, the various design spaces used evolved into each other, which implied synergetic benefits, from which new creativity and innovation could emerge, among others the product Lipex.

Second, technological advances in other industries and in other private and governmental institutions are important sources for the second opportunity set. To our opinion, the major break can be attributed to the progress of computer power. While trial-and-error remain an important engine of innovation in Novozymes, developments in many scientific disciplines, along with the progress in computational capabilities and instrumentation encouraged a new approach to industrial research (Arora & Gambardella 1994). Instead of relying purely on trial-and-error, the attempt is to also understand the principles governing the behaviour of objects in protein structures. The result is that relevant information, can now be cast in frameworks and categories and used in the development of software for better and faster analysis to encircle e.g. only hundred potential enzyme structures. This we label guided screening as an intermediate level of guided research.

Novozymes claims not to have gained any particular benefits from political initiatives whereas they believe institutions such as Danmarks Teknologiske Universitet (DTU) and Københavns Universitet (KU) have become a more integrate part of the external sourcing, where especially reverse engineering of nature and analytical decomposition is an important part of the R&D. Their dominant market position has been aided from this source, and further expansion of the opportunity set derives from this.

Third, feedbacks from an industry’s own technological advances can be an important source.

However, it is Novozymes’ perception that Novozymes itself constitutes the majority of the industry, thus delivers the majority of technological advances. A rather self-sufficient attitude that Novozymes to our believe will have to revise in consideration of the changing set of opportunities, an issue to which we will return in our discussion of science and technology.

Next, we wish to illustrate the second opportunity set by focusing on the concept of alignment gaps (Valentin et. al., 2002) between the design spaces mastered by Novozymes. The closing of such gaps has affected and shaped the opportunity set, of which Lipex is an excellent example. We believe, that for Novozymes to develop Lipex, a basic and applied knowledge base was required, thus any lack of such knowledge was preventive for the development of Lipex. Theoretically, it’s impossible to establish the exact time, when the accumulation of sufficient knowledge occurred.

However, after Lipex re-entered the development phase in early 2000 the research teams must have experienced a sufficient accumulations and transmission (Stankiewicz, 2000) of required knowledge, otherwise authorization for development would not have been given. We wish to use the concept of alignment gaps preceding this authorization, since our empirical study revealed a chain of events, which makes the concept of alignment gaps4 particular interesting to analyse. By juxtaposing the three phases of breakthroughs in the science-base of technologies5 with the development of Lipex we see the following. After embedding the amino acid strings in the protein itself, the scientist had experienced the sought breakthrough. They had created a stable enzyme that would work during first wash. This breakthrough was only possible due to advances in the sub technology in understanding, why these amino acid strings were external in the first place, why the detergents destroyed them, and how to embed them within the protein. Thus, gaps between all the 4 5

Same concept used by Iansiti, termed the distinction between potential and performance in technologies (Iansiti, 1997) Breakthrough, Technology Research and Development, and Technology Takeoff

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necessary sub technologies and knowledge were closed and were instead in alignment with the initial advances making Lipex possible.

Using Freeman (1997) a cluster of innovations, i.e. a small technological revolution, had occurred.

After this breakthrough several months were dedicated to further research and development of improving the conditions, under which Lipex would operate. In addition, other targets had to be met. Primarily, the scientists were concerned with the R&D of production technology, and designing the processes used in production. Such targets were characterized by high uncertainty and high research costs, motivated by the breakthrough itself. Within six months they were met, and take off could commence with production of Lipex in 2002 in a less uncertain and expensive atmosphere due to declining research expenditures.

The progression of Lipex development illustrates the importance of the alignment between technologies and the basic and applied knowledge within Novozymes. Now that we’ve established the complex arguments, documenting the second opportunity set, we can return to Stankiewicz’s theory of design spaces and technological regimes. Measured in terms of opportunity sets, Novozymes has exploited the first, and are well on its way in the second.

2.1.4 Further Evolution of the Technological Regimes It is beyond dispute, that the establishment of the design space aids our understanding of Novozymes from a cognitive dimension while trying to identify any parallels between the design spaces and patterns of technological evolution.

An avid reader of the case presentation will initially be tempted to conclude that the previously identified design space has followed the pattern of the research regime where the space is expanded through the discovery of new or modified basic operands as previously described. Novozymes is indeed dependant on its science base employed to define and structure their search for new improved enzymes, and since the emergence of Novozymes as a separate firm from Novo Nordisk, they have also formalised their innovation process in terms of the innovation funnel. In practical terms this means that new Lipex related operands are developed through deliberate search phases; a main characteristic of the research regime. However, Novozymes is a more complex organization than such, also comprising the production of enzymes using in-house developed technologies, which indicates a link to the engineering regime. The success enjoyed by Novozymes cannot only be attributed to its research capabilities. When the final feasible candidate for Lipex was found towards the end of the discovery phase in 2001 the development phase took over with a new project leader and team. They now had the responsibility of researching and developing the technology and production equipment required to upscale the candidate. This research is of a more collaborative nature where Novozymes for instance analyse and design the production technology in collaboration with firms specializing in the production of high-tech machinery and manufacturing equipment, resulting in the radical expansion of technological capabilities.

Despite the complexity of enzymes and its production processes, they are understood from a mere symbolic and abstract level by taking advantage of graphic and computational devices, at a symbolic level. This explores the design space on a theoretical basis before testing enzymes in labs or commencing manufacturing of the production facilities. In turn, the use of knowledge becomes more analytical and scientific, not constrained to its origin but instead multifaceted with various application domains. Subsequently, Novozymes performs the majority of the industry value chain, from R&D to production and more traditional disciplines such as marketing, sales, and distribution.

Our study suggests that the successful R&D and dominant market position played by Novozymes should be attributed to the existence in both the research and engineering regimes. Design spaces, involved in the making of the enzyme candidate, under the research regime, have in turn helped to

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expand the design spaces of the engineering regime, when developing the equipment used for upscaling, Not only their technological capabilities in researching and developing applicable enzymes, such as Lipex, but also their possession of the costly and complex discipline of producing the production facilities.

Among the interviewees one manager gave us the necessary insight and knowledge to see how well the firm assumes the nature of the architectural regime. After being quoted on the Copenhagen Stock Exchange, Novozymes found themselves in a new world, in which it would be held accountable for all R&D activities and their outcomes, resulting in either falling or rising stock value. Novozymes had made significant changes prior to the stock listing, including organizational and cultural aspects. Among these, Novozymes was forced to focus even more on its R&D activities and cut down on the existence of skunk work, since projects undertaken had to be proved economically feasible with profits in the near future. Sums spend on skunk works with no profitable outcome would be reported through the pipeline, and might have negative impact on stock value.

As a result, management decided to focus on improvements of existing products, such as Lipex, increase existing revenue sources, and hopefully expand to new markets while maintaining their current dominant position. This change of strategy has turned down idea generation thus the radical development of existing and new design spaces, and instead allocated resources to exploitation.

Scientists and engineers are focusing on the very definition of products and the user interface, which require renewed effort in reading and anticipating user needs, and in designing new complex systems, based on existing design spaces and technological resources. Customers such as Unilever and Proctor & Gamble serve the end users, typically large, highly heterogeneous groups. Applying architectural knowledge differs from its counterpart in other regimes, since its nature has changed to a more subjective variant, where new products are selected from a virtual world of possible candidates, found interesting by the customer instead of the research teams at Novozymes. Today, Novozymes works closely with customers in the architectural development of new products. The architectural challenge is predominantly concerned with the very definition of product functionalities and user interfaces, rather than entirely new product development.

Novozymes has undergone enormous cognitive changes, depicted by an evolution corresponding to the four distinct patterns of technological regimes (Stankiewicz, 2000). Most remarkably, design space has coevolved into each other, creating a significant and strong synergetic knowledge base.

We used the concept of alignment gaps (Valentin et. al, 2002) to illustrate how the gaps between design spaces were closed, and thereby illustrating how they integrated different science specific and technology specific knowledge domains (Iansiti, 1997).

2.1.5 Further Discussion By taking the part, dealing with technological regimes in the present analysis a step further, we wish to utilise the final remarks by Rikard Stankiewicz (2000). While only meant as a primer for a further discussion and for reflection by the reader, it raises some interesting implications for our empirical study of Novozymes. Stankiewicz believes a fifth regime has seen the light, due to the drastic and important role, played by information technologies. Labelled the Computational regime, its emergence is due to radical expansion of the design space towards molecular and sub molecular levels in combined use with modern computing and communication technologies. We see a close link between Stankiewiez’s identification of the computational regime and the opportunities of computer power identified in the in the second set of opportunities. The R&D of enzymes is especially undertaken at these levels, and thus raises the following questions. Where would we now place Novozymes compared to the already identified regimes, and what are the implications for their design space when knowledge relating to a specific design space is embodied in these tools?

Can the computational regime be considered as a complementary to or substituting part of the

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research, engineering, and architectural regime? What kind of synergies could Novozymes benefit from, and what new design languages would be incorporated into the existing hierarchy?

When discussing this computational aspect from an economic point of view, others (Arora et. al., 2001) believe advances made in scientific understanding has decreased the cost of articulating tacit and design space related knowledge, especially with the tremendous increase in computational capabilities. With Novozymes, we however believe that computational capabilities are more a tool in connection with R&D, than an economic tool for reducing cost. Regardless of the importance of computational capabilities, a minimum physical power would always be required (Boisot, 1998, p.

28).

Other authors (see Henderson, 1997) also discuss such regimes but in a purely historical context. In addition, Schumpeter followed the work of Kondratiev accepting the phenomenon of Kondratiev long cycles6 and offering a novel explanation. Whether or not such a theory, that capitalist economies experience major business cycles recurring every 50 years, offers the desired results is difficult to say in the case of Lipex (Freeman, 1997). However, we believe that Lipex is an excellent example of the fifth Kondratiev wave illustrating some of its main features. First, the everincreasing importance of education and training cannot be neglected and Novozymes is particular interesting within this field, since most scientists are highly educated usually accompanied with a doctorate in a given field. Second, we witness how the use of computers and other complex equipment have become an imperative tool to perform procedures, that if not available would require hundreds of employees, and thereby reduce overall cost, benefiting the customers and the diffusion of Lipex. Advanced digital computer networks are primary features, of the fifth Kondratiev wave, which have been embedded in Novozymes to support the diffusion and codification of knowledge, possibly aiding other scientist in their own work.

