No title

Research (e.g. Ford, 1996; Kanter, 1988; Van de Ven, 1986; Wolfe, 1994) suggests that the term `ìnnovation'' can be def...

Author: Christos Kalantaridis

24 downloads 428 Views 520KB Size Report

This content was uploaded by our users and we assume good faith they have the permission to share this book. If you own the copyright to this book and it is wrongfully on our website, we offer a simple DMCA procedure to remove your content from our site. Start by pressing the button below!
Report copyright / DMCA form

DOWNLOAD PDF

Research (e.g. Ford, 1996; Kanter, 1988; Van de Ven, 1986; Wolfe, 1994) suggests that the term `ìnnovation'' can be defined in terms of a new or innovative idea applied to initiating or improving a product, process, or service. It also has been suggested (cf. Mansfield, 1981) that although some organizations spend a great deal of time and energy on the generation of innovative ideas, they often fail to maintain the momentum necessary to diffuse the ideas throughout the organization. One might infer from this suggestion that conditions in these organizations may not be conducive to (i.e. do not facilitate) the innovation diffusion process. In support of such an inference, other research (e.g. Keily, 1993; Nee, 1997; Sheridan, 1994) suggests that not only is the facilitation of the innovation diffusion process contingent upon cultural, structural, and size configurations of organizations, but also depending on the configuration of these organizational factors, the process can be speeded up (i.e. accelerated), slowed down, ceased altogether, or sustained. The importance of facilitating the innovation diffusion process is strongly supported in the relevant literature. For example, it has been observed (cf. Mische, 2001, p. 145) that high-performance organizations share five characteristics that indicate their commitment to facilitating the diffusion of innovation: (1) they have institutionalized innovation as a way of life; (2) they have leaderships that foster innovation and build creative and collaborative learning environments; (3) they hire, nurture, and covet innovative employees; (4) they recognize and reward creativity; and (5) they are not predisposed or biased to preconceived outcomes, nor are they attached to a predetermined answer, rather they let the answers and outcomes evolve toward a general target.

Facilitating, accelerating, and sustaining the innovation diffusion process: an epidemic modeling approach Walter Hivner Shirley A. Hopkins and Willie E. Hopkins The authors Walter Hivner is Professor (Emeritus) of Management and Willie E. Hopkins is Professor and Chair, Management Department, and Associate Dean for Research and Administration, both at the College of Business, Department of Management, Colorado State University, Fort Collins, Colorado, USA. Shirley A. Hopkins is Associate Professor of Statistics and Operations Technology, Daniels College of Business, University of Denver, Denver, Colorado, USA. Keywords Innovation, Facilitators, Diffusion, Organizational policy, Modelling Abstract Our focus in this article is on a conceptual framework that has the potential to help managers achieve the goals of facilitating, accelerating, and sustaining the innovation diffusion process in organizations. We use concepts and variables from epidemic modeling to develop a series of algebraic equations that mathematically demonstrates the process by which innovative ideas are diffused throughout organizations, and then derive a set of propositions from the equations that specify how variables in the equations might be affected to facilitate, accelerate, and sustain the innovation diffusion process. After identifying strategies designed to affect these variables, we discuss factors that may be required to implement the strategies successfully. Finally, we discuss other factors that managers should consider as they take actions to facilitate, accelerate, and sustain the innovation diffusion process. Electronic access The Emerald Research Register for this journal is available at http://www.emeraldinsight.com/researchregister

Quinn (2000) recently emphasized the importance of sustaining the innovation diffusion process, by suggesting that organizations must continue to innovate or face extinction. In support of Quinn's admonition, others (e.g. Byrne, 2000; Scott, 1999) suggest that the inability to sustain the innovation diffusion process places organizations at a competitive disadvantage

The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/1460-1060.htm European Journal of Innovation Management Volume 6 . Number 2 . 2003 . pp. 80-89 # MCB UP Limited . ISSN 1460-1060 DOI 10.1108/14601060310475237

