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1. Introduction

The role of market research in the development of discontinuous new products Paul Trott

The author Paul Trott is a senior lecturer at the Portsmouth Business School, University of Plymouth, Southsea, UK Keywords Market research, Innovation, New product development Abstract Market research results frequently produce negative reactions to discontinuous new products (innovative products) that later become profitable for the innovating company. Famous examples such as the fax machine, the VCR and James Dyson's bagless vacuum cleaner are often cited to support this view. Despite this, companies continue to seek the views of consumers on their new product ideas. The debate about the use of market research in the development of new products is longstanding and controversial. This paper reviews the literature in this area and examines the extent to which market research is justified and whether companies should sometimes ignore their customers. The paper offers a conceptual framework that may help companies to decide when market research findings may be helpful and when they may hinder the development of discontinuous new products. Electronic access The research register for this journal is available at http://www.mcbup.com/research_registers The current issue and full text archive of this journal is available at http://www.emerald-library.com/ft

European Journal of Innovation Management Volume 4 . Number 3 . 2001 . pp. 117±125 # MCB University Press . ISSN 1460-1060

In his award winning ``business book of the year'' [1] Clayton Christensen (1997) investigated why well run companies that were admired by many failed to stay on top of their industry. His research showed that in the cases of well managed firms such as Digital, IBM, Apple and Xerox, ``good management'' was the most powerful reason why they failed to remain market leaders (sic). It was precisely because these firms listened to their customers and provided more and better products of the sort they wanted that they lost their position of leadership. He argues that there are times when it is right not to listen to customers. Recent research by Ovans (1998) supports this claim. He suggests that purchase-intention surveys are not effective predicators of sales of new products. The research revealed that people are not generally reliable predictors of their own long-term purchasing behaviour. The type of question used and whether or not the question is placed in context greatly affects the reliability of such market research. James Dyson has good reason to be suspicious of the role of market research in new product development. Not only did he struggle for many years to get anyone in the UK to believe it was worth manufacturing his bagless vacuum cleaner, he faced the same scepticism when he launched in the USA (Thrift, 1997). Many industry analysts and business consultants are now arguing that the devotion to focus groups and market research has gone too far (Christensen, 1997; Martin, 1995; Francis, 1994). Indeed, the traditional new product development (NPD) process of market research, segmentation, competitive analysis and forecasting, prior to passing the resultant information to the research and development (R&D) department, leads to commonality and bland new products. This is largely because the process constrains rather than facilitates innovative thinking and creativity. Furthermore, and more alarming, is that these techniques are well known and used by virtually all companies operating in consumer markets. In many of these markets the effect is an over-emphasis on minor product modifications and on competition that tends to focus on price. Indeed, critics of The author is grateful for the comments of the anonymous reviewers on an earlier draft.

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the market-oriented approach to new product development argue that the traditional marketing activities of branding, advertising, positioning, market research and consumer research act as an expensive obstacle course to product development rather than facilitating the development of new product ideas. For many large multi-product companies it seems the use of market research is based upon accepted practice in addition to being an insurance policy. Many large companies are not short of new product ideas ± the problem lies in deciding in which ones to invest substantial sums of money (Trott et al., 1995), and then justifying this decision to senior managers. Against this background, one can see why market research is so frequently used without hesitation, as decisions can be justified and defended. Small companies in general, and small single product companies in particular, are in a different situation. Very often new product ideas are scarce; hence, such companies frequently support ideas based upon their intuition and personal knowledge of the product. This is clearly the situation with James Dyson's bagless vacuum cleaner (Dyson, 1998). Morone's (1993) study of successful US product innovations suggests that success was achieved through a combination of discontinuous product innovations[2] and incremental improvements. Indeed, Lynn et al. (1997) argue that: in competitive, technology-intensive industries, success is achieved with discontinuous product innovations through the creation of entirely new products and businesses, whereas product line extensions and incremental improvements are necessary for maintaining leadership. This, however, is only after leadership has been established through a discontinuous product innovation. This may appear to be at variance with accepted thinking that Japan secured success in the 1980s through copying and improving US and European technology. This argument is difficult to sustain on close examination of the evidence. The most successful Japanese firms have also been leaders in research and development. Furthermore, as Cohen and Levinthal have continually argued (1990; 1994), access to technology is dependent on one's understanding of that technology. Adopting a technology push[3] approach to product innovations can allow a company to

target and control premium market segments, establish its technology as the industry standard, build a favourable market reputation, determine the industry's future evolution, and achieve high profits. It can become the centrepiece in a company's strategy for market leadership. It is, however, costly and risky. Such an approach requires a company to develop and commercialise an emerging technology in pursuit of growth and profits. To be successful, a company needs to ensure its technology is at the heart of its competitive strategy. Merck, Microsoft and Dyson have created competitive advantage by offering unique products, lower costs or both, by making technology the focal point in their strategies. These companies have understood the role of technology in differentiating their products in the marketplace. They have used their respective technologies to offer a distinct bundle of products, services and price ranges that have appealed to different market segments. Such products revolutionise product categories or define new categories, such as Hewlett-Packard's Laser-jet printers and Apple's (then IBM) personal computer. These products shift market structures, require consumer learning and induce behaviour changes; hence, the difficulties for consumers when they are asked to pass judgement. It seems the dilemma facing companies is twofold: (1) At the policy level: to what extent should companies pursue a strategy of providing more room for technology development of products and less for market research that will surely increase the likelihood of failure, but will also increase the chance of a major innovative product. (2) At the operational level: to what extent should product and brand managers make decisions based upon market research findings.

2. The use of market research in new product development: a review of recent thinking In one of the most comprehensive reviews of the literature on product development, Brown and Eisenhardt (1995) develop a model of factors affecting the success of product development. This model highlights the distinction between process performance and product effectiveness and the importance of