Even though the cognitive aspect, measured in knowledge, is one of the primary sources of success in the case of Lipex, and Novozymes in general, technological development could be analysed from a more complex perspective. Still using a cognitive approach to Lipex, Nightingale (1998) would argue that Lipex was socially constructed using tacit knowledge, thereby treating knowledge as a capacity that is embodied in the brain, and embedded in socialised practices. The consequence of these socialised paradigms is that scientific knowledge cannot be abstracted successfully from the social contexts that give similarity meaning (Nightingale, 1998, p. 692), hence the tacit character of scientific knowledge. For example, while someone might know what a combustion engine is, there is a very real sense that a mechanic knows more. Because he or she has deeper background knowledge of interwoven experiences to which new experiences can be compared (Nightingale, 1998, p. 693).

2.2 The Three Component Model We have previously examined the processes of accumulation and transmission of technical knowledge in Novozymes in order to reach an understanding of the crucial parameters within the cognitive dimension (Stankiewicz, 2000). This abstract perspective does not provide us with the ability to relate this knowledge, embedded in its employees, routines and processes, to Lipex. The conceptual framework for this analysis is the Three-Component-Model (see Appendix IV) encompassing and describing the relationship among the product functionalities of a given enzyme, the operands at the product- and process level going in to the product, and the knowledge base in the company exploited in this process. The development of Lipex and the cognition guiding the

6

Another related term is the notion of long waves (Ayres, 1990).

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research and development process might very well help us to identify the core competitive edge of Novozymes related to its competitors.

2.2.1 Product Functionalities Lipex is able to remove fat stains from clothes at high temperatures and high pH levels. It does not address a need that the customers have been unable to articulate prior to the launch of the product, but rather it presents a new solution to a problem that has been around for many years. Thus, the competitive advantage of Lipex was not the idea generation and identification of the product functionalities, contrary to the development of such products as 3M’s Post-It! (Garud et. al., 2001), which primarily relied on the idea itself and the functionalities. Rather, the key to the success of Lipex should be found at a later stage of the product-development process and its underlying knowledge bases.

2.2.2 Product- and Process Operands The product- and process operands comprise the design space within which the designing and assembling of artefacts are undertaken (Stankiewicz, 2000, p. 236). Thus, these operands play a defining role in shaping and limiting the functionalities of a given artefact, in this case Lipex.

Of product operands, it is worth mentioning the physical ingredients that goes into the product. As mentioned these are yeast/fungi, sugar and soybeans. Obviously these product operands are not proprietary or unique to Novozymes. Product operands in enzyme production are characterised as catalysts (mediums of growth), and not an integrated part of the end product. Thus, introducing new product operands will potentially make the existing process more efficient (e.g. more enzymes per unit of growth medium), but probably not enable the discovery of fundamentally new product functionalities, thereby minimising the advantage gained from such introduction.

To an increasing degree, computers play an important role in the design of the target enzyme, making it an important part of the process operands. The intensive involvement of computers takes place at two distinct stages in the process. Firstly, in the part of the innovation funnel called new lead. When determining whether a given enzyme is possible to produce or not, the computer aids the scientists in modelling potential structures of the enzyme, that match given criteria.

Subsequently, the computer is involved in the discovery phase, in which it is used to bring down the number of potential candidates to a level, where the scientists can manually evaluate the properties of each individual candidate and select the most promising one. Since enzyme modelling and screening is a very complex task, even with the help of computers, the interaction between scientist and computer is crucial to the success of the process. Thus, it seems that computational power is a crucial competitive advantage to Novozymes in its effort to innovate. However, we will argue that it is rather the underlying knowledge of operating and interacting with the computers and the ability to diffuse such knowledge, than the computers and software itself, that constitute the true competitive advantage.

The process operands of enzyme production include the mastery of various production techniques such as fermentation, cleansing, and upscaling. A defining moment in enzyme production is upscaling of the production process from small-scale experimentation to large volume production.

Novozymes has previously had to abandon promising enzyme products because of insurmountable problems in the upscaling part of the process. For unexplainable reasons, some production processes change when upscaled. Similar, the fermentation of the enzyme from the substance in which the enzymes are expressed can pose problems.

There are no formalised approaches to solving potential problems of production techniques. Often a new and unique solution is needed to cater for each enzyme production, stressing the importance of 13

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the ability to bringing complementing competences together in a problem solving entity. We believe that Novozymes’ competitive advantage in part can be attributed the process operands exploited in the research and development processes whereas the products operands do not contribute significantly to the innovative capabilities.

2.2.3 Knowledge Base As an organisation highly focused on R&D, the effectiveness of Novozymes depends on a base of natural science (Stankiewicz, 2000, p. 241). An incomplete understanding of the basic operands, as is partly the case within enzymology, makes it difficult to articulate explicit goals of a research program before it is undertaken, as was the case with Lipex. Hence, the ability to exploit and rely on existing knowledge in the organisation to solve issues arising during the research process is imperative. However, applying knowledge or technology developed in one specific context for a specific use, to another context and use, is rarely simple or straightforward (Arora, et al., 2001, p.

94).

The knowledge base of Novozymes seems to play a decisive role in the enzyme research and development processes, since it provides the supportive foundation from which the other components in the model leverage. Especially the interaction and linkages between the knowledge base and process operands seems to be crucial to Novozymes. This is by no means a coincidence. In an industry such as enzyme production, each product is unique in its research, design, properties and production process. As a consequence, the ability to merge different traditional sciences (i.e. chemistry, biology, molecular biology, pharmacology etc.) to a problem-solving unit, constantly exploiting knowledge generated in other contexts, is of outermost importance. Novozymes has secured such a steady flow of new knowledge by maintaining an extensive portfolio of projects, each contributing with new knowledge, thus adding operands to the shared design space and expanding the domain of possibilities, within which the search for technical solutions is undertaken (Stankiewicz, 2000).

From the above analysis, we believe that the competitive advantage of Novozymes is highly dependant on the successful exploitation and extension of the company knowledge base. We are not underestimating the potential advantage of an increased focus on the process operands, yet we argue that a fundamental understanding of the knowledge base and the factors affecting it will provide us with a better understanding of Novozymes and its potential in a highly competitive market.

2.3

Science and Technology

‘…the industry has recently undergone a dramatic shift from so-called ‘random’ to ‘rational’ drug discovery that may have changed the nature of the returns to scope and scale in research with potentially important consequences for …… the competitive dynamics of the industry’ (Henderson & Cockburn, 1996, p. 33)

Once the cognitive dimensions of Novozymes in relation to the exploitation of the new surrounding opportunity set has been discussed, it is now time to examine the actual processes of research and innovation and how these expand and exploit the present opportunity set, both the technological- as well as the more intangible part of the opportunities presenting themselves to Novozymes.

Exploiting these is multifaceted, in the sense that firms need a certain level of absorptive capacity for exploiting opportunities, which in turn increase the very same capacity. Absorptive capacity is the primary factor that allows companies to actually make use of the opportunities presented to them (Gambardella, 1995, p. 6). This absorptive capacity can be vastly enhanced through a wide portfolio of research projects generating the level of knowledge required to absorb new knowledge.

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We accomplish this by focusing on four separate parts of the opportunity set. First, we analyse economies of scale, second economies of scope, third inter- and intrafirm knowledge spillovers (Henderson et. al., 1996, p.32). Finally, we focus on a set of minor, however imperative, opportunities also increasing Novozymes’ absorptive capacity.

2.3.1 Economies of Scale From an economic perspective, it is interesting to understand if Novozymes gains any benefit from being a large multi-product and international company. Running a research-intensive company as Novozymes includes considerably investments in research facilities such as laboratories, specialized technology and equipment servicing the various research projects. These resources are to a wide extent considered subject to fixed costs, thus indicating potential economies of scale when these expenses are spread over a larger base of research activities (Henderson et. al., 1996, p. 35).

Novozymes is probably experiencing such economies of scale due to the centralisation of their R&D efforts in a few major centres, yet even for a large company as Novozymes some tasks in the research processes are requiring such specialised knowledge and technology that it is not economically feasible to keep the competences in-house. Thus, external companies and universities were employed to perform certain specialised tests in the screening process during the research process leading to Lipex.

If the servicing resources in the research projects are so specialised that even large corporations outsource them, Novozymes does not have a decisive competitive advantages compared to smaller players in the market. This is supported by the findings of Henderson et. al. (1996, p. 33) who state that only a small portion of the returns to size can be derived from economies of scale. We believe this is consistent with the way research is conducted at Novozymes, since obviously some economies of scale are realised due to the breadth of the research efforts undertaken. However, due to the existence of specialised companies and universities, which can undertake the specialised tasks, the advantage of Novozymes in comparison to a smaller player, is narrowed down to a less significant issue of costs rather than innovative capacity.

2.3.2 Economies of Scope In continuation of the above, Novozymes benefits from the ability to utilise knowledge generated in one project in other related projects, at little or no additional costs. This could be in the form of highly specialised scientists, whose work is of use for a wide range of projects. This is referred to as economies of scope (Henderson et. al, 1996, p. 35). Since the work of such specialists is highly dependent on the knowledge base of the company, it is hard to imagine a benefit from outsourcing such competences, as was the case above. This leaves the small players in the industry with a considerably disadvantages compared to Novozymes. Not only is it difficult to outsource the work of the specialists, but to the extent the smaller players attempt and succeed in doing so, their knowledge base is not expanded from the work of the specialists, forcing the smaller players to outsource similar tasks in subsequent projects.

We believe that Novozymes is facing significant economies of scope, both in an economic sense and more importantly through the exploitation and subsequent expansion of the knowledge base leading to increased innovative capacity (Henderson et. al., p. 33) or as stated by Arrow (Arrow, 1999, p. 159)‘The same information is used regardless of the scale of production. Hence, there is an extreme form of increasing returns’.

2.3.3 Inter- and Intrafirm Knowledge Spillovers Knowledge sources are vast, complex and numerous. In line with Henderson et. al., we will focus on inter- and intrafirm knowledge spillovers. Internal spillovers can be perceived as part of the 15

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economies of scope mentioned above. However, conceptually a clear distinction should be drawn, since internal knowledge spillovers affect output irrespective of expenditures (Henderson et. al., 1996, p. 33). Looking at intrafirm knowledge spillovers, we notice whereby sustaining a wide and diverse portfolio of research projects, Novozymes has the potential to utilise knowledge generated in one project in other projects within potentially different research areas. However, two closely interrelated factors are crucial to the successful exploitation of such opportunities.