80

Facilitating, accelerating, and sustaining the innovation diffusion process

Walter Hivner, Shirley A. Hopkins and Willie E. Hopkins

European Journal of Innovation Management Volume 6 . Number 2 . 2003 . 80-89

because they will not be able to adapt to the speed and turbulence of technological change. While facilitating and sustaining the innovation diffusion process are clearly important, there is a growing recognition that the speed (i.e. acceleration) at which an innovative idea is diffused is also important to organizations if they desire to create and sustain a competitive advantage amidst rapidly changing business environments (Kessler and Chakrabarti, 1996; Schilling, 1998). The notion of innovation speed or acceleration refers to the time elapsed between initial development, including the conception and definition of an innovation, and ultimate commercialization of an innovation (Mansfield, 1988; Murmann, 1994; Vesey, 1991). Brown and Eisenhardt (1995) identified two streams of research, within the innovation literature, that focus on innovation speed. The focus of the first stream is on the ultimate commercialization of an innovation, or the rate at which a product is transformed from an idea to a marketable entity (Stalk and Hout, 1990). The argument set forth in this stream of research is the faster a firm can develop a new product, the greater the likelihood that it can be the first to market a product and reap ``pioneering'' advantages (BirnbaumMore, 1990; Emmanuelides, 1991). In the second research stream, innovation speed refers to the rate at which an innovation is diffused through an organization (Rogers, 1983). The focus of our research is on this second stream. Specifically, our focus in this article is on a conceptual framework that, when operationalized, not only accelerates the rate of innovation diffusion throughout an organization but also facilitates and sustains the process. The need for such a framework is reflected in research suggesting that facilitating, accelerating and sustaining the innovation diffusion process has become increasingly important to the survival and growth of organizations competing in industries that are characterized by shortened product lifecycles (cf. Kessler and Chakrabarti, 1996). Previous research studies (e.g. Bart, 1988; Damanpour, 1991; Monge et al., 1992) have identified factors that influence the diffusion of innovation. However, these studies do not specifically consider the impact of these influences on

the facilitation and sustainability of the innovation diffusion process or the speed (i.e. acceleration) at which innovation is diffused throughout organizations. A conclusion one might safely draw from these studies is there appears to be a lack of integration and systematic application of these influences to any type of conceptual framework designed to facilitate, accelerate, and sustain the innovation diffusion process. Although conceptual frameworks of innovation diffusion do exist (cf. Dosi, 1982; Lawless and Anderson, 1996; Sahal, 1985), they are based on systems that are characteristically non-linear and stochastic and lack generality from which usable management practices can be derived. In other words, these frameworks offer marginal practical utility to organizations seeking to understand the innovation diffusion process. The purpose of innovation diffusion modeling should be to help managers understand and, if possible, predict and control (i.e. facilitate and sustain) the process, thereby enabling them to accelerate diffusion rates throughout the organization. We use the epidemic modeling approach in this article to identify target areas to improve the innovation diffusion process. This approach focuses on specific variables that can be manipulated for the express purpose of facilitating, accelerating and sustaining the innovation diffusion process. We begin this article by describing Beltrami's (1993) approach to epidemic modeling. We then appropriate concepts and variables from epidemic modeling to develop a series of algebraic equations that mathematically demonstrates the process by which innovative ideas are diffused throughout organizations. Next we derive a set of propositions from the equations that specify how variables in the equations might be affected to facilitate, accelerate, and sustain the innovation diffusion process. After identifying strategies designed to affect these variables, we discuss factors that may be required to implement these strategies successfully. Finally, we discuss other factors that managers should consider as they take actions to facilitate, accelerate, and sustain the innovation diffusion process. 81