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agents, including team members, project leaders, senior management, customers, and suppliers, whose behaviour affects these outcomes. The issue of whether customers can hinder the product development process is not, however, discussed. It is argued by many from within the market research industry that only extensive market research can help to avoid large scale losses such as those experienced by RCA with its Videodisc, Procter & Gamble with its Pringles, and General Motors with its rotary engine (Barrett, 1996). Sceptics may point to the issue of vested interests in the industry, and that it is merely promoting itself. It is, however, widely accepted that most new products fail in the market because consumer needs and wants are not satisfied. Study results show that 80 percent of newlyintroduced products fail to establish market presence after two years (Barrett, 1996). Indeed, cases involving international high profile companies are frequently cited to warn of the dangers of failing to utilise market research (e.g. Unilever's Persil Power and R.J. Reynold's smokeless cigarette). Given the inherent risk and complexity, managers have asked for many years whether this could be reduced by market research. Not surprisingly, the marketing literature takes a market-driven view, which has extensive market research as its key driver (Booz, Allen and Hamilton, 1982). The benefits of this approach to the new product development process have been widely articulated and are commonly understood (Cooper, 1990 and Kotler, 1998). Partly because of its simplicity, this view now dominates management thinking beyond the marketing department. Advocates of market research argue that such activities ensure that companies are consumer-oriented. In practice, this means that new products are more successful if they are designed to satisfy a perceived need rather than if they are designed simply to take advantage of a new technology (Ortt and Schoormans, 1993). The approach taken by many companies with regard to market research is that if sufficient research is undertaken the chances of failure are reduced (Barrett, 1996). Indeed, the danger that many companies wish to avoid is the development of products without any consideration of the market. Moreover, once a product has been carried through the early stages of development it is sometimes painful to raise

questions about it once money has been spent. The problem then spirals out of control, taking the company with it. The issue of market research in the development of new products is controversial. The debate will continue for the foreseeable future about whether product innovations are caused by technology push or market pull factors. The issue is most evident with discontinuous product innovations, where no market exists. First, if potential customers are unable adequately to understand the product, then market research can only provide negative answers (Brown, 1991). Second, consumers frequently have difficulty articulating their needs. Hamel and Prahalad (1994) argue that customers lack foresight; they refer to Akio Morita, Sony's influential leader: Our plan is to lead the public with new products rather than ask them what kind of products they want. The public does not know what is possible, but we do.

This leads many scientists and technologists to view marketing departments with scepticism, as they have seen their exciting new technology frequently rejected due to market research findings produced by their marketing department. Market research specialists would argue that such problems could be overcome with the use of ``benefits research''. The problem here is that the benefits may not be clearly understood, or even perceived as a benefit by respondents. King (1985) sums up the research dilemma neatly: Consumer research can tell you what people did and thought at one point in time: it can't tell you directly what they might do in a new set of circumstances.

This is particularly the case if the circumstances relate to an entirely new product that is unknown to the respondent. New information is always interpreted in light of one's prior knowledge and experience. Rogers' (1995) studies on the diffusion of innovations as a social process, argues that it requires time for societies to learn and experiment with new products. This raises the problem of how to deal with consumers with limited prior knowledge and how to conduct market research on a totally new product or a major product innovation. In their research analysing successful cases of discontinuous product innovations, Lynn et al. (1997) argue that firms adopt a process of probing and learning. Valuable experience is gained with

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every step taken and modifications are made to the product and the approach to the market based on that learning. This is not trial and error but careful experimental design and exploration of the market often using the heritage of the organisation. This type of new product development is very different from traditional techniques and methods described in marketing texts. Knowing what the customer thinks is still very important, especially when it comes to product modifications or additional attributes. There is, however, a distinction between additional features and the core product benefit or technology, hence its emphasis in the framework shown in Figure 1. This framework also places emphasis on the buyer rather than the consumer, for the buyer may be the end user but equally may not, as is the case with industrial markets. Moreover, for a product to be successful it has to be accepted by a variety of actors such as fellow channel members. The buyer is nonetheless a key actor. In industrial markets, the level of information symmetry about the core technology is usually very high indeed (hence the limited use of market research), but in consumer markets this is not always the case. For example, industrial markets are characterised by: . Relatively few (information rich) buyers. . Products are often customised and can involve protracted negotiations regarding specifications. Figure 1 Circumstances under which market research may hinder the development of innovative new products

.

And, most importantly, the buyers are usually expert in the technology of the new product (i.e. high information symmetry about the core technology).

The above discussions imply the first proposition: P1: that low information symmetry between buyer and consumer will limit the usefulness of any market research undertaken. In situations of low information symmetry, consumers have difficulty in understanding the core product and are unable to articulate their needs and any additional benefits sought. Conversely, in situations of high information symmetry consumers are readily able to understand the core product and hence, are able to articulate their needs and a wide range of additional benefits sought. In the case of discontinuous product innovations, the use and validity of market research methods is questionable (von Hippel and Thomke, 1999; Elliot and Roach, 1991). As far back as the early 1970s, Tauber (1974) argued that such approaches discourage the development of major innovations. It may be argued that less, rather than more, market research is required if major product innovations are required. Such an approach is characterised by the so-called technology push model of innovation. Products that emerge from a technology push approach are generated with little consideration of the market. Indeed, a market may not yet exist as with the case of the PC and many other completely new products. Frequently, consumers are unable to understand the technology in question and view new products as a threat to their existing way of operating. Martin (1995) argues that: . . . customers can be extremely unimaginative . . . trying to get people to change the way they do things is the biggest obstacle facing many companies.

Indeed, Ortt and Schoormans (1993) posit that potential consumers are not able to relate the physical aspects of a major innovative product with the consequences of owning and using it. Similarly, Hamel and Prahalad (1994) argue that while market research can help fine-tune product concepts, it seldom is the spur for an entirely new product concept. Consequently, most conventional market research techniques deliver invalid results. 120

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There are some well-known cases where companies have ignored the views of their customers. Chrysler, for instance, developed the original mini-van in the USA, despite research showing that people recoiled at such an odd-looking vehicle. At the time of launch, the product was revolutionary in appearance. Today, however, that basic design is the industry standard. The difficulty faced by product and brand Managers is deciding whether feedback is surmountable scepticism or genuine lack of market acceptance. In technology-intensive industries such as IT products, consumers are often hesitant over any new purchase because of the rapid introduction of replacement and improved versions. This has led to adverse consumer reaction to rapid product improvements (Dhebar, 1996). Discontinuous product innovations or radical product innovations, frequently have to overcome the currently installed technology base ± usually through displacement. This is known as the installed base effect. The installed base effect is the massive inertial effect of an existing technology or product that tends to preclude or severely slow the adoption of a superseding technology or product. This creates an artificial adoption barrier that can become insurmountable for some socially efficient and advantageous innovations. An example of this is the DVORAK keyboard, which has been shown to provide up to 40 per cent faster typing speeds. Yet, the QWERTY keyboard remains the preference for most users because of its installed base, i.e. its widespread availability of keyboards that have the QWERTY configuration (Herbig, et al., 1995). The idea of being shackled with an obsolete technology leads to the notion of switching costs. Switching is the one-time cost to the buyer who converts to the new product. Porter (1985) notes that switching costs may be a significant impediment to the adoption of a new consumer product. Buyer switching costs may arise as a result of prior commitments to a technology () and to a particular vendor ( ) (Jackson, 1985). Computer software is an obvious example where problems of compatibility frequently arise. Similarly, buyers may have developed routines and procedures for dealing with a specific vendor that will need to be modified if a new relationship is established. The effect of both types of switching costs for a buyer is a

disincentive to explore new vendors. All else being equal, buyers will be motivated to stay in existing relationships to economise on switching costs (Heide and Weiss, 1995). It is the extent of the installed base that influences the  cost of switching. This yields the second proposition: P2: that a high installed base effect will limit the effectiveness of any market research.