First, we turn to Penrose and her theory of the firm (Best, 1990). When organising the portfolio of research projects within Novozymes, it is crucial that the research undertaken is of diverse character, yet not too diverse if it is to be of use within loosely related projects, ‘Extensive planning requires the cooperation of many individuals, and this requires knowledge of each other.’ (Penrose, 1959, p. 47). Thus, Penrose also touch upon the second important factor, which is the absorptive capacity of the various project teams in the organisation. If a certain level of insight regarding the inbound knowledge is not present, this knowledge will be of little or no use. Novozymes establishes this basic level of insight through the rotation of project team members among diverse projects, thus diffusing locally generated knowledge.

If properly managed, the potential of spillovers, originating from the wide range of diverse yet related projects, pose a significant competitive advantage to Novozymes. Seen in the light of the new opportunity set in which Novozymes is embedded, the ability to explore the effects from scale, scope and spillovers ‘…appear to become significantly more important as the industry has adopted a more science-based technology’ (Henderson et. al., 1996, p. 33). The increased importance of scale, scope and spillovers is rooted in the need for the ability to employ an increased level of basic knowledge in the development of new products in order to stay innovative and competitive. Large companies, due to the reasons mentioned above, have an advantage in doing so relative to the smaller players in the market.

Novozymes seems to have focused intentionally on exploiting technology-based science rather than science-based technology and the implications that follow. However, some external opportunities are not as easily managed, measured and exploited. Spillovers from other players within the industry as well as universities and other industries can potentially provide crucial knowledge, which can accelerate the R&D performance of the company (Arora et. al., 2001, p. 27; Henderson et. al., 1996, p. 36). However, since spillovers are not driven by a market, but take place without the intentional involvement of the involved parties, actively seeking the opportunity of exploiting the benefits is a challenging task. Since the potential of spillovers are particularly prevalent in geographical areas, with high concentration of scientifically or technologically active firms, such as Medicon Valley (Arora, Fosfuri and Gambardella, 2001, p. 27), Novozymes is placed in the midst of potentially valuable sources of knowledge spillovers. By establishing both formal in informal ties with other sources of knowledge, Novozymes has lately aimed at ensuring a constant flow of externally generated knowledge. One manager states: ‘We try to establish and participate in networks with external scarcely related companies, in order to benefit from each others’ knowledge and experience’ (Niels Henrik Sørensen, Novozymes).

In practise, Novozymes often invests in small start-ups in related industries, in order to open up avenues of knowledge exchange. However, it is important to ensure a culture in the organisation that does not promote internally generated knowledge as superior to external knowledge i.e. the ‘not invented here’ syndrome, as well as freedom for the individual to seek external networks and informal collaborations. The scientists and managers we interviewed expressed satisfaction with their possibilities of establishing networks, without any prior acceptance from superiors, though they differed in their perception of the actual extent of such collaborations.

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Due to the dominating position of Novozymes on the enzyme market, there has traditionally been a sense of self-sufficiency among the employees in relation to collaborators and other external players. This has had a dampening effect in the search for- and acceptance of- externally generated knowledge. It has now been acknowledged throughout the company that opportunities have been missed out and a more open and exploring attitude has lately been adopted towards external parties.

In continuation of the above discussion of the rather arrogant attitude of Novozymes in the past, it is important to notice that absorptive capacity might have been present within Novozymes to exploit external spillovers. However, the explicitly revealed absorptive capacity has not supported the embracement and exploitation of such external opportunities, i.e. the mindset of the individual, embedded in the organisational culture, has affected the way such external spillovers have been perceived.

2.3.4 Collaboration One of the most significant characteristics of the new opportunity set is the increased understanding and awareness of the fundamental building blocks used in enzyme development and production. As Klevorick states, the most important source of innovation seems to be the advances of scientific knowledge (Klevorick, 1995, p. 189).

Turning to Novozymes and the product Lipex, the knowledge of the properties of the naturally occurring enzyme Lipase had been known for decades and was available to any player in the market, who saw the potential of making a successful innovation from it. Relating to the innovation funnel, the impact of basic research is strongest in the first two phases. The idea generation and new lead phases are highly influenced by new knowledge within basic research, since it expands the domain of possibilities within which ideas can be conceived and crystallised (Stankiewicz, 2000, p.

236). Thus, returning to the question why Novozymes managed to make use of the Lipase, we find it likely that the creative competences in Novozymes enabled the scientists to theorise the potential product, which was eventually conceived because of the knowledge base and absorptive capacity Novozymes holds. The absorptive capacity originates from the knowledge base of Novozymes and was necessary to make effective use of the basic understanding of Lipase in the research process.

As described above, innovations emerged when Novozymes was able to make use of basic research freely available. Yet, another way of getting access to basic research is to actively seek it through the collaboration with educational institutions. One benefit of such a constellation is the fact that the resulting knowledge will often be of proprietary character, thus competitors will not overrun Novozymes if they do not manage to exploit the opportunities from the basic research. So far Novozymes has primarily used universities to do ‘reverse engineering of nature’ in the sense that some innovations achieved in the laboratories at Novozymes cannot be explained by the existing knowledge base. Thus, universities are asked to explain these serendipitous results. This was the case when Lipolase was turned into Lipex.

We see a theoretical problem in being strictly focused on either science-based technologies or technology-based sciences (Ziman, 1984, p.114), since a solitary focus on either excludes the possibility of deriving the benefits of the other. In practice, Lipex represents an excellent example of striking a balance between the two opposite extremes by on one hand expanding the knowledge base of the basic understanding of Lipase through discovery-oriented research. This enables Novozymes to anticipate and predict what could appear as serendipitous occurrences i.e. sciencebased technology. On the other hand, they conduct reverse engineering of nature and analytical decomposition of the final enzyme candidate for Lipex, to understand the underlying academic sciences. Despite this, we have observed a tendency, in which Novozymes is leaning towards the

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technology-based science approach. Naturally, the resulting knowledge is valid and can be used in subsequent projects, yet Novozymes risks entering a knowledge specific path dependency from which the expansion of the knowledge base is based on research generated in previous innovations.

The result could be an exhaustion of the knowledge base through what could be termed ‘knowledge inbreed’7. A more focused exploitation of the opportunities resting with the understanding of the basics of enzymology will provide Novozymes with an increased ability to generate new ideas and new leads, as was the case with the Lipex innovation, i.e. the input to the innovation funnel.

The discussion of science and technology has taken a new turning, with the remarkable work by Nightingale (1998). He argues that scientific knowledge does not directly feed into technology.

Rather, what is important in understanding technological change, Lipex for instance is the tacit knowledge of scientist used in development, which explains the features of this innovation. This new understanding of the role of scientific knowledge could be applied here, to explain why they often use reverse engineering of nature, in order to understand their own products. As stated by Nightingale, the starting conditions are unknown, while it is the end results that are known. The scientist had a rough idea of the end result with Lipex, capable of dissolving fat stains the first time clothes were washed, but actual starting conditions required to produce the chemical makeup and the enzymes mechanisms were unknown.

2.3.5 Other Relevant Factors Other external factors have proved a source of high potential if properly exploited. We will briefly touch upon the most significant one, computational power. With the development of semiconductors in the electronic industry (Klevorick, 1995, p. 191) a new avenue of research and development opened up for a variety of industries, including the enzyme industry. Novozymes have embraced this new technology in a number of processes such as screening and modelling. As mentioned earlier, the computational power has enabled Novozymes to move from a regime of ‘random screening’ to what we choose to term ‘guided screening’ rather than what some authors have labelled ‘rational design’ indicating that research to a large extent can be handled by the new technology (Henderson et. al., 1994, p. 66 and 1996, p. 33). However, as Gambardella argues, the move from ‘blind experiments’ to a new regime dependent on computational power does not ‘…imply that industry can now do without physical experiments.’ (Gambardella, 1995, p. 4), due to the complexity of the processes, which is why we term it ‘guided screening’. Novozymes is using ‘guided screening’ in the discovery phase of the innovation funnel, in that it enables the scientists to narrow down the number of potential candidates from several thousands to a few hundreds, by modelling and designing the target enzyme. Thus, an implication of these catalytic properties of the computers is a tendency of shortened timeframes between scientific discoveries and industrial application (Gambardella, 1995, p.2). Knowing that Novozymes is embedded in a pool of opportunities, the intriguing question now is how Novozymes ensures a constant exploitation of this knowledge, in order to optimise the technology potential and product yield of its innovations (Iansiti, 1997, 345).

2.4 Optimizing Technology Potential and Yield So far we have examined the first opportunity set that Novozymes managed to exploit, partly due to the historical path and the foundation in supporting industries and technologies. We have identified how Novozymes over time is able to evolve through diverse technological regimes, and how the design language effectively expands and build on the knowledge base. We have established that the key to Novozymes’ competitive advantage lies in a strong knowledge base and partly in the process 7

The concept of ’Knowledge inbreed’ is closely related to that of Path dependency and the Polya Urn dynamics (Arthur, 1994). However, it differs in the way it describes the negative effects associated with a sole focus on technology-based science.

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operands. This cognitive evolution and capacity, we argue, is an imperative reason why Novozymes today excel in R&D performance. Furthermore, we have identified empirical evidence, that Novozymes do not exploit the full potential of the second opportunity set at its present stage. In the combination of scale, scope and spillovers it seems that Novozymes due to its size may benefit from economies of scale in a minor economical sense (Henderson et. al., 1996), whereas scale and scope in the sense of a broad project portfolio actually, and more importantly reimburse Novozymes in several other ways. The scale capacity and scope ability in conjunction develop a knowledge base to better absorb both internal and external spillovers, nevertheless, we still question Novozymes’ attention to and full exploitation of those external opportunities. Even though our analysis does not uncover all aspects incorporated in Iansiti’s extensive research, we are confident in making some final remarks based on Iansiti’s theory (1997) of technology potential and technology yield.

The challenge is to stay competitive in the future and not rest on their laurels of the current success.

To do so Novozymes must take full advantage of the second set of opportunities. Theoretically simplified, the challenge is to increase the technology potential and product yield, and close the gap between technology potential and product performance (Iansiti, 1997). But, while high technology potential is necessary, it is not sufficient, because when projects in general increase their technology potential, this will not necessarily materialise in the overall performance. Thus, achieving high technology yield is critical in differentiating the highest performance products on the market (Iansiti, 1997).