The epidemic modeling framework


entertaining and investigating the possibility of an innovative idea, exposed (E) as those employees who have been introduced to an innovative idea but who have not been convinced enough to spread the idea to other employees, infectives (I) as those employees who have embraced the innovative idea, understand and believe in its utility and are capable of spreading and diffusing the idea throughout the organization, and recovered (R) as those employees who were involved in the initial excitement and spreading of the idea, but have been influenced by countervailing forces which have lessened their enthusiasm for promoting the idea. With respect to these definitions, the first element of our conceptual framework proposes that innovative ideas are spread in proportion to the number of possible encounters between infectives and susceptibles. Thus:

We draw upon Beltrami's (1993) research on `èpidemic'' modeling to develop our framework of innovation diffusion in organizations. In his study of measles epidemic in New York City schools, Beltrami found that outbreaks appeared to occur more in the winter months than during the summer months. An initial hypothesis was that the disease-causing agent was more virulent due to lower temperatures, or some other complex scientific cause and effect relationship based on the intrinsic properties of the pathogen. However, upon closer examination, his subsequent studies revealed that the increased incidence of outbreaks was correlated with an increase in contact rate among students. In the winter months children in school typically spend most of their time indoors in confined, close contact with each other. This is in contrast to the summer months when students have more freedom to recreate outdoors, where contact is less frequent and, spatially, students are not as close to one another. Implicit in Beltrami's approach to epidemic modeling is that an epidemic exists within an environment of ``contagion'', and the contagion involves the spreading of pathogens or disease-causing agents within a given population. In his model, populations within a contagion area are divided into four categories: (1) susceptibles, or those individuals who are able to contract the communicable disease; (2) exposed, or infected individuals who are not yet able to transmit the disease; (3) infectives, or those individuals who are capable of spreading the disease; and (4) recovered, or those individuals who were previously infected but have recovered and are now immune to the disease.

S 0 bSI Where b = contact rate, which is the average fraction of susceptibles (S 0 ) contracted by a single infective (I). The class of exposed individuals (S 0 ) increases over time at a rate equal to the rate at which susceptibles become infective, namely bSI. This class of individuals disappear from the population at a rate of aE, where a is the average number of exposed (E) individuals that become contagious per unit time. The reciprocal 1/a is, therefore, the mean latency period during which the disease incubates prior to becoming infectious. Thus: E 0 bSI

aE

The infectives are now seen to increase at a rate of aE and to be removed at rates cI, where c is the average number of infected individuals that recover per unit time; the reciprocal 1/c is then the mean infectious period. Thus: I 0 aE

cI

Finally, the recovered class increases at a rate cI. Thus:

The organizational framework Employing the notion of contagion and the four categories described in Beltrami's epidemic model, we developed a conceptual framework for the diffusion of innovation in organizations. In our model, we denote the fraction of individuals identified as susceptible, exposed, infective, and recovered as S, E, I, R, respectively. Within the context of organizations, we characterize susceptibles (S) as those employees who are capable of

R0 cI These four equations taken together represent the components of traditional epidemic models. To simplify the equations into a comprehensive single equation, assumptions are necessary. An obvious approach to simplification is the assumption that the latency period between the time an exposed becomes infective is zero. This means that the 82



respect to our framework, this research supports the following proposition.

susceptibles are immediately infected. In reality, this assumption more often than not reflects the reality of innovation diffusion within organizations. Again, reflecting on commonplace industry occurrences, one does not have to think hard to remember a meeting where a new idea is proposed. Given adequate discussion and sufficient information, it does not typically take long for all in attendance to join the presenters in their enthusiasm for the boundless possibilities of the idea. The assumption that susceptibles are immediately infected changes the equation for I to: I 0 bSI

P1. Maximizing the contact rate (b) will facilitate the innovation diffusion process within organizations. While maximizing the contact rate increases the chance that more individuals within organizations will become exposed to an innovative idea, it does not guarantee that these individuals will become proponents of the idea. The notion being here that proponents will actively promote the idea, which will likely accelerate the speed at which the idea travels throughout the organization. If a goal of innovation diffusion is to reduce the time it takes an idea to travel throughout an organization, the goal is likely to be achieved if the individuals exposed to the idea become immediate proponents. Based on the epidemic modeling principle that there is a latency period (timing variable) during which a disease incubates prior to an individual becoming contagious (i.e. capable of spreading the disease to others), we set forth our second proposition.

cI

Thus, given the three equations: S 0 bSI I 0 bSI

cI

R0 cI And the fact that: SI R1

P2. Minimizing the latency period (bsI ± aE) will accelerate the innovation diffusion process within organizations.