3. Using market research in the development of discontinuous new products: a conceptual framework Firms can enable consumers to gain direct knowledge of their new products through first-hand experience. There are a variety of techniques used to trial new products such as using in-store samples, mailing samples to consumers' homes, product demonstrations and service samples and demonstrations. In addition, consumers can gain information second-hand via company advertisements, packaging, point-of-purchase displays and Internet sites (Kardes, 1998). For innovative new products, one approach used is to gather together innovators and early adopters to gather their views on a product idea. The problem here of course is that the focus of the study is on the characteristics of the population rather than on the innovative product. For example, innovators and early adopters are characterised by a high disposable income. The examples cited in the previous sections serve to illustrate the dilemma facing firms: market research may reveal genuine limitations with the new product, but it may also produce negative feedback on a truly innovative product that may create a completely new market. This is why there have been so many research studies in this area (Myers and Marquis, 1969; Rothwell, 1977, 1992; Cooper and Kleinschmidt, 1993; Hart, 1993). And why there is such a wide variety of interesting cases of both successful and less successful research projects, which are extremely valuable starting points for analysis. Drawing on this literature, an attempt has been made to explore the circumstances under which market research might hinder the development of innovative new products. This has yielded a framework that provides useful insights into both policy and operational issues. The impetus for the

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development of this framework was the realisation that substantial uncertainty exists about decision making based upon market research findings. This uncertainty could be usefully divided into two independently identifiable dimensions that can be described as: (1) Information symmetry about the core technology between producer and buyer[4]. (2) The installed base effect. Quadrant 1: Learning from lead users Under these conditions, market research teams are usually taught to collect information from users at the centre of their target market. They conduct focus groups and analyse sales data, reports from the field, customer complaints and requests, and so on. Then they rely on their own creative powers to brainstorm their way to new ideas. Teams that follow this method assume that the role of users is to provide information about what they need, and that the job of in-house developers is to use that information to create new product ideas. The ``lead user'' process takes a fundamentally different approach. Lead users are users whose present strong needs will become general in a marketplace months or years in the future (von Hippel, 1986). It was designed to collect information about both needs and solutions from the leading edges of a company's target market and from markets that face similar problems in a more extreme form. Development teams assume that knowledgeable users outside the company have already generated innovations; their job is to track down especially promising lead users and adapt their ideas to the business's needs (von Hippel and Thomke, 1999). Quadrant 2: Market research may hinder the development of innovative new products Under these conditions, initial market research may produce negative findings due to a lack of information and knowledge on the part of the buyer(s). It should be possible to educate and convince buyers of the benefits of the innovative new product. Indeed, the key issue here is how the benefits can be best articulated to the consumer. With a low level of information symmetry, however, consumers will have difficulty articulating their needs. It is clear that care needs to be exercised when conducting market research with innovative new products. In forecasting

buyer's reactions to the innovative product, it is important to consider the product's or the technology's functional performance. That is, what it will do for the end-customer. Ortt and Schoormans (1993) suggest that one approach is to use ``quasi-experts''. These are consumers who have specific knowledge of related products and have specific knowledge of the usage context. In such cases it can be argued that there exists improved information symmetry between the producer and consumer vis-aÁ-vis the core technology of the product. Quadrant 3: Market research unhelpful Under these conditions, market research is extremely difficult and arguably unhelpful. This area is dominated by industrial buyers operating against a backcloth of a highinstalled technology base. In such cases it seems the role of third party intermediaries is significant. For example, within the information technology (IT) industry the role of IT analysts have been shown to influence notably the success, or not, of a new product launch (Vestey, 2000). The use of third-party experts to analyse, comment and pass on their views to potential buyers dominates this area. Quadrant 4: Market research unable to warn of potential difficulties with the new product Under these conditions, market research is unable to offer much insight due to the low levels of information on the part of the buyer(s). Indeed, due to the high-installed base effect it is extremely difficult to convince buyers to purchase the new product. Frequently the changes involved are substantial. This may be to distribution arrangements, pricing, and internal reorganisation. This will be further compounded if the buyer has low understanding of the technology. This may prevent the buyer from comprehending the potential benefits. Also, consumers will have difficulty articulating their needs. As with Quadrant 2, the use of ``quasi-experts'' may be helpful.

4. Policy and operational considerations This paper has sought to investigate the extent to which, and under what conditions, market research may hinder the development of discontinuous new products. This is without question a controversial subject and

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has been debated for many years. There is ample evidence to suggest that market research can help firms develop improved products. However, there is also some evidence from the literature that firms may be concentrating their efforts on short-term activities, such as altering product attributes, rather than investing in more risky discontinuous product ideas (Morone, 1993; Lynn et al., 1997). The conceptual framework presented here, attempts to offer the practising product manager some guidance on when market research may be helpful and when its findings need to be treated with care. The operationalisation and subsequent empirical testing clearly are indicated in terms of further research. There are, however, some policy and operational considerations. If sufficient care is not exercised by managers, market research can be used to support conservative product development decision making. This paper has highlighted the difficulty faced by many managers in the field of new product development. In many crucial new product development decisions, the course of action that is most desirable over the long run is not the best course of action in the short term. This is the dilemma addressed in the debate about short-termism. That is, an emphasis on cutting costs and improving efficiencies in the immediate future, rather than on creativity and the development of innovative new product ideas for the long term. What is of concern, is not the desire to cut costs but the apparent disregard of the implications and damage that such policies may bring about, and in particular the neglect of the company's ability to create new business opportunities for the future wellbeing of the company (Trott, 1998). Management needs to create new business opportunities for the company to ensure it is successful in the long-term. Many of the world's largest chemical companies, such as Shell, Du-Pont and ICI, have for many decades afforded their scientists a percentage of their time to work on projects they considered interesting and of future potential value. This implies a willingness to invest in risky innovative new product ideas. The shortterm view places emphasis on conservative decision making supported by market research findings, with its in-built failings and inability to source innovative new products. In neglecting attention to their creative activities, companies may seriously affect their

