The Nypro company started out as a medical equipment manufacturer over fifty years ago, specializing in plastics injection. Since the company has grown both in products made and in regions of operations, it is therefore evident that the company has managed to survive as a result of great innovative breakthroughs that have lead to the spreading of the risk faced by the company both in terms of the product offering and also the market size. It is also in the process of channeling its innovative energies towards ensuring its long-term viability and maintain its position as a global leader in its industry in the 21st century. This forms the focus of this study.
The internal environment
Much has been said about the effect, causes, and consequences of management decisions concerning innovations. The need for innovation is a direct result of changing customer expectations that have been brought about by global changes, such as was witnessed by the advent of the internet, global delivery services, and enhanced worldwide communication. These changes meant that customers would invest a considerable amount of time in search of businesses that can deliver the best quality products at the least relative price and in the shortest time, as they are aware that the above-named technologies enable them to do just that. This means that for the first time, businesses found themselves in a competitive environment that had never been experienced before and the only way through which they could survive, grow or at least maintain their market share(Christensen & Voorheis, 1995).
The question, therefore, emerges on how to initiate and manage innovation to ensure maximum returns to the company, because it is widely known that the process of innovation can be quite an expensive business, especially because research and development is mostly trial and error and a lot of resources can be committed into a venture that in the end yields the wrong results if any at all. In recognition of the importance of innovation, Nypro developed a new product, NovaPlast, and according to Christensen, this type of innovation represents an attempt by the company to ensure its sustenance in the future as it realized that although it had been quite successful in the past, the reasons for success in the future could be quite different from those in the past (Nohria, 2009).
Apart from developing a new product, there is a need to adapt existing production processes to its functions so as to justify the use of the resources that were committed to the development of the same. The managers at the different plants that are owned by Nypro set out to develop processes that would ensure the most would be derived out of the new machine. This was facilitated by an environment of competition in which the separate firms were expected to compete in finding out the best use for NovaPlast. The best-performing processes would then be copied and developed further by the other plants; the end result would be a complete set of processes that add the most to the firm. This competitive concept is extended to the firm’s employees and teams, wherein they are allowed to compete against each other and the most outstanding ones rewarded by being praised in the company’s newsletter amongst other corporate communications channels. As one of the company’s executives put it, this ‘progress from conflict’ leads to the company only employing only the most productive processes alongside gaining the most from its human resource as they have enough motivation to push themselves to the limit.
The company’s founder and CEO, Gordon, Lankton, who was instrumental in the development of this internal competitive framework, rewards his most productive employee by offering them stock options, that is, giving them shares in his company. In relation to the agency theory, Lankton and his management team are answerable to their shareholders since they have been charged with the mandate of ensuring that the resources of the company, which belong to the shareholders, are utilized in the best way possible. Nohria, in his seminar on best practices in management, highlighted the importance of having a satisfied shareholder body, as this translates in better performance of the company’s stocks, the implication being that it is a profitable venture, which unlocks many doors such as access to capital amongst others.
Lankton is at the very apex of the management of Nypro, and therefore based on the success of the company, it can be said that his methods are in accordance with the guidelines of optimal corporate governance. According to the Business Roundtable, which is an association of chief executive officers of large corporations the world over, the role of the CEO is diverse, from taking responsibility of the operations of the firm, as Lankton was directly involved with the development of the internal competitive environment that sparks innovation, which is probably going to be what will ensure the long term sustainability of the company. He is also expected to be ethical and moral yardstick for the entire firm. It is also the responsibility of the CEO to engage in strategic planning, to identify areas of development and draw up plans which when implemented will take advantage of the opportunities identified (Business Roundtable, 2005). From the ethical point of view, the CEO was practicing his charge of ensuring proper business ethics when he instituted the stock options as compensation for outstanding employees because it gives them a chance to enjoy the benefits of their hard work through both capital gains and dividends.