2.4.1 Technology Yield Iansiti argues that better R&D outputs are not correlated to greater economical resources, in fact technological yield correlates negatively with high R&D resources, thus must be a result of other factors such as organisational processes (Iansiti, 1997, p. 353). From our analysis, without having identified all influencing factors, it seems that Novozymes excels in such processes, which is the accumulation and application of system knowledge through technology integration tasks (Iansiti, 1997), bringing Novozymes closer to realising the full potential of technology, reducing the gap between potential and yield. The scale capacity and ability to scope are sources to expand the knowledge base, leading to higher absorptive capacity. The broad research portfolio in Novozymes involves more groups in the research process, presenting more options. E.g. they have the capacity to screen hundreds of potential enzymes, plus the computer technology to focus the research successfully. This breadth of options will increase the likelihood of crafting a technological concept that leverages fundamental technology effectively (Iansiti, 1997).

Another main reason why Novozymes reach a high yield can be found in the evolution from the first to the second opportunity set. The evolution of the design language through changing design spaces (Stankiewicz, 2000) has aided Novozymes’ basic scientific and technological understanding and contributed to individual experience, which Iansiti identifies to be in correlation with higher yield. For example, by employing and keeping skilled laboratory scientists, like Jesper Vind, with rich contextual understanding of technology application, as well as being an enzyme prototype representative, Novozymes optimises the interaction between fundamental knowledge domains and the context in which they have to apply the technology. This is similar to Iansiti’s argument that, technology yield is positively correlated with the existence of an integration group, that spans the boundary between the technology and the context in which it is to be introduced, generating and applying system knowledge. Hence, we believe Novozymes excels in the task of technology integration (Iansiti 1997). Since efficient technology integration processes have significant correlation with technological yield, this is a key competitive advantage of Novozymes R&D performance.

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2.4.2 Technology Potential As Novozymes approach the maximum potential of a technology, the increase in performance diminishes compared to the incremental technical and biological effort, resulting in economically unfeasible research efforts (Martins, 1994). Hence, without expanding the technological potential, at a certain point it becomes progressively harder for Novozymes to increase product performance.

This is why Novozymes must be open to new opportunities, and change the self-sufficient ‘not invented here’ attitude.

The key to expand the technology potential lies in the fundamental technological understanding and in the access to deep knowledge domains about improving the dependent technological parameters.

Further it lies in the ability to absorb and apply new technologies. In Novozymes a daring approach exists. Even though the Industrial Strategy Group (ISG) decides on new innovation projects, they have no specific task of integrating new potential technologies. As Martin Barfoed explains, ‘it is a responsibility of the individual project manager to keep the eyes and ears open to new interesting technologies’. As previously identified, this attitude possibly leaves external opportunities to expand the technology potential unexploited. Fundamental technologies could be developed internally or externally, as long as there is enough internal knowledge to enable absorption. To take advantage of the set of opportunities, Novozymes therefore must realise and appreciate the set of opportunities and absorb the latent spillovers from competing and supporting industries. With a more welcoming absorptive capacity of both the set of opportunities and the inherent external spillovers, Novozymes will better close the alignment gaps of technologies (Valentin et. al., 2002) whether they are externally or internally available.

As well as enhancing yield, the size of Novozymes, e.g. the scale and scope capacity to generate many enzyme prototypes, also benefit the technology potential. The more basic research and the more laboratory scientists in collaboration with computer scientists explore and develop prototypes of potential enzymes, the more they build on the fundamental understanding of the relationship between technology and the application of such technology. This learning process constantly takes place in Novozymes in the search for an enzyme candidate, and adds to expanding the technology potential. In conclusion, we believe Novozymes must open up for new opportunities; invest in fundamental research and fundamental technologies, enhance disciplinary research application through devoted research groups, and influential project managers, improve product-process communication, which will finally increase the technological potential of their products (Iansiti, 1997).

Processes in accumulating and applying system knowledge have a direct, measurable impact on the characteristics of the resulting product. In other words, the products mirror the organisation that conceives them (Iansiti, 1997). Now if Novozymes is superior in developing enzymes, obviously being the market leader, the key lies in the knowledge base and in the application of this knowledge base, applying system knowledge, and integrating technologies to optimise product performance. So far in our project we have not analysed the specific ingredients behind Novozymes enormous knowledge base, neither have we in depth explored the complex creation of such a knowledge base, but keeping in mind that the product mirrors the organisation that conceives them, this is our objective in the second part of this project, wherein we turn to analysing Learning, creativity, skunkworks and the underlying context of innovation that optimises those imperative factors.

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KBR PERSPECTIVES FOR FURTHER DISCUSSION

3.1 Novozymes’ Ability to Appropriate the Returns from Innovation Huge sums are dedicated to R&D in Novozymes and without appropriating the returns of investment; Novozymes is soon out of business. Several mechanisms (Cohen et. al., 2000) can be employed in appropriating returns from innovated products and processes, but what mechanisms are chosen by Novozymes, and how are they influenced by the industry, in which it operates? An imperative issue to Novozymes is the securing of freedom to operate (Grindley et. al., 1997) when innovating, but how is this affected by Novozymes’ dominant position in the market? Turning inwards, much of Novozymes’ proprietary knowledge base, resulting from R&D, resides in the head of the individual employee, which is not the property of Novozymes. How is effective appropriation of such knowledge managed? (Arrow, 1999) 3.2 Novozymes and Technology Systems Denmark, as a system of innovation (Edquist, 1997), has until recently provided the resources, whether natural or intellectual, needed for Novozymes to exploit and excel in what we term the first opportunity set. This has provided Novozymes with a significant competitive advantage. However, attention to the emergence of regional and sectoral systems should be assigned, in the era of Medicon Valley. A new opportunity set has emerged in the realm of increased basic understanding of enzymology and computational power, possibly limiting the impact of the national system of innovation. How can Novozymes overcome the national dependency and national system of innovation, and expand to better exploit other regional or sectoral systems of innovation? The intriguing question is whether the technological system (Carlson et. al., 2002), in which Novozymes is operating, is able to produce the organisational, cognitive and economic dimensions needed to succeed in the new opportunity set? We further open the discussion of the motives and consequences, of establishing worldwide competence centres for R&D (Jungmittag, 1999)?

3.3 Balancing Collaboration with Universities and Business Imperatives Although is Novozymes is dominant, self-reliant and constrained to the technological trajectory (Tidd et. al., 2001) of enzyme R&D, technological strategies (Ford et. al, 1996) are still important to revise, by for instance analysing whether Novozymes could benefit from outsourcing certain aspects of its R&D. More importantly, we believe collaboration with educational institutions could be a great source for additional competitive advantages (Etzkowitz et. al, 1998), through knowledge sharing and sponsoring university research in exchange for any technological discoveries. However, such endeavours have consequences, for instance with intellectual property rights, thus the right to reap the profits. It seems to be a question of how to balance external linkages with business imperatives.

3.4 Improving Novozymes Competitive Position Assuming, Novozymes can be characterised as a system company (Bonaccorsi et. al., 2001), developing complex products, we can analyse interdependencies within firms, and estimate strategic options deriving from Novozymes product lines, their market application and main components among others. Regardless of the degree to which Novozymes is a dominant player, they cannot afford to neglect the value of understanding the effects of technological prime movers (Tratjenberg, 2002), as Lipex, have on their suppliers, competitors and customers, i.e. the interdependencies between firms (Afuah et. al., 1995). This complex and multidimensional image of Novozymes will on one hand improve understanding of its competitive situation, but cause a plethora of strategic implications (Bonaccorsi et. al., 2001) on the other hand.

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NOVOZYMES, A TECHNOLOGY-INTENSIVE ORGANISATION

In the first part of our project we analyse Novozymes in the context of changing opportunity sets.

We establish the theory of Novozymes’ emergence from a first set of opportunities, characterised as the infantile stage in the company evolution. As the scientific and technological understanding develops and the knowledge base expands, technologies align, which in combination establish the second set of opportunities in which Novozymes operate today. Similar to our contention of changing opportunities, Kanter (1988) argues, that the source of innovation or the occurrence of opportunity to innovate may be unpredictable. Kreiner (1995) agrees in that the future is uncertain, and states, reality remains ephemeral and does not lend itself easily to objective or lasting interpretation.

The environment in which Novozymes operates is highly competitive, uncertain, and subjected to considerable changes over time. Since product development processes, in the case of Novozymes normally expand over five to ten years, it alludes to the concept of ‘environmental drift’, i.e. a situation where something diverges from its projected course (Kreiner, 1995). Furthermore, there is a growing awareness that the customers’ needs are inherently fuzzy, dynamic, and misunderstood, which forces Novozymes to employ a very strict innovation process in constant interaction with the customers. For example, when the composition of a customer’s detergent changes over time, the biological interaction and following effect of Lipex may change character, thus the enzyme architecture has to be modified or redefined. The innovation process described in the case presentation clearly is a difficult task to manage. Nevertheless it seems as if Novozymes’ R&D performance and output is successfully targeted on the market. In this part of our project we question, how Novozymes’ R&D by means of learning, creativity and skunk work manage to outperform competitors. We do this from the perspective of organisational context for innovation and project and product development in the last part of this project. Prior to this, we need to explain why learning, as the starting point is an essential part when operating in drifting environments. We do so, by discussing the innovation model (The funnel presented in the case), and by discussing the innovation strategies in action in Novozymes.

4.1 Innovation Strategies in Drifting Environments In the following we will discuss whether Novozymes’ innovation funnel can be characterised as the linear model or the chain-linked model (Kline & Rosenberg, 1986), and we will argue that Novozymes follows a mix of different innovation strategies. But, before we continue to use the literature by Lynn et. al. (1998), it is appropriate to explain why Novozymes products can be characterised as ‘really new products’. That is because rarely, Novozymes’ products are radical innovations in terms of functionalities, but rather because of the constituents of those functionalities, i.e. ‘… enzymes are substituting chemicals previously used in detergents’ (Niels Henrik Sørensen, Novozymes).

When developing what Lynn et. al. (1998) define as ‘really new products’ four strategies prevail.

From our case presentation, it is tempting to claim that Novozymes’ innovation processes are following the linear model (Kline and Rosenberg, 1986) within a process driven strategy (Lynn et. al., 98). However, when Novozymes starts a new product innovation, they often have a clearly defined set of end functionalities, to comply with customers’ detergent, but the starting condition to achieve the end result is unknown. Therefore, science cannot simply be applied to technology, in the way the linear model proposes, ‘… because science and technology are going in opposite directions, not the other way around, since the mechanism of its action to some extend is unknown.

Hence the ‘direction argument’ (Nightingale, 1998, p. 699). We therefore argue, that even though the linear model shows the relationship between science and technology as an abstract uni-

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directional flow of information from science into technology (Nightingale, 98 p. 690), it does not apply to the processes in Novozymes that are far more complex.