ability to innovate. Clearly, there are many companies like ``3M'', ``Rubbermaid'' and ``Lucas'' (Robinson, 1997), that have not lost sight of the importance of creating new products for their future markets. Yet senior management thinking is often driven by management accountancy principles and the goal of ensuring costs are lower than revenues. The chief executive of BP Chemicals acknowledged recently that ``cost reduction is a miserable management job but conceptually it is easy'' (Houlder, 1994). All of which leads to, at best, a management style that is reluctant to take risks and, at worst, a blame-seeking culture that forces managers to ensure they can defend any decision they make; hence, the value given to market research findings. Highlighting the importance of capabilities in R&D, technology development and channel management in new product development is not new, but Moorman and Slotegraaf (1999) suggest that product development is most effective when firms exhibit both capabilities. Furthermore, they argue that not all capabilities are valuable as single assets and more emphasis should be placed on the value of complimentary assets. Arguably, the need for innovation and creativity in market research is no less than in any other area of management. If market research is to provide useful effective information for helping organisations compete, it needs to be capable of bringing forth insights and viewpoints from respondents. This is the challenge for market research. Some of the more recent research on new product development argues that successful firms are able to deploy complimentary capabilities in technology and marketing (Moorman and Slotegraaf, 1999). This is based on the view that product development integrates inside-out (R&D) and outside-in (effective management of customer and channel relationships) capabilities. It is worthy of note that capability rich firms are more apt to draw correct inferences about the value of external information (Cohen and Levinthal, 1990, 1994).

5. Conclusions Market research can provide a valuable contribution to the development of innovative products. The difficulties lie in the selection

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and implementation of research methods. It may be that market research has become a victim of its own success; that is, business and product managers now expect it to provide solutions to all difficult product management decisions. Practitioners need to view market research as a collection of techniques that can help to inform the decision process. The conceptual framework outlined in this paper should help product and brand managers to consider when and under what circumstances market research is most effective. The right sort of market research can be invaluable. The problem is that within consumer markets there are technology-intensive and technology-vacant industries. In many of the technology intensive industries such as telecommunications, computer hardware and software, these firms are able to utilise their industrial market heritage to balance the need for technology and listen to the needs of consumers. In technology-vacant consumer markets, such as food and personal care, the danger is that the technology agenda is completely dominated by market research findings. Minor product modifications may keep a product and brand competitive in the short term, but if long-term growth is sought then more free-thinking and creativity needs to be afforded to the R&D department.

Notes 1 Christensen (1997) When New Technologies Cause Great Firms to Fail, was awarded the Financial Times business book of the year award in 1999. 2 Discontinuous innovations often launch a new generation of technology; whereas continuous product innovations involve improving existing technology. 3 The technology push approach to npd centres on trying to deliver the most effective technology available. 4 The term buyer is used here to take account of industrial markets, professional users and nonprofessional users (Pannenborg, 1986).

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Introduction

Leading for innovation through symbiosis Amar Dev Amar

The author Amar Dev Amar is Professor of Management at the School of Business, Seton Hall University, South Orange, New Jersey, USA. Keywords Employee involvement, Innovation, Leadership, Organizations, Groups, Management styles Abstract Based on the experiences with various organizations, this article summarized how managers should lead their innovation employees for most effectiveness. The main thesis is that innovation employees give higher performance when their managers practice symbiotic leadership style. The article describes how managers can achieve this. Four characteristics that they can apply to guide their leadership style to create a work symbiosis are given. Another contribution of this article is a set of recommendations to mimic the aspects of symbiotic leadership applicable in any organization where the operating environment is uncertain, the task is unstructured, and the manager cannot provide a clear direction to his employees. Through the practice of these recommendations, managers of all types of organizations should get higher productivity from their employees due to the employees' individual innovations. Electronic access The research register for this journal is available at http://www.mcbup.com/research_registers The current issue and full text archive of this journal is available at http://www.emerald-library.com/ft European Journal of Innovation Management Volume 4 . Number 3 . 2001 . pp. 126±132 # MCB University Press . ISSN 1460-1060

Whereas the technology is putting a tremendous pressure on organizations of all kinds to creatively integrate it in their operations, it is also bringing out a very new breed of organizations that work primarily with new knowledge and create technological applications as their main products and services. These new organizations may be in the form of a complete small firm or one department or section of a larger corporation. In whatever form these may exist, they thrive on the innovation of their employees in pioneering applications of the available scientific and technological knowledge or their own proprietary inventions. The number of these organizations has tremendously increased during the last decade of the 20th century. The current century is supposed to belong to them as the whole world moves towards the knowledge era. These organizations will become the most important segment of successful economies around the world. The economic race in the future will be won by those nations who will learn how to manipulate knowledge into successful applications that improve the quality of human life. However, unfortunately, not enough research has occurred in understanding how best to manage these organizations. Many managers do not have enough experience in managing these ± especially in managing young innovative employees of these organizations who mostly belong to the newer generations. While on the one hand, members of these generations will make most of those who will be available for employment in the 21st century; on the other hand, they practically monopolize the ability to work with the cutting-edge technology. The management principles and practices that have proven successful in getting work from employees in production organizations of the twentieth century do not work in these organizations. The management functions dealing with the human side of organizations ± such as leading, motivating, and controlling ± for these firms are quite different from what have worked successfully in managing production organizations. The sociological and behavioral theories that guided the leading function of management practice for these organizations have become inapplicable in the case of these knowledge employees. Their behavior, personalities, and character

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traits are so different that almost none of the developed management functional theories remain applicable in their case. It may be so because the available management theory does not provide techniques that are designed specifically to suit these employees. Although a lot is coming out at developing an understanding on their sociology and psychology, there is a substantial gap between the theory and what is applicable to these employees working in innovation environment. This work makes an attempt to fill that void in the area of leading. It should make managers introspect, examine their leadership styles, and adapt what they had been using to manage other employees to suit the personality of these new generations. The main objective is how best to employ the technology talent that these employees have to offer. In addition to helping innovation organization managers in how to lead their employees towards the attainment of goals important to the organization, the principles developed in this work should be useful to managers in all organizations, because this will cause an increase in innovation and productivity from all employees. This is particularly true because technology has proliferated in organizations of all types. In fact, no contemporary firm in any industry can succeed without the use of the state-ofthe-art technology in design, development, production and distribution of their products and services. This article is based on experience and the study of various organizations in different industries.

