Innovation Management and New Product Development PDF

Innovation Management and New Product Development 6th edition Chapter 4 Managing innovation within firms Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved Organisations and innovation This chapter tac...

Innovation Management and New Product Development 6th edition Chapter 4 Managing innovation within firms Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved Organisations and innovation This chapter tackles the difficult issue of managing innovation within organisations. To do this, it is necessary to understand the patterns of interaction and behaviour that represent the organisation. Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved The dilemma of innovation management Within virtually all organisations there is a fundamental tension between the need for stability and the need for creativity. On the one hand, companies require stability and static routines to accomplish daily tasks efficiently and quickly. This enables the organisation to compete today. E.g. the processing of millions of cheques by banks every day or the delivery of food by multiples to their retail outlets all over the country, demands high levels of efficiency and control. On the other hand, companies also need to develop new ideas and new products to be competitive in the future. Hence they need to nurture a creative environment where ideas can be tested and developed. This poses one of the most fundamental problems for management today (see Figure 4.1). Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved Figure 4.1 Managing the tension between the need for creativity and efficiency Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved  So, how do firms try to reduce costs and slack to improve competitiveness on the one hand and then try to provide slack for innovation on the other? As usual, with dilemmas, the answer is difficult and has to do with balancing activities. The firm needs to ensure there is a constant pressure to drive down costs and improve efficiency in its operations. At the same time, it needs to provide room for new product development and making improvements. The most obvious way forward is to separate production from research and development (R&D) but, whilst this usually is done, there are many improvements and innovations that arise out of the operations of the firm. Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved  This is the fundamental tension at the heart of an enterprise’s long-run survival. The basic problem confronting an organisation is to engage in sufficient exploitation to ensure its future viability. Exploitation is about efficiency, increasing productivity, control, certainty and variance reduction. Exploration is about search, discovery, autonomy, innovation and embracing variation. Ambidexterity is about doing both: exploitation & Exploration dynamic capabilities are at the heart of the ability of a business to be ambidextrous – to compete simultaneously in both mature and emerging markets – to explore and exploit. Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved Dynamic capabilities How, then, do firms escape from the innovation dilemma? The literature on organizational capabilities offers insight into the different resources and environment necessary for developing incremental and radical innovations. Incremental innovation reinforces the capabilities of established organisations, whilst radical innovation forces them to ask a new set of questions, to draw on new technical and commercial skills, and to employ new problem-solving approaches. The impact of this on the nature of innovation activities is that, as the organisation learns and increases its efficiency, subsequent innovation is increasingly incremental. Another constraint on innovation that can arise from this is a shift to simply meeting existing customer needs. Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved  Every firm has a zero-level or baseline set of routines, i.e., those that serve the purpose of producing and marketing the given products and services currently in the portfolio. Some firms have dynamic capabilities, i.e., those routines that relate to the innovation of products and services, to the innovation of the production process, or to the search and attraction of new customers, etc. dynamic capabilities implement the change of old routines with new ones. Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved Managing uncertainty The management of the innovation process involves trying to develop the creative potential of the organisation. It involves trying to foster new ideas and generate creativity. Managing uncertainty is a central feature of managing the innovation process. At the very least, there is the uncertainty of output (including market uncertainty) – i.e., what is required –and also uncertainty of process – i.e., how to produce it. Pearson (1983) offered a helpful uncertainty matrix for managers to help them deal with different levels of uncertainty. This recognised that different environments required different management styles (see Figure 4.2). Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved Figure 4.2 Pearson’s uncertainty map Source: Pearson, A.W. (1991) ‘Managing innovation: an uncertainty reduction process’, in Henry, J. and Walker, D. (eds), Managing Innovation, Sage/OU. Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved Managing innovation projects Henderson and Clark (1990) divide technological knowledge along two dimensions: knowledge of the components and knowledge of the linkage between them, which they called architectural knowledge (see Figure 4.3). In this framework, technology development could be a radical innovation, only if it revolutionises both component and architectural knowledge. Similarly, an incremental innovation will build upon existing component and architectural knowledge. Modular innovations will require new knowledge for one or more components, but the architectural knowledge remains unchanged. Whereas architectural innovation will have a great impact upon the linkage of components, the knowledge of single components will remain the same. Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved Figure 4.3 Matrix of complexity of architectural/component knowledge Source: Henderson, R. and Clark, K. (1990) Architectural innovation: the reconfiguration of existing product technologies and the failure of established firms, Administrative Science Quarterly, vol. 35, no. 1. Reproduced with permission of Johnson at Cornell University. Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved Figure 4.4 A two-dimensional typology of innovation projects Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved  Figure 4.4 uses a two-dimensional typology of innovation projects to illustrate the range of innovation projects required to be managed. The vertical axis classifies project style and uses Coombs et al.’s (1998) classification of R&D project. The horizontal axis captures technological uncertainty. The traditional distinction within innovation management between research projects and development projects, however outmoded and inappropriate, may, nonetheless, still retain usefulness in the practical realities of the laboratory. In particular, it distinguishes between the management of projects that deliver mainly knowledge and those that deliver a physical product. There is also an emphasis (not surprisingly, within the new product development (NPD) literature) on project management models that explicitly focus on the new product development process (e.g. Cooper, 1986). This emphasis may have overlooked the need for subtly different approaches to project management for innovation management and R&D, in particular, that does not necessarily lead directly to the launch of a new product. Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved Organisational characteristics that facilitate the innovation process In a recent study examining the relationship between innovation stimulus, innovation capacity and innovation performance, Prajogo and Ahmed (2006) found that there was a strong relationship between innovation stimulus and innovation capacity and a strong relationship between innovation capacity and innovation performance Fig. 4.5 Innovation stimulus, capacity and performance Source: D.I. Prajogo and P.K. Ahmed (2006). Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved  The findings did not detect any direct relationship between innovation stimulus and innovation performance. The implications of this for firms are clear: if firms wish to improve innovation performance, first they need to put in place and then develop factors that stimulate innovation, such as appropriate leadership, R&D and creativity. Within such an environment, the nurturing and building of innovation capacity can then occur. Prajogo and Ahmed (2006) argue that innovation capacity is the combination of technological and human factors. In other words, having good science and laboratories is necessary but insufficient. In addition, effective intangible skills are required, such as project management, innovative experience and risk management. Putting in place the necessary stimulus and then nurturing capacity may sound straightforward, but what does this mean? Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved Fig. 4.6 Critical factors for innovation success There is a wide range of factors that contribute to success and failure of innovative projects within firms. They are classified into four major groups: Firm-related factors; Project-related factors; Product-related factors & Market- related factors (in this chapter, we focus on firm-related factors) Source: van der Panne et al. (2003). Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved  how best to manage the process within the firm ? There is evidence that competitive success is dependent upon a firm’s management of the innovation process (Adams et al.,2006). Yet, attempting to measure the process of innovation is a major challenge because, for practitioners and academics, it is characterised by diversity of approaches and practices. To understand better how innovation management can be improved, we need to know ‘ingredients’ and, possibly, ‘recipes’ that at least give us some indication of what is required and if and when we are to turn ideas into marketable products. Adams et al. (2006) developed a framework of the innovation management process with illustrative measures to map the territory (see table 4.1). Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved Table 4.1 Innovation management measurement areas Source: Adams et al. (2006). Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved  This framework enables managers within firms to evaluate their own innovation activities. This enables them to explore the extent to which innovation is embedded within their organisation and identify areas for improvement. Innovation requires a variety of competencies at key stages in the innovation cycle. The framework in Table 4.1 shows the wide variety of elements that need to be in place and can be measured. There are still big questions that remain regarding precisely how one measures these elements and which metric is used but, nonetheless, it provides a starting point. Table 4.2 is a summary of the organizational characteristics that facilitate the innovation process. Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved Growth orientation It is sometimes surprising to learn that not all companies’ first and foremost objective is growth. Some companies are established merely to exploit a short-term opportunity. Other companies, particularly family-run ones, would like to maintain the company at its existing size. Companies that are seeking growth are more likely to be interested in innovation than those that are not. For those companies whose objective is to grow the business, innovation provides a means to achieving growth. they actively plan for the long term Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved Organisational heritage and innovation experience A firm’s heritage and culture is, undisputedly, considered crucial to the firm’s technological capabilities, as it fosters and encourages widespread recognition of the need to innovate. This is clearly illustrated in the extent to which groups and departments are willing to cooperate. Numerous problems arise when individuals and groups are either unwilling or reluctant to work together and share ideas. At the very least, it slows down communication and decision making and, at worst, leads to projects being abandoned due to lack of progress. Frequently, the difference between a firm succeeding or not lies not in their scientific ability or commercial knowledge but simply in the firm’s internal ability to share information and knowledge. Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved Vigilance and external links Vigilance requires continual external scanning. e.g., within the marketing function the activity would form part of market research and competitor analysis. Within the research and development department scientists and engineers will spend a large amount of their time reading the scientific literature in order to keep up to date with the latest developments in their field. Extensive external linkages with the market, competitors, customers, suppliers and others will all contribute to the flow of information into the firm. Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved Commitment to technology and R&D intensity Most innovative firms exhibit patience in permitting ideas to germinate and develop over time. This also needs to be accompanied by a commitment to resources in terms of intellectual input from science, technology and engineering. Those ideas that look most promising will require further investment. Without this long-term approach, it would be extremely difficult for the company to attract good scientists. Similarly, a climate that invests in technology development one year then decides to cut investment the next will alienate the same people in which the company encourages creativity. Such a disruptive environment does not foster creativity and probably will cause many creative people to search for a more suitable company with a stronger commitment to technology. It seems almost obvious to state that a firm that invests more in R&D will increase its total innovative output. Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved Acceptance of risks Accepting risks does not mean a willingness to gamble. It means the willingness to consider carefully risky opportunities. It also includes the ability to make riskassessment decisions, to take calculated risks and to include them in a balanced portfolio of projects, some of which will have a low element of risk and some a high degree of risk. Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved Cross-functional cooperation and coordination within organisational structure Interdepartmental conflict is a well-documented barrier to innovation. Scientists and technologists can be fascinated by new technology and may sometimes lose sight of the business objective. Similarly, the marketing function often fails to understand the technology involved in the development of a new product. The presence of some conflict is desirable, probably acting as a motivational force (Souder,1987). It is the ability to confront and resolve frustration and conflict that is required. A supportive organisational structure underpinned by a robust information and communication technology system all contribute to facilitating the organization to coordinate crossfunctional cooperation Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved Receptivity The capability of the organisation to be aware of, identify and take effective advantage of externally developed technology is key. Most technology-based innovations involve a combination of several different technologies. It would be unusual for all the technology to be developed in-house. Indeed, businesses are witnessing an increasing number of joint ventures and alliances, often with former competitors. e.g., Sony and Ericsson formed a joint venture to work on the development of mobile phone handsets. Previously, these two companies fought ferociously in the battle for market share in the mobile phone handset market. Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved Space for creativity Whilst organisations place great emphasis on the need for efficiency, there is also a need for a certain amount of slack to allow individuals room to think, experiment, discuss ideas and be creative. In many R&D functions scientists are allowed to spend 10–15 per cent of their time on the projects they choose. (See also ambidexterity in the earlier section,‘The dilemma of innovation management’.) Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved Strategy towards innovation For the firm and those within it, however, it means that the firm has developed plans for the future regarding selection of markets to enter and which technologies may be appropriate for the firm. Recognising that the organisation possesses skills, technology and knowledge and that there are appropriate markets that suit these, requires careful planning, probably utilising a project portfolio approach. This will involve further long-term planning, establishing a range of projects, some of which will subsequently provide opportunities that the firm will be able to exploit. This long-term planning and investment with regard to technology and markets distinguishes such firms from their shorttermism counterparts. Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved Diverse range of skills Organisations require a combination of specialist skills and knowledge in the form of experts in, say, science, advertising or accountancy and generalist skills that facilitate crossfertilisation of the specialist knowledge. In addition, they require individuals of a hybrid nature who are able to understand a variety of technical subjects and facilitate the transfer of knowledge within the company. Similarly, hybrid managers who have technical and commercial training are particularly useful in the area of product development (Wheelwright and Clark, 1992). It is the ability to manage this diversity of knowledge and skills effectively that lies at the heart of the innovation process. Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved Industrial firms are different: a classification in terms of innovation and product development, it is possible to argue that some firms are users of technology and others are providers. Pavitt offers a useful classification of the different types of firms with regard to technology usage: Fig. 4.7. Technological linkages amongst different types of firms Source: Pavitt, K. (1994) Sectoral patterns of technological change: towards a taxonomy and theory, Research Policy, vol. 13, 343–73. Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved Supplier-dominated frims At the simplest level, most towns will have a range of housebuilding firms, agricultural firms, retail firms and many others offering services to local people. Such firms tend to be small in size, with little R&D or manufacturing capability of their own. They are classified by Pavitt (1994) as supplier-dominated firms. Many of them are very successful because they offer a product with a reliable service. Indeed, their strength is that they purchase technologies in the form of products and match these to customer needs. Such firms usually have limited, if any, product or process technology capabilities. Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved science-based firms or technology-intensive firms These are found in the high-growth industries of the twentieth century: chemicals, pharmaceuticals, electronics, computing, etc. It is the manipulation of science and technology, usually by their own R&D departments, that has provided the foundation for the firms’ growth and success. Unlike the previous classification, these firms tend to be large and would include corporations such as Bayer, Hoecht, GlaxoSmithKline, Sony and Siemens. Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved scale-intensive firms They dominate the manufacturing sector. At the heart of these firms are process technologies. It is their ability to produce high volumes at low cost that is usually their strength. They tend to have capabilities in engineering, design and manufacturing. Many sciencebased firms are also scale-intensive firms, so it is possible for firms to belong to more than one category. Indeed, the big chemical companies in Europe are a case in point. Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved specialist equipment suppliers This group of firms is an important source of technology for scale-intensive and science-based firms. E.g. instrumentation manufacturers supply specialist measuring instruments to the chemical industry and the aerospace industry to enable these firms to measure their products and manufacturing activities accurately. This useful classification highlights the flows of technology between the various firms. Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved Organisational structures and innovation The seminal work by Burns and Stalker (1961) on Scottish electronic organisations looked at the impact of technical change on organisational structures and on systems of social relationships. It suggests that ‘organic’, flexible structures, characterised by the absence of formality and hierarchy, support innovation more effectively than do ‘mechanistic’ structures. The latter are characterised by long chains of command, rigid work methods, strict task differentiation, extensive procedures and a welldefined hierarchy. Many objections have been raised against this argument, most notably by Child (1973). Nevertheless, flexible rather than mechanistic organisational structures are still seen, especially within the business management literature, as necessary for successful industrial innovation. In general, an organic organisation is more adaptable, more openly communicating, more consensual and more loosely controlled. the mechanistic organisation tends to offer a less suitable environment for managing creativity and the innovation process (As Table 4.3 indicates). Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved Table 4.3. Organic versus mechanistic organisational structures Source: Slevin, D.P. and Covin, J.G. (1990) Juggling entrepreneurial style and organizational structure: how to get your act together, Sloan Management Review, Winter, 43–53. Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved The role of the individual in the innovation process Table 4.4. Key individual roles within the innovation process Source: Based on Roberts, E.B. and Fushfield, A.R. (1981) Staffing the innovative technology-based organisation, Sloan Management Review, Spring, 19–34. Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved IT systems and their impact on innovation The impact of large IT systems on firms and the way they operate has been one of the most noticeable changes within organisations of the late 1990s and early twentyfirst century. Enterprise resource planning (ERP) business software has become one of the most successful products in the world. The principal benefits that can arise from ERP systems are linked to expected gains in the efficiency and effectiveness of business processes that come about with the availability of more accurate and timely information. ERP offers integration of business functions and can reduce data collection and processing duplication efforts. Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved Fig. 4.8 Paradox of ERP systems and innovation organisational requirements The figure provides an overview over some of the key fundamental clashes of organising principles between ERP systems requirement and the success factors of innovative organisations (Trott and Hoecht, 2004). Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved Management tools for innovation Many science and technology-related organisations innovate for a time, successfully exploit their innovations to gain status in their industry or field of research, then stagnate. Well-established management principles can help the leaders of an organization sustain innovation and even recover from a period of stagnation, if they are applied correctly and vigorously. Examples: Disney, IBM, Ford, General Motors, AT&T and Philips 3M have an impressive record of innovation. It was the most innovative firm in the 1980s and 1990s, but struggled to deliver a return for its shareholders in 2000 and beyond. Pilkington Glass, similarly heralded as a world leader in glass technology as a result of its float glass process in the 1960s and 1970s, failed to follow up this technology development. It was sold in 2006 to Nipon Glass. Even Apple Inc., whilst extremely successful at present with its iPod and iPhone, struggled in the late 1980s with a series of product failures including the Pippin (a games consul) and Newton (a personal digital assistant). Nokia Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved  We need to look at the range of tools and techniques that have been shown to be helpful to firms as they manage the innovation process. Coombs et al. (1998) identified three major types of R&D projects and offered a template for their management. There is a wide range of management tools that could be used to help facilitate the management of these projects. Hidalgo and Albors (2008) identified some of the most widely used innovation methodologies and tools. Together, these studies provide a comprehensive overview of innovation management tools and techniques. There is no universal project management procedure that fits all organisations. There are different types of projects (with varying levels of uncertainty) and different types of firms operating in different types of industries. This, necessarily, means a diversity of solutions is required. It cannot be claimed that there is a closed set of developed and proven innovation management tools capable of solving all challenges faced by business. There are, however, some principles of good practice and Table 4.5 illustrates a wide range of tools and techniques. Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved Table 4.5 Innovation management tools and methodologies (1 of 2) Source: Hidalgo and Albors (2008) and Coombs et al. (1998). Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved Table 4.5 Innovation management tools and methodologies (2 of 2) Source: Hidalgo and Albors (2008) and Coombs et al. (1998). Copyright © 2018, 2013, 2008 Pearson Education, Inc. All Rights Reserved