In Novozymes, product development is structured around the innovation funnel. The individual phases are divided by formal stage-gates (Cooper, 93). During product development, customer collaboration is a central part of the innovation processes, continuously feeding back into different phases of the funnel. For example, when trying to discover the exact fat dissolving enzyme Lipex, they must test the stability of the protein in combination with P&G’s different detergents, before the innovation continues into the development phase. Further, despite the stage gates, feedback loops between the individual phases are crucial to the innovation processes. For example, project managers are communicating with ISG, PPG, the scientists, and laboratory technicians to coordinate research findings across boundaries, linking together decisions and knowledge imperative to the innovation process. This linkage from science to innovation is not solely or even preponderantly at the beginning of a particular innovation, but rather extends all through the process in Novozymes. As Allan Svendsen puts it, ‘… thus science can be visualised as lying alongside the development processes, to be used when needed’. This linkage of science alongside the central chain of innovation indicates an obvious similarity to the chain-linked model.

From the above, it is tempting to claim that Novozymes is a customer driven organisation (Lynn et. al., 98). But, in the uncertain realm of really new product development, being customer driven can also be deceiving because the customer may not be an accurate barometer of the innovation’s true application or potential. Environmental drift becomes a luring hazard, thus Novozymes does not expect to get innovations right the first time, but rather, they constantly learn from failures. A fine example is the first selling of Lipolase with the unsatisfactory double wash functionality, secondly the promotion of Lipoprime instantly rejected on the American market and, finally Lipex as the radical and successful product innovation. The learning processes generated by market collaborations (i.e. external learning) and interactions between scientists (i.e. internal learning), feeding back to the innovation funnel constantly optimising subsequent innovations, illustrates the significance of a learning driven strategy. From the above analysis we have identified a mix of two operational strategies in Novozymes; The customer driven and learning driven strategies, with the latter strategy being the most consistently employed throughout Novozymes’ lifetime. With the learning driven strategy in focus, we consider learning as an imperative source of competitive advantage in Novozymes. As stated by Ray Stata, chairman of Analog Devices (Lynn et. al, 1998): ‘ … in fact, I would argue the rate at which individuals and organizations learn may become the only sustainable competitive advantage, especially in knowledge intensive industries’.

4.2 Learning Novozymes’ ability to succeed in an ever-changing environment is partly because of its ability to learn through the innovation processes and its ability to apply this learning to subsequent innovation processes, which is all finally expressed in the product. As for all companies, Novozymes is highly dependant on the ability to apply knowledge to its processes of research and development. Thus, being able to learn from its actions and constantly expanding the organisational knowledge base is crucial, not only in order to be innovative, but in order to survive in a highly competitive market.

Initially we will turn our attention towards examining how organisational knowledge is generated through learning, as Sandelands and Drazin points out, ‘learning refers to both an outcome and a process, giving it a circular, tautological sense…’ (Weick, 1996, p. 441), indicating the close interrelationship between learning and the outcome, which we choose to term knowledge. Further, we will aim at identifying how Novozymes turns learning into a competitive advantage and

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conclusively, which factors of the changing environment that might pose potential problems to the way Novozymes learn.

4.2.1 Individual Learning Argyris and Schön have suggested that instances of organisational learning take its point of departure at the individual level when ‘…individuals within an organisation experience a problematic situation and inquire into it on the organisation’s behalf’ (Argyris and Schön, 1996, p.

16). Such instances of problematic situations have also been labelled instances of failure and error (Weick, 1996, p.444), which indicates that an action in a given context did not turn out as expected by the person who performed the action. Thus, whether it eventually leads to organisational learning or not, the concepts of failure and success are vital to the understanding of how instances of learning occurs in Novozymes. Before going in to a detailed analysis of the ways in which Novozymes as an organisation seems to learn, it is appropriate to discuss the concept of failure and success in the case of enzyme production.

4.2.2 The Perception of Failure in Novozymes The process of identifying the promising enzyme candidate for Lipex involved extensive testing and screening processes as described in the case presentation. The screening process involved as many as 500 incrementally different samples, out of which one turned out to be of potential interest.

In general, the discovery of a marketable enzyme is what could be termed a success, referring to Levitt and March’s terminology (Levitt and March, 1996). Thus leaving the scientists in the Lipex case with 499 failures in the process. This way of innovating is fundamental and inherent, with today’s technology and basic science, to all enzyme discoveries and an integrated part of the culture of Novozymes. As one manager puts it: ‘we know that we have to screen through a lot of failures to get to the success, it is just a matter of getting it done as fast as possible’ (Martin Barfoed, Novozymes).

Thus, when conducting research, the scientists at Novozymes constantly reflect upon the result of the processes they perform, drawing on the organisational stock of knowledge, evaluating whether he is faced with a success or a failure. This reflection in action will, in the cases of failure or a problematic situation, lead to what Argyris and Schön term, an individual inquiry on behalf of the organisation (Argyris and Schön, 1996, p.16).

4.2.3 Concept of Organisational Learning in Novozymes One could argue that the occurrences of failures in the enzyme production can hardly be termed a problematic situation, since the scientists anticipate them. However, the crucial issue is whether these instances motivate the scientist to inquire into why the result differed from the intended outcome or not. Further, if the scientist inquires into the situation, the learning products obtained has to imply a change in the organisational theory in use (Argyris and Schön, 1996, p.16-17).

In Novozymes, failed screening processes have provided fundamental new knowledge, through individual inquiries, which could possibly lead to radical new innovations. These innovations are examples of how failure can provide occasions for ‘analysis of the potentials and limits of alternative…techniques…’ (Argyris and Schön, 1996, p.17), which is an example of a learning product gained from organisational inquiry. Hence, in Novozymes the failures play a crucial role in creating new knowledge within enzyme production, leading us to conclude that even though failures might be anticipated, they are important drivers of learning and innovation in the organisation.

4.2.4 Diffusion of Knowledge Having established how individuals in Novozymes learn from failure on behalf of the organisation, we are left with the question of how this individual knowledge is transferred to Novozymes as an 24

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organisational entity. Theoretically speaking, the newly acquired learning needs to become embedded in the organisational theory in use i.e. the theory of action, which implicitly govern the pattern of activity in the organisation (Argyris and Schön, 1996, p. 13) or as Weick terms it, the know how of the organisation (Weick, 1996, p. 444). Such instances of organisational learning are not easily observed, since they are partly linked to the ‘images of organisation held in its members’ minds and/or the epistemological artifacts’ (Argyris and Schön, 1996, p. 16), indicating an intangible immeasurable process.

However, we believe to have identified certain processes of organisational learning. Concepts normally associated with ‘espoused theory’ (Argyris and Schön, 1996, p. 13), such as Standard Operating Procedures (SOPs), are used in a context that brings them close to that of theories in use.

By imposing on each employee to bi-annually update the formal SOPs with newly acquired knowledge, Novozymes aims at diffusing the individual and often tacit knowledge to a broader set of individuals. We believe that Novozymes has managed to bring the theory in use and espoused theory closer together than what is normally the case in most organisations (Brown and Duguid, 2000, p.76), allowing individual knowledge to become embedded in the employees mind. However, expert systems of this kind has inherent difficulties of capturing the unpredictable richness available if knowledge is diffused the traditional way, i.e. through direct contact between individuals (Levitt and March, 1996, p. 527).

This problem is overcome by the deliberate transfer of team members from various research programs from one completed project to another and mixed with other scientists, with the aim at transferring, diffusing and sharing tacit knowledge residing with the individual through crossfunctional teamwork. The same diffusion is ensured, when senior scientists are coupled with less experienced scientists resembling an apprentice-master relationship. These forms of diffusions are what DiMaggio and Powell label coersive and mimetic processes respectively (DiMaggio and Powell, 1983). Other tools for diffusion of individual learning include IT systems, such as Novozymes’ Projectweb and LUNA information database, which can spread information to a wide group of people, disregarding geographical distances, though they have the disadvantage of being unable to transfer tacit knowledge residing with the individual.

4.2.5 The Balancing Act Having identified that organisational learning within Novozymes’ enzyme production primarily takes place when failure occurs, we now seek an understanding of how Novozymes sources these instances of learning on one hand, and still ensuring the ability to exploit the generated knowledge on the other hand. We will draw extensively on Weick’s and Westley’s work, Organisational Learning: Affirming an Oxymoron. We are identifying processes and instances in the way Novozymes performs R&D, which can help us to understand how a balance is reached between exploitation and exploration (Weick, 1996, p.445) and how this balance might be affected by the dynamics of an ever changing environment.

Since failure is the driver of learning in enzyme production within Novozymes, one might argue that an increase in the likelihood of failing and an increase in the number of potentially failing projects would benefit the overall learning. For example that the objectives set for the department are unclear, increasing the sense of doubt and uncertainty among the scientists (Weick, 1996, p.

443-444). Most likely, this would result in an R&D department that has a very high degree of learning, but very little exploitation of the acquired knowledge since it constantly discards ‘…even adequate old methods in order to try new ones, looking upon each development as an experiment that suggests new experiments’ (Hedberg et al. 1976: 45).

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Theoretically speaking, bringing the above tendencies to the extreme, is what various authors, in slightly different contexts, have characterised as self-designing systems, disorder and exploration by Weick (1996, p. 443) or organisations embracing double-loop learning by Argyris and Schön (1996, p. 21). An organisation in real life is unlikely to be a pure exploring entity, since that would result in a paralysed organisation, unable to learn and act (Weick, 1996, p.445), yet parts of the organisation might experience moments or rather degrees of such related ways of generating learning. We believe to have observed elements and degrees of disorder in the way R&D is performed in Novozymes.

Thus, the concept of learning by failing has fostered many new products as well as entirely new product lines, based on the learning generated by the failing screen-samples. The path the company has been following is to a degree dependant on the discoveries generated in the trial-and-error processes of enzyme discovery. Thus, Novozymes has generated entirely new enzyme divisions based on the discoveries within seemingly distant enzyme businesses. This is the case with the divisions Leather, Textile and Forestry, which are derivations from the core enzyme production.

Such an ability to turn onto unfamiliar patterns of operations and question the theory-in-use, based on the assumption that what initially constituted an error in the research process could be perceived a success, is a characteristic associated with double-loop learning (Argyris and Schön, 1996, p.22; Garud and Karnøe, 2001). As opposed to this, the learning generated through the failures is rejected if the proper exploitation requires questioning the values governing successful performance (Argyris and Schön, 1996, p. 21). If such an approach was employed in Novozymes, reluctance to explore unknown territory, would result in loss of potential opportunities.