Successful innovation leader behavior Over three decades of working with many organizations, I have observed that creativity that turns into superior organizational financial or strategic performance does not come only from scientific laboratories or through the corporate R&D efforts. It can be achieved through changes in management practices. For example, back in the founding days of the US-based computer manufacturer Hewlett Packard, its founders broke the mold by eliminating organizational hierarchies and introducing innovative practices such as profit-sharing and cubicles (Burrows, 2001) ± which sound so standard and normal today. Although innovation has a profound effect on

the whole organization, research shows that in high-technology firms, the leader's shortterm compensation is related to innovation in the organization (Balkin et al., 2000). In some form, any employee at any level of the corporate hierarchy can use creativity in making a difference in the functioning of his or her department that could translate into greater benefit for the organization. Many times, creativity could come in small amounts but may still make a meaningful impact on the organization. One can see creativity reflect in better quality products, efficient processes, safe operations, new clients, better-serviced customers, efficient distribution, competent suppliers, satisfied and productive employees, and fulfillment of or compliance with the codes. The list can go on. This kind of small-scale creativity can make a difference everywhere in the organization and every employee can contribute towards its achievement. In most cases, creative endeavors start through individual initiatives and efforts. However, to derive greater and widespread benefit from such endeavors, most organizations want to organize creativity effort so that it can be turned into innovation. They want to know how best to structure and lead the groups assigned the task of bringing innovation in an organizational setting. In my study of several organizations and how their leaders successfully brought about innovation, I have observed that the leadership style that works best is not the typical traditional leadership ± neither transactional nor charismatic. In practice, due to the changing behavior of organizations in general, none of the traditionally established and practiced leadership techniques works in any organization. A number of managers are aware, and the researchers are discovering this fact through extended experimentations. One such study conducted in organizations operating under conditions of perceived environmental uncertainty is reported by Waldman et al. (2001). Based on a statistical study of 48 Fortune 500 firms, they discovered that neither transactional nor charismatic leadership predicted significant variance in organizational performance. Expecting any one of them to work in the tumultuous, uncertain, time-pressed environment of innovation organizations is unrealistic.

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Work symbiosis The successful leadership of innovation groups is the one that creates and permits to operate them more as a symbiosis than as a standard production shop. In many ways, leaders of innovation organizations deliberately defy the practices of these shops. Typically, an innovation leader structures the creativity team such that his or her personage and role do not appear at the center of its workings. The team is designed not to require the leader to occupy a key position in almost all group activities, or to act as its sole director, prime mover, or motivator. The organization is designed to let the leader be not prominently visible. The hierarchy configuration sets confused distinction between the leader and the remaining members of the creativity group. Their roles are designed to form a human symbiosis. Through his management style, the leader assures that all members collectively take credit, and accept blame, for the outcomes. He or she gives to the group members any and all recognition and benefit for the achievements that genuinely belong to them. Leaders of innovation organizations assure that their leadership emanates from their individual creative initiatives, intellectual preeminence, and technical or unique expertise that bring value to each individual constituting the group. They draw a very small part of their power ± mainly for the initial identification ± from the formal or the legitimate sources. Their power mostly rests in their personal influence ± in subtle ways ± through their capacity to help their followers in doing better on whatever they are doing or want to do or is of importance to them. It comes mostly from their ability to win confidence of those they lead ± not from any type of legitimacy or personal charisma. They believe that their creation and maintenance of a symbiosis will turn individual initiatives and goals into group cooperation that will eventually translate into direct benefit for the organization. Additionally, they provide an environment that permits every member of the group to be a leader of the group in some form or function. The addition of subtleties dimension to the leadership of innovation organizations takes on a special significance because, we have observed that, a large number of innovation employees for several reasons do not ask for

their leader's assistance. The first reason may be that they are not convinced that their leader can provide meaningful answers to the technical problems on the innovation project on which they are working. With that belief, they may not even let it be known that they need any assistance or allow them to be led. The second reason that is true many times is that they themselves may not know that they need to be led. That is why the leader has to lead them subconsciously. This type of innovation leadership is really an incognito leadership ± a group of role-switching leaders and followers, all in one, may be without any organizational or even operational distinctions. This style of leadership that permits and facilitates all members of a group to act as leaders is possible only in symbiotic organizations. It gives rise to a feeling of omnipotence among all members of the group and helps breed innovation. This is the main reason why symbiotic design is the recommended design for groups assigned creative tasks. I have further observed that if we set aside the differences in leadership practices that occur due to the differences in the individual styles of leaders, there remain primarily four transferable characteristics that are common to the behavior and practices of successful innovation leaders in creating symbiotic design applicable to leading an innovation group. These are dormant existence, catalytic interaction, reversed followership, and mutualism described below in detail. Symbiotic characteristic 1: dormant existence Successful innovation organizations defy the management design credo that requires every employee to have one assigned leader within the structure of the organization. Organizations use different titles to identify them. In the pretechnology era, they were called ``foremen'', ``linemen'', or ``boss''. In contemporary organizations, these titles have been revised to the ones that connote the lack of traditional authority and dyadic relationship of supervisor and subordinate. Some of these newer titles are ``group leader'', ``team leader'', and ``mentor''. Nevertheless, no one should be misled, because in most organizations the new leaders are and operate like the supervisors in the old organizations. However, in innovation organizations, to allow the flourishing of creativity, these relationships have to become

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very lax. Innovation leadership should not have prominent existence. It should function on as-needed basis: If needed it should always be there, but it should not be evident. In its operation, it should promptly rise to the occasion when needed and quickly ebb as the leadership returns things back to normal. This leadership is in complete contrast to the traditional leadership that is pushed down from the top by the power of the leader within the confines of the organizational structured hierarchy. It is pulled in by those who need to be led because of the situation in which they get. Organizations that are more interested in transactional work do not reflect to the above characteristic. Take, for example, a leading health care provider in the northeast that we studied. It obviously did not want to create a symbiosis when it defined the role of the department head of its customer service department by flouting the concepts of leadership in a symbiosis. It was very clearly understood by this head and his subordinates that he was there to make sure that his employees were promptly at their desks when the clock struck the start time to handle problems from patients and providers. Further, that their timecards were correct, periodic reviews were done on time, and employees whose productivity fell below the set targets were issued written warnings. The department head knew and operated as if he was the boss and the controller of the department. On the other hand, the employees also well understood his posture and clearly knew that they were not there to devise new things or to think creatively about their work. Moreover, they also knew that he was not there to provide the leadership for creatively enhancing their productivity or innovatively advancing their performance to a higher level. The obvious outcome of this behavior was that the organization was really getting hurt because of the lack of an available structure that will allow symbiotic interaction among the employees enabling them to evolve leadership on their own from among their peers in the group. Moreover, their formal leader had not done anything to overcome this shortfall. The only opportunity that they had for the occurrence of this type of interaction came only in their own time. Our observation showed that the creativity would have occurred, succeeded by higher productivity, in this department if the employees did not have a close-supervising