When Nypro was faced with the problem of employing the NovaPlast technology, it identified three possible approaches, of how to go about it. One; the could put the new machines exclusively to one plant, to be built if need be, and then compare the performance of this plant against all the others, the reasons supporting this options was the increase in operational efficiency that was bound to be realized from the strategy. Two, to put a few machines in several of the plants and compare the local performance of the production that is realized from the machines against that of the other machines, and more importantly allowing the plants to extend their competition with each other to the utilization of the machine’s new functionalities which would have the desired effect of having the firm make the most out of the new technology. The last option was to concentrate the operations of a single existing plant to using the new machines and use the results as a prototype before introducing them to the other plants. The difference between the first and the last options was that the first option would actually encourage specialized use of the machine so as to derive the benefits of its unique features whereas the last option would see it being used as if it was just like any other machine that had been in use previously so as to gain an insight into how the transition would affect the operations of the company.
Lankton chose to go with the second option, which most closely resembles the core philosophy of the company, because it advances the competition of the units (plants), which brings with it better ideas of how best to utilize the new technology. It if were me making the decision, I would probably do the same, only that I would also include a more rigorous performance reporting and rewarding system, as well as improve the communication channels which would enhance the competitive environment. However, care should be taken to ensure that the competition is a motivator rather than a demoralizer as it is quite easy for some teams/units to resign themselves to their current level of performance if the standards of performance are too high. This is especially true if the plants are quite far away from each other such as in the case of an international subsidiary (Birkinshaw, & Hood 2001).
In the course of managing a business, the agents of the shareholders, the management are faced with many situations that pose challenges in their mandate of serving all the stakeholders of the business, of which shareholders form only a part. These stakeholders include customers, suppliers, the government, amongst many others. Whereas some of the objectives of management with respect to specific stakeholders overlap, such as the objective of maximising the wealth of the shareholders and providing high quality products to the customers, since the high quality will attract more sales thus increasing the wealth of the shareholders by availing higher dividends as well as providing capital gains for them, since a company which is perceived as being more profitable will enjoy a higher stock price.
Some of the objective however sometimes are in conflict with each other, for instance, prompt payment of suppliers means that the firm has got less resources to work with and therefore both the quality of the products which could have been improved by research and development thus benefiting the customers as well as dividend for the shareholders decreases (Smith, 2003). Thus the management in all its decisions should have the interests of all the stakeholders in mind to ensure the long term sustainability of the firm. The impact of ethics on corporate strategy also deserves to be mentioned here because if the company is insensitive to the needs of the community, both internal and external it will experience decreased performance from the employees and lower response from the market as the public would like to associate with a firm that they believe has their best interests at heart. On the other hand, conforming to business ethics comes with it a variety of costs that reduce the profitability of the business and may even threaten its viability (Post, Preston, & Sachs, 2002).
The above discussion therefore means that every business has to find a balance in their corporate strategy that caters to all of the stakeholders, while maintaining its profitability. It should also be mentioned that the different stakeholders are considered under different ‘weights’, that is, their effect on the business, and therefore, the attention that they are accorded varies.
The management at Nypro, led by the chief executive seems to have designed a corporate culture from which their strategy derives that seems to cater to most if not all of the stakeholders of the business. By using their internal competitive environment, the company enjoys increased productivity, which means that the wealth of the shareholders is maximised. The reward scheme for outstanding keeps the employee well-motivated to increase their productivity, and in turn, they improve their relations with customers, suppliers and streamline their communication with management, all of which contribute to the long term growth of the firm.
What Really Matters – Nitin Nohria.
Birkinshaw, J., & Hood, N. (2001, March). Unleash innovation in foreign subsidiaries. Harvard Business Review, 79(3).
Business Roundtable. (2005). Principles of corporate governance. Web.
Christensen & Voorheis, R. (1995). Managing Innovation at Nypro, Inc. (A). Harvard Business School Press.
Nadler, D.A. (2004, May). Building better boards. Harvard Business Review, 82(5).
Smith, H.J. (2003, Summer). The shareholders vs. stakeholders debate. Sloan Management Review, 44.
Post, J.E., Preston, L.E., & Sachs, S. (2002). Managing the extended enterprise: The new stakeholder view. California Management Review, 45(1).