Moving to the other extreme we find what Weick terms the bureaucracy, order or the exploiting organisation (1996, p. 443), which is similar to what Argyris and Schön (1996, p. 20) label singleloop learning. This extreme is characterised by a perception of the organisation as a repository of prior learning, which is exploited in future innovations. Bureaucracies are ‘..associated with mechanical division of labour and…technical rationality, qualities which are designed to repress or forget confusing or contradictory qualities’. (Weick, 1996, p. 445). In recent years, Novozymes has embraced a number of new organisational instruments (Levitt and March, 1996, p. 524) most prominent being the computer technology. These technologies have the capability of recording history as well as shaping the future. How this is done is described below.

In practise, computational power has been introduced in Novozymes’ enzyme R&D, enabling scientists in interaction with the computers and an increased understanding of the basic elements of enzymology, to significantly decrease the amount of necessary sample screenings, i.e. failures, needed to identify a promising enzyme, i.e. successes. Brought to the extreme, we could speculate that one day, the basic understanding of enzymology would allow computers to generate designed enzymes based on a wish-list of properties formulated by scientists or a sales-manager! Thus, there would be no uncertainty in the research process; in fact there would be no research process at all.

This exploitation of the existing knowledge base would probably provide shortened research processes, but the lack of failure and disorder would effectively eliminate the generation of new knowledge, or limit it to a degree of reactive and evolutionary learning (Weick, 1996, p. 445; Levitt and March, 1996, p.527).

Having established the outer boundaries within which organisational learning takes place, we will now discuss the relationship between the two extremes in Novozymes. According to Weick, learning takes place within the exploring framework, whereas organising implies the exploitation of prior generated learning. Further, he argues ‘The relationship between learning and organising is inherently uncomfortable, a tension rather than a compatibility.’ (Weick, 1996, p. 444). This leaves

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us with the theoretical conclusion that the optimal organisational structure encourages both exploration and exploitation. Not through alternation between the two, but rather through a sensitive and intimate continued connection between the two (Weick, 1996, p. 445).

4.2.6 Further Discussion The elements of exploration and exploitation identified in Novozymes are not sufficient to conclude whether Novozymes is an organisation, prone to either side of the scale nor determining which balance that has been aimed at striking. In a large complex organisation such as Novozymes, various layers, departments, teams and functions are likely to play an individual role in the overall organisational set-up, pulling towards either order or disorder.

We believe to have found evidence that such departments as the R&D are performing tasks of both exploitative and explorative character, whereas other sub-organisations of Novozymes tend to pull primarily in the exploitation direction, e.g. the PPG department. According to Weick, organisational structures such as self-designing organisations are particularly good at adapting to changing environments and at innovating in response to changing environmental demands (Weick, 1996, p.

444), which is why the disorder generating instances and elements are of outermost importance in the case of Novozymes and the competitive dynamic environment in which it is embedded.

We believe that Novozymes has been successful at adapting to, and excelling in, this dynamic competitive environment due to their ability to structure the organisation (in this case the R&D department), so as to take advantage of both order and disorder. This capability is subsequently followed by effective diffusion of the achieved learning to the organisational context. In practise, the balance in the R&D department is obtained through the close interaction between employees and technology, for instance computers. Manual screening, i.e. existence of failure, is still a central part of the process, even though the technology has the capability of aiding the scientist.

However, striking a balance is a constant adaptive task, since what constituted the optimal balance in the past, might be sub-optimal in the future, due to the changed circumstances under which Novozymes operates (e.g. changes in technology, basic science, customer needs and competition).

Thus, Novozymes needs to be constantly aware of the need to evaluate assumptions and perceptions of what constitute an optimal organisational structure, since ‘any system designed to be efficient at a point in time will not be efficient over a point in time’ (Schumpeter, 1942).

In continuation, one of the major emerging potential theoretical problems, in relation to the dynamics of the environment, is the way computational power is gaining ground in the enzyme discovery and development processes. If the use of the computers continuously increase the likelihood of success, and scientists do not question the outcome, the research processes are likely to rely on the exploitation of the repository of built-up knowledge residing with Novozymes, which in the words of Weick is ‘…to rely on approximations rather than certainties’ (Weick, 1996, p.

444). This will eventually lead to an exhaustion of the knowledge base embedded in Novozymes. If Novozymes is to avoid being caught in such a path dependency, the basic perception of the role of technology has to be evaluated, so that technology does not assume the role of a Master, with the assigned capability not to fail and the authority to dictate the action of the scientists now degraded to the role of a Maid (Zeleny, 1990, p. 22).

A final potential implication of a narrow focus on computational power is the perception in the organisation of what constitutes success and failure. Due to the inherent trial-and-error nature of enzyme production, failure has until now been perceived an integrated, inherent and unavoidable part of the process closely linked to success by all groups in the organisation, contrary to most other industries (e.g. electronics), where failure is often perceived an occurrence to avoid. An implication

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of the increased importance of computers in the research process and increased likelihood of successful projects could be a changed perception of failure and success from especially managerial levels, creating an ambiguity of failure in the organisation. Top-level managers might become acquainted with success, thus perceiving failures as instances to be avoided. Such ambiguity would imply that the concepts of success and failure are attributed new values by some groups in the organisation, by others not. This could spread a fear of failing at lower levels in the organisation, implicitly pushing Novozymes towards increased exploitation rather than a proper balance between the two extremes.

Having discussed the role of learning in Novozymes and the importance of striking the optimal balance between order and disorder, we now wish to take a closer look at creativity in the organisation and how this influences Novozymes ability to exercise either order and disorder in the innovative processes.

4.3 Creativity We wish too illustrate how creativity is an essential engine to Novozymes, but is difficult to balance with business imperatives, such as coordination, productivity and control. Organizations want to take the prime from both worlds, ensuring imperatives are attended to and creativity flourishes.

Managers are aware of the crucial role played by creativity, but from the theoretical world we know managers are faced with a variety of dilemmas when dealing with creativity. We therefore find it interesting, to analyse these arising between the unpredictable nature of creativity on one side and the comfort of predictability that organization would like to assume, on the other side.

Understanding how to balance these dilemmas helps us to explain how Novozymes operates in the world of unpredictability, and thereby maintaining their global competitive edge. The paradigm of uncertainty is a common assumption by all literature used in this chapter on creativity.

4.3.1 What is Creativity at Novozymes?

Before analysing the before mentioned dilemmas, we have to define creativity in relation to Novozymes, drawing on the plethora of existing theoretical definitions. The best definition to account for the complex nature of creativity is one by Amabile (1998), who defines creativity in the very same context, in which Novozymes operates. Creativity is used to create ideas that are appropriate, useful and actionable, albeit the innovation process being long-term making it more plausible that these factors might change over time. The incremental development of Lipex lasted more than a decade, succeeding several prior versions that, albeit profitable failed to comply with the objective of an enzyme working the first time clothes were washed. In the beginning the scientists knew, that if successful, the enzyme would be both appropriate and useful, but to determine the actionable aspect was far from easy, since they lacked the knowledge to solve even the most elementary problems, thereby making it actionable. Over time these problems were overcome, and new feasible opportunities and domains of application began to arise. Amabile (1998) expands the definition with a more complex nature, by defining expertise, motivation and creative thinking skills as constituents of creativity. However, when associating these to Novozymes we see disequilibrium in their importance from being equal in the theoretical world to disproportionate equal in Novozymes. The scientists developing Lipex were more reliant on their expertise, rather than creative-thinking skills during early development, due to the plethora of perspectives and clues to the solution, already stemming from the basic knowledge of lipase. The amount of possibilities for starting points and research were far from exhausted, which made there ability to apply their expertise in their search for solutions more important.

This brings us to how scientists are motivated. In order for creativity to be conducive, employees must be motivated to be creative and use ones own expertise in a desired line of work, but to what

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degree various types of motivation plays a role is far more difficult to analyse (Amabile, 1998; Handy, 1996). We believe that what characterises the scientists we have studied at Novozymes, is a high degree of self-motivation filling the need for self-actualisation (Handy, 1996), at least in the beginning of development. Regardless of the degree to which these intrinsic motivational factors are important, we are convinced that over a long-term period of R&D, other extrinsic motivational factors, such as increased pay and additional employee benefits will gradually become important (Amabile, 1998).

4.3.2 Balancing Business Imperatives with Creativity The first dilemma arises when trying to align the important role of creativity with business imperatives essential for long-term profitability (Amabile, 1998) in Novozymes. Creativity thrives best, when management chooses which projects to be undertaken, but leaves the scientists with the decision of how to complete those projects, as was the case with Lipex. In this section we will briefly look at what practices these departments employ to foster creativity. There exists an abundant source for viewing such practices. We have chosen to initially analyse how the Lipex team was designed, how and from what general rules resources were allocated and how scientists in any project are secured the freedom to reach the finish line; all associated with the purpose to ensure sufficient creativity.

The first challenge the project manager faced when starting the Lipex project was designing the team responsible for finishing it. The project manager is responsible for designing the optimal team combining individuals with different backgrounds with emphasis on dominant scientific fields, such as enzymology, biology, chemistry etc, besides securing the right people for the right assignments.

The diversity in backgrounds and perspectives provides mutual support and sparring of ideas, but most importantly the creative forces are greater as a result of synergies arising from this combination of perspectives. The core of the Lipex team consisted of scientists, whose backgrounds were based in natural sciences, but within different fields, thus sharing a common characteristic.

The team also included individuals with economic specialties, in charge of the marketing, financing, patenting etc. Despite the importance of diversity, the project manager, Tommy Rex had to create a sharing of excitement and enthusiasm, realizing the capabilities of the other team members.

Generally speaking, these factors combined, helped to raise the overall level of intrinsic motivation.

4.3.3 Resource allocation and leveraging freedom During projects there are many aspects to consider and maintain, as in the case with Lipex. Tommy Rex was often faced with budget constraints. However, primarily due to long-term development, it was still important to constrain the team, measured both in time and money. Planning and time are primary parameters, due to the complex nature of developing enzymes involving hundreds of individuals, meetings, coordination, and processes. Therefore, time is of the essence and cannot be squandered. The decisions concerning how much time to allocate is a judgment that can either support or kill creativity. The same rules apply to money, but money was rarely the problem during the discovery of Lipex. However, when developing the production technology, one goal was, as always, to minimize the production costs of this technology, to make Lipex competitive measured by its price. Money is better analysed using the so-called Bubbles8, the equivalent of business units.