manager, and the functions that he was performing were simply automated. This would have allowed the creation of an environment emulating symbiosis for the employees yielding a leader only when anyone of the employees needed to be led. In that case, it would have been the person being led that would have made the leader a leader through vesting his or her acceptance in the leader, rather than the leader imposing his authority on him or her. This is the formula for turning any group into an innovation organization for finding unique solutions to employees' specific problems. Symbiotic characteristic 2: catalytic interaction The big difference between work and creative output is the demand that they put on human functions for their execution. Creativity is not something like a product or service that can be got as output from employees, which can be counted to know how fast the worker is working, and whose quality can be assessed against set standards to know how well a worker is doing. A leader should know that innovation is not something that he could get from his employees. He can only develop an environment that would be conducive to the emanation of creativity from his employees and he can only hope that it will turn into innovation of use to the organization. It is for these reasons that innovation leadership has to be catalytic in nature ± at both psychological and operational levels. To be able to act only as catalyst at operational level, innovation leaders function very much like those whom they are supposed to lead ± keeping the same size and scope of responsibility and authority. As their routine, they are responsible for performing the same functions, as do those who may need their leadership. Moreover, these functions are performed under the same working conditions, as do their followers. The formal organizational structure allows the leaders to so operate that their followers can solve all their problems on their own with the leader as a catalyst only. Not just that, they make sure that at the psychological level the followers believe that they actually solved all their problems fully on their own ± without any help from their leader. The innovation leadership has to inculcate in them a feeling of empowerment that conveys to them that they solved their problems on their own without any help from their leaders. This will cause among the followers a sense of I can do

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confidence. This is truly subconscious leadership ± because it operates at a subconscious level. It is only through this subconscious approach that leaders will be able to seat the learning deep into the psyche of their followers ± never to be forgotten. It will sprout at the right time, long after its actual occurrence ± when probably it will be actually needed. This is how managers can become leaders in innovation organizations. It can be best operationalized in a symbiotic environment.

as frequently as they want, (c) from department to department, (d) from assignment to assignment, and (e) from manager to manager. It may also include (e) refusal to accept any manager that is assigned by the organization as their leader. It may also allow innovation workers the opportunity to (f) work independently, or (g) decide to have a titular leader only. The purpose of all this is to operationalize the concept of leadership as reversed followership.

Symbiotic characteristic 3: leadership as reversed followership Because of the futility of authority in getting innovation from workers, the leadership that works in innovation organizations is not the leadership that most managers have known from their training in b-schools. It is a sort of reversed followership ± the acceptance of innovation workers to be followers of the manager who wants to lead them. Because this leadership operates in the reverse, we call it the reversed followership (in the absence of any other suitable word to convey this concept). In this model, the leadership is given by the person who wants to be led to the person whose leadership he wants. The leader becomes a leader because the follower gives him his leadership. It is like the follower accepting to take someone as a leader, rather than an external force, such as the organization, assigning someone as his leader. This process results in a followership, which has its roots in the psychological force in the follower that made the leader a leader ± virtually a creation of the follower who really needed it. The psychological followership leader contributes mostly as an inactive psychological motivator. However, since most of innovation leadership is motivational, this type of leadership becomes as much as or more effective than the best form of organizational hierarchical leadership that rests in the structure. Innovation organizations can practice the followership leadership in a number of its diluted forms if the management finds it inoperable, or unacceptable to the culture of the organization, in its pure form as presented above. Reversed followership may be designed to exist in these organizations in one or more of the following forms that espouse the spirit of the concept. This may amount to (a) permitting innovation workers full freedom to move around the organization, (b)

In abstraction In operation, innovation workers can be trained to apply reversed followership in its abstract form. In that case, it can function in place of a real, physical leader ± maybe even without the presence or knowledge of the person whose leadership is being sought. It may function in parallel or as a supplement, or in lieu of the formal organization-assigned leader or manager. In this form, the effective leadership for innovation, in addition to coming from someone at a higher level in the hierarchy, can also come from an individual or from several others from all across different levels of the organizational hierarchy, as reversed followership. It does not take away any aspect of the formal, hierarchical leadership. Since it is pulled in by a follower from someone who may not even be aware that he is functioning as a leader, it can always work in conjunction with the hierarchical leadership. Nevertheless, the innovation objectives will be served best if it functions in isolation of the hierarchical leadership or, as a second choice, with the hierarchical leadership functionally dormant. The psychological followership The reversed followership leadership can also work at psychological level ± the follower modeling and learning from the behavior of someone without active intervention of this individual. In many organizational settings, it may start out as reversed followership leadership and after initial interaction may turn to the psychological level. This way, the follower eliminates the need of constant contact and dependence on the leader. A widespread use of reversed followership can facilitate the functioning of organizations without any formal leader ± moving towards a leaderless organization ± a true symbiosis. The psychological followership type leadership has a huge advantage over

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structured leadership, because it has built-in acceptance from the follower, may not need a physical contact, and its application knows no bounds. Because of the power of this type of leadership, the span of control in organizations can be made very wide, and it becomes possible for a supervisor to cover a large variety of skills. The learning achieved through followership is never unlearned. Another advantage of psychological followership is that there may never be a need to seek any further leadership to learn that same or similar skill or ability again or to achieve a fresh motivation to engage in the acts that have been received through the followership leadership. We have observed the existence of the reversed followership type of leadership in many organizations ± small and large, and innovation teams and production shops. Whereas it is working very well in some, in some other organizations, where insecure hierarchical leaders feel threatened, it only operates covertly. In these organizations, the groups so operate that their members deliberately would not let their hierarchical leaders know of the existence of such alternative relationships in their organization. Symbiotic characteristic 4: mutualism The leading force in symbiosis is mutualism ± the mutualism as it relates to symbiosis. It is because of this mutualism that both parties in this relationship have a great interest in the success of the relationship. The dyad, the leader and the follower, works hard to make it successful. Whereas, the follower has the inherent interest in the success of the relationship, the leader's interest is also present because the relationship, and he as a leader, exists only if it continues to achieve the success. Therefore, service to the follower becomes of topmost importance to the leader. The complexity of bringing an idea to full fruition through commercial innovation requires group effort. Organizations are set up by design to facilitate innovation activity in contemporary environment. Although, innovation is mostly initiated by individuals, it thrives in organizations based on the group coexistence and mutualism. To breed and buoy innovation, it is essential that the leaders operate innovation groups as symbioses. Therefore, these groups function best when success and reward, as well as failure and punishment, from their outcomes affect every

member of the group equal to the proportion of their contribution, and no one, not even the group leader, would take a disproportionate share. That is the fundamental modus operandi of a symbiosis. If it is so practiced in an organization and is so understood by the group members, the group's effort in bringing out innovation will increase. It is also very important for the group to know that the detrimental outcome from the group effort will harm everyone in the group, in the same manner, as does the success. This is how symbiosis germinates and grows innovation in organizations. The organization should practice certain principles espousing the stylebearing symbiotic characteristics. Thus, the task of innovation leaders becomes how to enhance mutualism in the group. The leader can bring this in the group through conscious initiatives to mold its system, operation, and culture. He or she develops management practices that achieve this.