The value of R can be determined by knowing the value of S and I. For example, the fraction of R in a company is initially zero and, since S I R 1, this means that S I 1 at t = 0. From the chain rule of differentiation, one obtains, for all positive S and I, dI=dS I 0 =S 0

Finally, the number of individuals who no longer promote an innovative idea might be a measure of the behavioral variable. As indicated in our framework, these individuals fall into what we call the recovered class. Our framework also suggests that there is an inverse relationship between the size of this class and the sustainability of innovation diffusion within organizations. That is, the diffusion of innovation within organizations will eventually cease if very few individuals are willing to ``champion'' new ideas (Day, 1994; Howell and Higgins, 1990). Thus, our third proposition is set forth as follows.

1 c=bS

Integrating both sides of this relation with respect to S yields It


St c=blnSt constant

One can plot the solution curves in the S, I plane to interpret the results of this equation with respect to time. Framework propositions Conceptually, the framework demonstrates that spatial, timing, and behavioral variables are related to innovation diffusion in organizations. From an epidemic modeling perspective, the spatial variable might be measured by the frequency of employee contact with one another within organizations. Research (cf. Bart, 1988; Bouty, 2000; Monge et al., 1992) suggests that frequent contact among employees facilitates the innovation diffusion process because there is greater opportunity for new ideas to be discussed and considered. With

P3. Minimizing the recovery rate (aE ± cI) will sustain the innovation diffusion process within organizations.

Influencing the measurement variables The propositions set forth in this article suggest that managers might facilitate, accelerate, and sustain the innovation diffusion process by influencing the contact, latency, and recovery rates contained within the conceptual framework. Descriptions of 83



strategic initiatives designed to influence these rates are discussed in the next few sections of this article.


Another action that organizations might take involves changes in or additions to the current organizational structure. This action can be instrumental in reinforcing recontact rates between infectives and susceptibles. For example, some companies like Hoeschst Celanese have internal `Òffices of Innovation'' (Keily, 1993). These offices serve as a resource base for infectives to improve contact rates within the organization as well as a resource base for susceptibles to research and investigate innovative ideas. Formalizing the contact process within organizations is another action that should improve the contact rate. Arranging formal presentations to allow susceptibles to be exposed to the innovation in a controlled and effective manner is an easy beginning to working on increasing the contact rate between infectives and susceptibles. Using formal meetings or luncheons designed to introduce and push the innovative effort can be effective. Another simple action managers might take to affect contact rates is making changes in the arrangements of physical settings. Those who have written on the subject of proxemics (cf. Paulus, 1989; Sommers, 1969), or the study of physical space, physical setting, and territory within organizations, contend that certain floorplans and setups facilitate communications among members of an organization. It follows from these writings that physical setting can greatly enhance or deter the contact rate between infectives and susceptibles within an organization.

Facilitating strategies Any actions taken by organizations to increase contact rates between infectives and susceptibles represent what we call facilitating strategies. Several key actions can be taken to increase contact rates. One key action is the setting aside of time for members of the organization to generate and share their ideas about innovation with one another. As suggested by Katz and Allen (1985), organizations competing in today's world of high technology are faced with the challenge of ``dualism'' or functioning efficiently today while planning and innovating effectively for tomorrow. Unfortunately, the pressures of everyday requirements often leave little time or money to focus on effectively dealing with future concerns. This translates into an environment where members of an organization may be discouraged from participating in activities that run outside the maintenance of the ``status quo''. This type of an environment can largely reduce the contact rate of members within an organization, and thus members' exposure to new and innovative ideas within the organization. To help facilitate the exchange of ideas between infectives and susceptibles, managers might set aside time each week/ month for employees to discuss and develop any new ideas they may have on their mind. This action should involve all functional areas in the organization. It is essential that susceptibles feel that this time is well spent and allows them to have consistent contact with infectives within the organization. In addition to the initial contact between susceptibles and infectives, ``recontact'' should also be designed into an effective facilitating strategy. As a means of implementing this aspect of the facilitating strategy, managers should ensure that susceptibles have appropriate and adequate information and other resources to allow them further access to the content of the idea at hand. More specifically, susceptibles should be made aware of who the infectives are, how they can seek them out and contact them and should be given the resources to do so (e-mail addresses, phone numbers, literature etc.).