Today, three such bubbles exist: forestry, leather and textiles. Besides generating revenues in excess of one billion DKK per year, these units they can be perceived as skunk works resulting in separate business units within Novozymes. The categories used here derive from Amabile (1998). Next to these, she mentions other important factors, such as supervisory encouragement and freedom. They have not been rejected as irrelevant rather we have selected the most important ones in relation to 8

Bubbles can be perceived as separate business units.

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Novozymes. Obviously, it is important that groups must enjoy extended limits of autonomy and be continuously encouraged to exhibit innovative efforts by management.

Other authors define and analyse creativity from the view of knowledge management (Brown & Duguid, 1998), where knowledge, as a result of creative behaviour and thinking is the key in knowledge and technology intensive organization, while March (1988) camouflages creativity using his theory of childhood contrasted by the theory of adulthood. We will in the following use these authors to discuss the dilemmas faced by Novozymes arising when attempting to exploit creativity.

4.3.4 Setting Goals and Making Choices Novozymes’ ability to reason with creativity in the complex nature of enzyme development, reflects the characteristics of an oxymoron, and thereby a theoretical impossibility raising the question: how does Novozymes on one hand secure scientists’ imperative right to explore other avenues with changing goals and values, and thereby expanding scope, complexity, and inconsistency, while on the other hand finding a consistent set of preferences with implications that are acceptable to Novozymes? From the outside, Novozymes’ decision-making capabilities seem to be trapped in ambiguity. Obviously, they did not assume the present dominant position on the global enzyme market by ignoring this, so they must have taken measures to adopt strategies in order to balance what March (1988) calls the technology of reason with the technology of foolishness.

Scientists acted almost without any detailed pre-existing goals with Lipex and researched ways of solving the problems with inefficiency of Lipolase in contrast to the traditional product development assuming that values and goals are constructed and predicable. Goals had been reduced to bearings in the horizon, while scientists used their intuition in combination with their expertise primarily motivated by the research itself. When development was resumed in 2000, after the first version of Lipex was introduced and subsequently rejected on the American target market in late 1998, the new scientists had to ignore part of the existing knowledge base and learning. New ways of thinking were necessary in order to launch Lipex successfully. As mentioned earlier, scientists expanded the scope and goals for conditions, under which Lipex would operate, thus enabled it for sale globally. By treating past experience and memory, relating to these conditions, as theory that had failed in the past, it could be altered for the good of Lipex. The existing theory stated that Lipex could only be formulated with certain European standards for detergents. By ignoring this, scientist believed that changes in Lipex, not the detergents could expand its present domain of application, making it operable with both American and Asian types of detergents. Such ability is often termed unlearning by (Nonaka et. al, 1996) describing individuals’ ability to back down from present knowledge, if such steps ensure setting new objectives and replenishing options for further research and development. A more far-reaching theoretical statement is one by Schumpeter (1939), who promoted entrepreneurship for the creative destruction by which it drives economies forward.

These ways of experimenting has had long-term structural and organization implications. Taking the dominant uncertainty aspect into consideration (Kreiner, 1995), it has far-reaching ramifications, changing management’s way of perceiving business operations to a more dynamic view. The ISG, PPG and RDM management groups (see organizational chart, Appendix 1) must represent the root of upsetting existing preconceptions, in order to reflect such behaviour further down the chain. It all starts at the top. If management preserves the right to continuously set new objectives, it affects all employees’ ways of planning to a more dynamic model, where yesterday’s experiences and work can prove inappropriate with today’s interpretation. For instance, during the discovery of enzyme candidates, months go by with screening hundreds of candidates, each building on different theories, assumptions, and different settings and calibration of test equipment.

These parameters must all be adjusted to fit the exact enzyme to be screened, so a new consistent

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theory of the correct candidate can emerge. Before each test, scientists must evaluate these temporary theories. Scientists know that using yesterday’s criteria with today’s evaluation and screening will possibly inhibit the ability to establish new ones. Instead, past experience is only implemented as an occasion and foundation for evaluation.

These initial and managerial strategies for balancing reason and foolishness could easily be termed the act of playfulness (March, 1988). A part of the R&D culture at Novozymes permits scientists some temporary relief from constraints of control, coordination, and communication thereby encouraging organizational play, and in turn improving product characteristics, setting new innovative and increasingly detailed goals, after which will lead Novozymes to a novel level still consistent with preferences acceptable by management and shareholders. Indeed, playfulness has worked for Novozymes, allowing them to balance in a world of constant change. Furthermore, it implies that Novozymes is able to focus scientists’ creative forces by balancing structure, routines etc. with flexibility and the ability to change, and thereby maintaining its roots as a highly flexible entrepreneurial company, while not adapting to fixed elements (Cusomanu, 2001).

4.3.5 Securing Best Practice What about the knowledge stemming from such creative work? Reaching novel levels would entail modifications to a lesser or greater extent. This brings us to the act of balancing process and practice, extracting knowledge generated by employees in practice followed by diffusion of those, which enjoy the label of best practice, so these become known to and applied by all other employees, for whom they are relevant. It is every employee’s duty to constantly evaluate the stringent standard operating procedures (SOPs) associated with working in laboratories, regardless of ones purpose and activity. They are no more stringent than employees are encouraged to exploit new practices, and improving procedures.

It seems only obvious to draw parallels to the work by Brown and Duguid (2000), and their article concerning the constantly obsolete repair manuals used by repair men (reps) at Xerox. However resembling to Novozymes, these corporations are different both culturally and educationally. Where Xerox failed to establish communication between management and engineers creating the procedures on one hand and reps on the other hand, Novozymes succeeded in the delicate art of balancing practice and process by letting the employees themselves update SOPs, thus continuously securing best practices. As stated, herein lies the means both to foster invention and to promote it by implementing those same ideas, from which Novozymes improves work efficiency and internalising employees giving them a feeling of sharing in the success. (Brown & Duguid, 2000) 4.3.6 Findings We have witnessed that Novozymes has managed to balance the many dilemmas faced when creativity plays a crucial and dominant role. Without the ability to capture and exploit the inherent knowledge resulting from creative work by the scientist, enzyme candidates may never be found, let alone found economically feasible. However, as stated by Amabile (1998), too much creativity might lead nowhere and too many constraints on creativity may inhibit scientists researching for new enzymes, which continue to supply Novozymes with a global dominant position.

One aspect of creativity, which does not easily lend itself to observation, let alone management, is the concept of skunk work. However, the potential impact on innovative performance is no less impressive than that of creativity, which is why we in the following section will go into a detailed discussion of skunk work.

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4.4 Skunkworks To be able to maintain their position in the changing environment Novozymes needs to be innovative and creative. One possibility to ensure this is to encourage and exploit the potential in skunkworks, arising from the need for loose, organic, and flexible organisations (Tidd et. al., 2001), which offer considerable individual freedom to innovate. Skunkworks motivates creativity and innovative thinking in Novozymes, in addition to being a part of employee mindset and respected among scientists. Furthermore, we find it appropriate to extend this definition, establishing that skunkworks is a parallel project run by one person or several in collaboration, without being influenced by management. In general, we consider skunkworks an essential part of R&D, since it contributes with new ideas, possibly resulting in new major revenue sources.

Creating new enzyme solutions that will differentiate Novozymes’ products from those of the competitors is necessary with respect to the uncertain environment, in which Novozymes operates.

For these products to be developed, Novozymes has strived for the organic and flexible organisation to encourage skunkworks. A way to encourage it is by minimal influence from management, to offer scientists considerable individual freedom to operate, but under limited freedom in terms of money and time. According to Peters (1988) these scientists are categorised as champions, who push the idea forward striving for realising their goals. In Novozymes the champions collaborate in teams to explore and realise their ideas. Deliberately, these teams are kept small in size and thereby giving focus to creativity (Cusomano, 2001), and maintaining perspectives of the project. For the purpose of this chapter on skunkworks, we assume that they play an imperative role to Novozymes.

We will exemplify them through three new markets (Bubbles) in which Novozymes operate: First, in the market for leather, Novozymes has developed enzymes with the capability to transform natural hide into leather. Second, in the market for textiles, enzymes are developed to prepare denim for jeans production. Third, in the market for forestry, enzymes are used in the lamination process of tabletops.

4.4.1 Skunkworks in Novozymes The Bubbles are the result of a short-term process, with the purpose of documenting the basic idea’s economic profitability and that its development is technologically possible. The scientists must first approach management with the idea, presenting the former elements. This provides an initial basis for evaluation, from which the idea is either rejected or accepted. If accepted, the scientists are with very stringent time constraints authorized to find a possible enzyme candidate, and furthermore reason for a customer demand. After pursuing these goals for 3-7 days scientists must once again present their findings for management, after which their findings will be evaluated, and subsequently rejected or accepted. Again, if accepted, they will be classified as separate projects and are developed using the innovation funnel, just like Lipex. However, these enzymes represent only minor revenue sources in comparison to Lipex, and are therefore deemed a Bubble, existing outside Novozymes’ core activities. Using the concepts of technology push and demand pull (Dosi, 1988) we see how skunkworks has, until present time, been primarily characterized by technology push, i.e. the scientists strive for developing new innovative products without paying too much attention as to whether such innovations will succeed on the market. However, a condition for management’s acceptance of creating a Bubble, also relies on its profitability, hence the existence of a demand pull; there must be a market for its enzymes.

Today, Novozymes is quoted on the Copenhagen Stock Exchange. Thereafter, they are required to report results to their stakeholders in order to update the market stock value, in return constraining their freedom to operate. Because of this, Novozymes has a lower degree of tolerance towards failure in their projects and therefore skunkworks is no longer as acceptable as prior to the listing.

Ask the shareholders, whether skunkworks today play an important role in Novozymes, and they

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will reject it. Ask the project manager at Novozymes, and he will reluctantly state that 80% of the work carried out is project related, while leaving the last 20% to skunkworks – a considerable amount to our belief. As Niels Henrik Sørensen states, ‘Our pipeline of ideas [amount] in the detergent department has decreased.’ Uncertainties in the business environment are a dominant aspect, and by associating this to the official downscaling of skunkworks, we believe this constitutes a shift in the degree from disorder to order (Weick et. al, 1996), i.e. a shift towards the order representing about 80% in comparison to 20% skunkworks. Two decades ago, skunkworks played a larger role, leaving official projects almost struggling for resources. The Lipex project is a thing of the past.