Practical recommendations to mimic symbiosis Although creation of a symbiosis is more a function of the right environment and symbiotic practices than organizational structure and processes, however, following are some of the managerial policies that can help in the mimicking of these characteristics of a symbiosis: . First, organizational control of the group should be only administrative and facilitative. . Organizations can turn an innovation group into a symbiosis by allowing the members to be led by principles that may be established by the organization or be based on certain universal values, rather than rules and whims of their managers. . Third, the group task assignments and work distribution among the members should be willfully left obscure so that it allows them to perforate into areas that are not chartered, unplanned, or unexplored. This will allow the members' actions to be guided by the opportunities as they arrive. Moreover, members will pick assignments on which they may perform best. . The organization should not set clear, structured, substantial rewards for success, or punishment for failure. The

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symbiosis should be so designed that they, on their own, be able to set their rewards and punishments. Members of a symbiosis should feel empowered to pursue the opportunities as they see them fit. The organization should train them to have a sense of being in control and responsible for all that could happen around them. They should clearly understand that the group does not have a defined leader, mentor, or manager, and that the group members are in it together, at the same level. Political behavior corrupts symbiosis and plays against innovation ± its raison d'eÃtre. The organization should assure that the symbiosis does not become a political entity. It may periodically engage in a scrutiny to assure its continuance as a non-political entity.

In conclusion This paper argues that leading an innovation group is not like leading a work group such as the ones that are commonly structured into traditional organizational designs popular in the twentieth century. This style of leadership has evolved in these organizations and is suited for structured tasks in a hierarchy. It derives its mandate and authority from the organizational hierarchy. The use of this leadership style to lead innovation groups or organizations would be a great misapplication. The author has observed from his studies that successful innovation leaders achieve success by creating an environment of symbiosis in which they help their employees set mutually beneficial ambitions, and provide each one a forum to achieve them. This style of leadership is specifically adapted to suit the needs of the innovation group and its team member so that they operate with optimal creativity.

Some of the given findings from the studies of innovation organizations can be transplanted to the management of all organizations, because innovation has become an essential ingredient for success of all kinds of organizations, in particular the ones where a large number of employees are from Generations X and Y. These twentyfirst century employees do not have the behavioral characteristics of the traditional production shops of the last century. Nevertheless, they have the potential to make immense contribution to organizational innovation and growth through enhancements in productivity because of their knowledge and understanding of the technology. Leading them according to the traditional leadership principles will be ineffective. The right technique to lead them follows from the operations of symbiosis. This work has suggested symbiotic leadership practices and techniques that managers in all organizations can use to create a symbiosis for the productive deployment of any work group through human creativity, especially in groups assigned the task of organizational innovation. This way, the managers will give innovation workers an environment that allows the best emanation of their creativity.

References Balkin, D.B., Markman, G.D. and Gomez-Mejia, L.R. (2000), ``Is CEO pay in high-technology firms related to innovation?'', The Academy of Management Journal, Vol. 43, pp. 1118-29. Burrows, P. (2001), ``The radical: Carly Fiorina'a bold management experiment at HP'', Business Week, 19 February, pp. 70-80. Waldman, D.A., Ramirez, G.G., House, R.J. and Puranam, P. (2001), ``Does leadership matter? CEO leadership attributes and profitability under conditions of perceived environmental uncertainty'', The Academy of Management Journal, Vol. 44, pp. 134-43.

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Innovation and firm size: an empirical study for Spanish engineering consulting companies Daniel Arias-Aranda Beatriz Minguela-Rata and Antonio RodrõÂguez-Duarte

The authors Daniel Arias-Aranda, Universidad de Granada, Granada, Spain. Beatriz Minguela-Rata and Antonio RodrõÂguezDuarte, Universidad Complutense de Madrid, Madrid, Spain. Keywords Size, Innovation, Service systems, Organizational structure Abstract This paper studies the influence of firm size over degree of innovation in a service sector, specifically in engineering consulting and technology services in Spain. A multiple regression analysis was used to test hypothesis about firm size positive influence over degree of innovation in services. To avoid distortions in this main relationship, three control variables were introduced (degree of standardisation, degree of customisation, and number of firm's activities). Results seem to indicate that firm size, measured by turnover, is related positively with degree of innovation, independently of moderate influence of control variables. Electronic access The research register for this journal is available at http://www.mcbup.com/research_registers The current issue and full text archive of this journal is available at http://www.emerald-library.com/ft

European Journal of Innovation Management Volume 4 . Number 3 . 2001 . pp. 133±141 # MCB University Press . ISSN 1460-1060

Introduction Nowadays, firms continually develop new products, services and processes in order to enhance competitive positioning and confront the hostile and turbulent current global environment. In this context, innovation activities are becoming a crucial need and not an option anymore, as pointed out by many authors (see for instance, Clark and Fujimoto, 1991; Tushman and Nadler, 1986, among others). There are many studies that relate innovation to business size for manufacturing industries (Baldwin and Scott, 1987; Scherer and Ross, 1990; Acs and Audretsch, 1990, 1991, among others). However, few of them take into account the service sector as a source of innovations. Moreover, serviceinherent peculiarities, such as intangibility, impossibility of patenting and perishable nature (Fitzsimmons and Fitzsimmons, 1998) modify innovation patterns and management techniques for service industries. In this paper, we initially define the innovation concept in order to review the state of the art regarding the relationship between degree of innovation and firm size. Afterwards, we state the central hypothesis according to which there is a strong positive relationship between firm size and degree of innovation that is applicable to service industries. Finally, we broach the empirical analysis on a sample of Spanish engineering consulting firms in order to arrive to the final conclusions.

Innovation and firm size Innovation can be defined as the creative process through which new products, services or production processes are developed for a business unit (Tushman and Nadler, 1986). Innovation is usually associated to radical advances in products or productive configurations. However, most successful innovations are based either on the cumulative effect of incremental changes of products and production processes or on creative combinations of already existing techniques, ideas or methods. Hence, innovation activities are not exclusive of R&D areas. Innovation The authors would like to thank TECNIBERIA (AsociacioÂn de Empresas de IngenierõÂa, ConsultorõÂa y Servicios TecnoloÂgicos) for their help and support in questionnaires reception.