However, ironically as it may seem, Lipex has today emerged as an incremental skunkworks, where the original scientists affectionately continue to improve the conditions, under which Lipex can operate. As Jesper Vind, lead chemist on Lipex, states: ‘Despite the immediate success of Lipex, there is always room for improvement.’ The purpose of these improvements is to increase the degree to which Lipex is compatible with other national detergent standards, where Peters (1988) says: ‘Compatibility drives all.’ Since management has not endorsed it, we dare to classify it as skunkworks that continues parallel to other official projects, according to our definition above.

Walking down the Novozymes memory lane we see how skunkworks have shifted in importance. A decade ago, skunkworks could result in new business adventures, such as forestry, leather, and textiles, which all have emerged from the phase of idea generation, the point of departure in the innovation funnel. Today, skunkworks plays the same role, the innovative one, but is now placed outside the innovation funnel, thus assuming a minor important role. The incremental skunkworks done with Lipex today, could be the source to new radical innovations in the future. For instance, without disclosing too much information, Jesper Vind informed us that they were contemplating ways of combining genetics with the enzymology knowledge, generated from Lipex, resulting in a new type of ‘solution’, for an undisclosed purpose. Should they succeed, Lipex would, concealed in this solution, emerge in the realm of skunkworks.

4.4.2 Final Remarks Obviously, Novozymes’ success is closely linked to the use of skunkworks. However, we believe that due to shareholder interests, they are experiencing a misbalance towards the ‘order’ side of Weick’s oxymoron (Weick et al. 1996), positively downscaling idea generation, from which their future depends and emerges. Today, focus has been on exploiting their current market segments, possibly increasing market share and revenue sources. We believe that Novozymes should seek to make skunkworks interesting to shareholders, communicating them as imperatives to Novozymes, thereby attempting to minimize negative affects on shareholder value. This could be contributing to further competitive advantage in changing and uncertain environments.

4.5 Managerial Implications in Drifting Environments The previous analysis of learning, creativity, and skunkworks has provided us with the necessary knowledge to return to our preface, and the assumption that Novozymes operates in drifting environments (Kreiner, 1995). As they have proved to be vital tools, in an uncertain world where balancing the use of each helps Novozymes face the challenges of tomorrow, we still lack the holistic image of the environment. In addition, the environment can be considered as an equivoque (Weick, 1990; Kreiner 1995), i.e. the interpretation of it is not universal hence it allows for several possible interpretations and therefore can be subject to misunderstandings and uncertainty (Weick, 1990, p. 2). This section has two purposes. First, we will analyse the shifting character of the drifting environment, and thereby what future challenges Novozymes could face. Second, as the surrounding world is under constant change, this entails possibly endless strategic implications.

Strategies are designed to endure over time, and must therefore contain a fixed as well as a dynamic

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aspect, which is why we question which strategies could prove feasible, and how changes should be adopted over time, thus completing our holistic view.

4.5.1 Characteristics of Novozymes’ Environment From the outset of this project, we’ve been fascinated by the concept of drifting environments, generally relating to a situation where something diverges from its projected course (Kreiner, 1995), such as customer demand, supplier issues or technological barriers refraining from completing product development. The conception of needs, desires, and requirements that the project is meant to meet, may change in response to experience, deriving from the explication of tacit knowledge.

For instance, with Lipex the American customers had failed to tell Novozymes about deviating standards between European and American detergents, where Lipex had been developed in the former assuming no differences existed. This change in customer needs was an explication of tacit knowledge, which had huge impacts on the product; the customers rejected it. The illustration proves the importance of tacit knowledge (Lam, 2000), but most importantly the degree to which drifts in the environment ramified Novozymes. It also confirms the claim by Kreiner, that environments are not constantly drifting, but assuming the opposite Novozymes might later face discontinuities and fail to discover new opportunities as they arose (Kreiner, 1995, p. 344). The first version of Lipex, i.e. Lipolase, was for instance the result of exploiting an opportunity, which arose from the basic science of lipase enzymes.

By examining the characteristics of the environment we see identical piecemeal changes i.e. an escalation in the benefits and mutual dependencies between Novozymes and its environment. First, Novozymes is increasingly collaborating with universities and smaller companies (Kanter, 1988), either conducting reverse engineering of nature, or researching new scientific fields with future economic potential. The degree of interaction between supplier and customer can therefore be characterised as a customised relationship (Tryggestad, 1995). Second, Lipex created part of its own environments in the form of new enzyme markets, which they in turn dominated. This entailed a high degree of arrogance in the beginning, but due to the shift in their competitive environment, their arrogance is now making them increasingly hypersensitive to customers and shareholders, among others (Kreiner, 1995, p. 343). Indeed, Novozymes has ceased to be an ‘isolated island’, or ‘continent’. They are now bridged with other islands, benefiting and learning from each other, suppliers, joint venture partners as well as shareholders.

4.5.2 Managerial Strategies With an escalation in volatility of its environment, we feel it is vital for Novozymes to be strategically prepared for future changes, and minimizing the omitting of feasible opportunities.

Project managers at Novozymes are always held accountable for the performance of their projects, to top management, who has authorized the projects.

Lipex was discontinued in 2000 after the negative response from the American market, because the project team had failed to recognize, that the efficiency of Lipex depended on the detergent, in which it would be formulated. Due to different detergent standards, Lipex was only adequately efficient with the European standard. From a theoretical perspective, we believe this outcome was the result of project managers’ lack of authority, inherent in Novozymes culture. Management has formed a culture for project managers to rely more on internal competences, internally generated knowledge, and trust in the organizational layers and management, than on external entities, thus moving towards hierarchy as a managerial strategy. Although officially empowered, project managers feel a mental commitment to check with top management before reacting to environmental drifts. It is our belief that this constitutes a strategic problem, since management is not exposed to environmental drifts, and therefore lacking the incentive to follow up on changes in 34

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the environment. In turn, environmental drifts that prove to be lasting and significant in terms of relevance may be disregarded (Kreiner, 1995, p. 342). Based on this brief analysis, we therefore believe that Novozymes should endorse looser couplings between top management and project managers, and lean more towards the networking strategy (Kreiner, 1995; Kanter, 1988), providing the impetus for responding to changing relevance criteria through collaboration, building social ties with significant actors (Kreiner & Schultz, 1993), and thereby increased sensitivity to the environment. In the words of Imai (1988), management should only function as a catalyst.

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TIO PERSPECTIVES FOR FURTHER DISCUSSION

5.1 Technology and Social Integration With the increased use of computers in the R&D efforts of Novozymes, there is a need for a more thorough understanding of the social relationship (Zeleny, 1990) between humans and technology.

Humans can fail, technology cannot (Zeleny, 1990) is a perception that seems to have emerged in relation to IT in Novozymes in the way it is used to perform screening and modelling tasks.

However, failure might occur in the realm of interaction between man and machine rather than an error solely caused by humans (Weick, 1990). A master and maid relationship between humans and technology could be the implication in Novozymes, due to a perception of IT being an automative technology, which can take over much of the work from the scientist, rather than an informating technology (Zuboff, 1985). The latter could potentially enable Novozymes to generate organisational learning from the processes involving computers, but potentially disregard implications for human resource management.

5.2 Knowledge and Action From our project it is obvious that knowledge, being tacit or explicit (Nonaka & Takeuchi, 1996), is indeed crucial to organisational performance, but how to manage knowledge to be useful, is a difficult task. To take full advantage of the intellectual resources in Novozymes, should knowledge in action, under different conditions, be managed as an asset, liability or a trifle (Kreiner, 1999)? It is a study of its own to identify knowledge management characteristics within the company, but according to Kreiner (1999) the challenge consists in managing knowledge implicitly and indirectly rather than explicitly. It is not until knowledge becomes a part of practise that it results in constructive action, of value to the company (Cook & Brown, 1999). But how can Novozymes manage knowledge in a way ‘… that knowledge becomes a source of innovation, of productive change, where teams invent new ways of working more effectively’ (Cook & Brown, 1999, p. 393), thus becoming truly generative and valuable to Novozymes? Or is that even possible in practice?

5.3 Networking and Networks as Competitive Advantages Novozymes’ dominant and self-reliant global position has left them with little incentive to participate in different forms of networks and collaboration (Powell, 1998). However, networking, to the extent it occurs in Novozymes, raises problems, such as its formation, i.e. discovery to exploration and crystallization (Kreiner et. al, 1993). As a result of networking, newly produced knowledge requires management (Swan et. al, 1999), which raises problems of how to provide networks to encourage sharing across distances and face-to-face. Despite the implicit strategic changes Novozymes would be faced with, networks could produce additional competitive advantages, possibly even through spin-offs (Hamel, 1999).

5.4 Practice, Communities and Social Institutions Communities of practise (COP) are present in Novozymes in the form of technological circles and annual international technology conferences. According to Weick (1996) it is the quality of the individual employee that in patterns of interaction contributes to the joint activity system also called the collective mind (Weick, 1996). The collective mind is the crucial factor, which creates the optimal innovative community and could improve the overall performance in the organisation.

From such informal groups of people (Wenger, 2000), firms potentially gain benefits, but Novozymes does not presently take full advantage of this potential to add value to the innovative capacity through the use of COPs (Wenger, 2000). However, management is facing several dilemmas in extracting valuable non-canonical knowledge (Brown & Duguid, 1991) from COPs that exist of own interest, not initiated by management. Finally, the objectives of the COP are often

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in conflict with those of management (Brown & Duguid, 1991), thus raising the question of how COPs can result in competitive advantages for Novozymes.

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Weick, Karl E. (1990), “Technology as Equivoque: Sensemaking in New Technologies”. In: P.S. Goodman, L.S. Sproull, and Associates (eds.), Technology and Organizations. San Francisco: Jossey-Bass Weick, Karl E. and Westley, Francis (1996) “Organisational learning: Affirming an oxymoron. “N: S.R. Clegg, C. Hardy and W. R. Nord (eds.), Handbook of organization Studies. London: Sage.

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APPENDIX I: ORGANISATION CHART

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APPENDIX II: INNOVATION FUNNEL

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APPENDIX III: LIPEX TIME LINE

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10 APPENDIX IV: THREE COMPONENT MODEL

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11 APPENDIX V: INTERVIEWEES AT NOVOZYMES 1. Martin Barfoed, Project Manager.

2. Niels Henrik Sørensen, Creativity Manager.

3. Allan Svendsen, Project Leader and Chemical Engineer.

4. Steen Lottrup, Patent Attorney.

5. Jesper Vind, Chemical Engineer.

6. Tina Sejersgaard Fanø, Department Manager (Detergent Department).

7. Finn Kollerup, Innovation Anchor.

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