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activities also require other functional areas such as marketing and operations to interact (Lawrence and Lorsch, 1967; Song et al., 1997) in order to gather market needs to technological and operational capabilities (Tushman and Nadler, 1986). This innovation process is shaped by information-processing activities, which translate consumer needs and technological opportunities into valuable information for operations management (Clark and Fujimoto, 1989). Innovation literature justifies the existence of a positive effect of firm size on the innovation activity (see Cohen, 1995, for a broad literature review and Yin and Zuscovitch, 1998, for theoretical background). Capital market imperfections as a source of competitive advantages for big firms are set as one of the main arguments sustaining the relationship between firm size and innovation. According to this idea, firm size influences positively in R&D projects financing possibilities because of internal funds availability and stability for larger firms. Another argument pointed out by innovation literature refers to R&D returns, which are higher when innovators detain a higher sales volume to share innovation fix costs (especially for process innovations). It is also argued that R&D is more productive in larger firms as a result of trade-offs between R&D and other non-manufacturing areas such as marketing and financing, which are usually more efficient in larger firms. Finally, it is also suggested that large diversified firms are able to reach scope economies in a faster way while reducing innovation risks. Opposite arguments have also been suggested in innovation literature (see Scherer and Ross, 1990, pp. 652-3). One of them relates firm growth with decreasing efficiency in R&D activities because of loss of management control. Moreover, larger firms increase bureaucracy control, which hinders R&D activities. Also, when firms grow, incentives for individual scientists and entrepreneurs might weaken due to the diminishing opportunities which benefit from individual efforts in innovation. In many cases, hierarchies-established conservatism in larger firms contributes to obstruct such incentives. Even with those arguments, there is consensus that in most industries, R&D activities increase proportionally to firm size for single sector studies (Baldwin and Scott,

1987; Scherer and Ross, 1990). However, such consensus has been broadly understood in the way that firm size does not necessarily impel R&D activities (opposite to Schumpeter's (1934) ideas). Fisher and Temin (1973) argued that Schumpeter's hypothesis should be referred to the relationship between innovative output and firm size instead of R&D as innovative input. Acs and Audretsch (1990, 1991), Pavitt et al. (1987) and Scherer (1965) proved that small firms tend to achieve high innovation rates in relation to size. Also, R&D productivity (innovations per R&D unit) tends to decrease with firm size. Bound et al. (1984) analysed patenting activity arriving to similar conclusions: the ratio of patents per dollar spent in R&D in small firms (with less of a million dollar sales) is higher than the one for larger firms. Still, the idea that R&D productivity decreases with firm size is mainly predominant. According to this background, we can conclude that the three most reliable empirical frameworks relating innovation and firm size are the following: (1) R&D activity increases ± usually in a proportional way ± with firm size. (2) Innovations tend to increase ± less than proportionally ± with firm size. (3) R&D productivity tends to decrease with firm size. Even though Cohen and Klepper (1992) suggest that larger firms hold a substantial advantage when accomplishing R&D activities, they also point out two common characteristics that push firms to innovate. These are the appropiability conditions, which force firms to benefit from R&D activities by applying innovations in a firm's outputs, and limited growth conditions due to innovation investments. Firm size, for these authors, is not considered to have a significant influence in innovation by itself. Nevertheless, most of these studies do not formulate adequately the effect of R&D activities on firm size and growth. There is no common agreement on this topic. Also, the service sector is scarcely considered for these kind of studies. Therefore, in this study we intend to analyse the relationship between firm size and degree of innovation for service organisations. Such relationship is established in the following hypothesis:

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H1. Firm size influences firm's degree of innovation positively in service organisations.

Research methodology Engineering consulting firms in Spain Sector justification appears in most innovation studies in order to clarify possible effects of distortion for different industries. For this study, a service sector is analysed, particularly engineering consulting firms in Spain. Such choice is based on the five following assumptions that support the aims of this research: (1) This sector requires high-technology investments and civil responsibilities. Such circumstances force firms to continually innovate products as well as processes in order to remain competitive. (2) Customers require a high level of quality standards and innovations, as they can be easily informed of new product and processes in the global market through information technologies. (3) Engineering consulting firms hold an important technological and knowledge management component. They absorb new technical advances quickly, so they need to properly manage the new acquired knowledge. (4) These organisations deliver high addedvalue services by analysing, comparing and developing studies and projects, which simulate the final execution of new constructions. (5) This sector is especially significant from a macroeconomic point of view. However, it lacks studies about strategic and management issues. Sample description This study used a final sample of 71 firms over 127 questionnaires sent, which covers more than half of relevant existing firms, according to Spanish Ministry of Industry data for 1998 (Ministerio de Fomento, 1998). Tables I and II show a description of the sample by Activity group, Turnover and Workforce. Most sample firms are in the range of 300,000 and three million Euros turnover (60 per cent approx.) for the three activity groups, and 56 per cent of the firms in the sample are in the range of ten and 99 employees.

Size measures According to recent studies (Buesa and Molero, 1998; Cohen and Klepper, 1996; Scherer, 1991), firm size is measured through turnover and workforce. Hence, we will desegregate our main hypothesis in two subhypotheses: H1a. Firm size, measured through turnover influences service degree of innovation positively. H1b. Firm size, measure through workforce influences service degree of innovation positively. Innovation measures Degree of innovation can be measured focusing on both input and output points of view. In this case, this kind of measure does not seem valid, because of the differential aspects of service organisations. For this reason, an index was developed using four items based on the work of Berry et al. (1991), Bowen and Youngdhal (1998) and Sampson (1996). These items are concerned with the following four basic dimensions of service design and development process: (1) degree of innovation for the service process; (2) degree of innovation for service delivery; (3) importance of customer perception about the innovation process; and (4) the existence and importance of a new services design and development team. Cronbach's alpha for this index is 0.9331. Partial indicators were developed in order to know the firm positioning according to the innovation items. Such indicator combines the different items in order to measure the firms' trends. A global indicator was developed to measure innovation trends, taking into account that the indicator's rank should be limited to values from 1 to 5. So, it was designed as follows: Ebn ˆ j… j…

5‰…

Pb

Piˆa ‰j…5 biˆa

Pd

Piˆc d iˆc

Ain ÿ

Pd

Piˆc d

Ain †‡

Ain ÿ iˆc Ain †j‡ P Ain ÿ 5 biˆa Ain †j ‡ 1Š P Ain ÿ 5 biˆa Ain †j ‡ 1Š

being: Ebn the indicator. Ain the score obtained in question i of block n in the questionnaire. Rank [a,b] represents questions scoring towards one of the trends in each block.

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Innovation and firm size: Spanish engineering consulting companies

European Journal of Innovation Management Volume 4 . Number 3 . 2001 . 133±141

Daniel Arias-Aranda et al.

Table I Sample description by turnover (euros) and group of activity Civil Turnover C Total = C300.000

Firms

Per cent

7 11 11 3 3 35

20.0 31.4 31.4 8.6 8.6 100

3 3 4 0 2 12

Table II Sample description by number of employees Number of employees