Accelerating strategies The concept of latency represents an area in which organizations can influence to accelerate the innovation diffusion process. As with contact rates, there are several important actions managers might take to affect the latency period. One action is to ensure that as many employees as possible are involved in a new innovation, with the goal of decreasing the time it takes employees to be transformed from susceptibles to an infective and pass the ``word'' on. By involving employees in the idea generation and realization process, they become more aware of their involvement and feel responsible for the success of the innovation (Katz and Allen, 1985; Thamhain and Wileman, 1987). A major role that managers assume at this point 84




in the process is creating an atmosphere of ownership for the innovation. An atmosphere of ownership is likely to create personal feelings of ownership among employees, which is likely to reduce the latency period (i.e. the time it takes for a susceptible to become an infective) substantially. This notion is supported by research conducted by Dory and Baker (1993), which suggests that personal feelings of ownership of an innovation may increase the transition time it takes for an employee who may be open to a new idea to become a potential ``champion'' of the idea. The innovation diffusion literature (cf. Howell and Higgins, 1990) highlights the establishment of `ìdea champions'' as an integral part of the diffusion process, and suggests that they play a large role in affecting the rate at which innovation is diffused throughout organizations. Idea champions are employees who feel such a strong ownership with the idea or innovation that they will do what it takes to ensure that the end result is successful or accepted by others. According to Howell and Higgins (1990), once an idea is developed, idea champions actively and enthusiastically promote the idea, build support, overcome resistance, and ensure that the innovation is implemented. Suggested here is that by strategically placing idea champions in all functional areas and at all levels of the organization, management can greatly increase (accelerate) the spread (diffusion) of innovative ideas within the organization.

many organizations employees are rewarded for the absence of failures rather than for the presence of successes (Nee, 1997; Sheridan, 1994). Consequently, because innovation is risky and risk can result in failure, employees may be reluctant to engage in innovative behaviors (e.g. championing new ideas) if they feel such behaviors will exact penalties. In terms of a strategy designed to encourage employees to engage in innovative behaviors, many organizations offer high job security so that employees do not fear being terminated for failures that might be associated with such behaviors (Howell and Higgins, 1990). As an additional demonstration of support for this type of behavior, many organizations hold frequent celebrations of small, incremental successes associated with new innovations (Sheridan, 1994). The point of these celebrations is to provide positive feedback to employees that innovation is an organizational value (Sheridan, 1997). Ultimately, these celebrations maintain or sustain the momentum of innovation and diffusion of an idea throughout the organization. Strongly implied by these actions is that the sustainability of the innovation diffusion process is contingent upon a corporate culture that is supportive of innovative behaviors on the part of employees. A high level of support should translate into a lower rate of recovery within the organization.

Sustaining strategies The rate of recovery or disinterest in innovations within an organization can also be affected if certain actions are taken. As discussed earlier, creating feelings of ownership in the innovation can help to keep the enthusiasm at a level that minimal recovery is observed within organizations. In addition to creating feelings of ownership, actions designed to refuel interest among infectives to continue to support and facilitate the spread and eventual implementation of new ideas within the organization need to be taken. One way to manage the rate that infectives become recovered is by identifying and eliminating reasons for eventual disinterest in innovative ideas. It has been suggested that one reason infectives become recovered is because in

Implementation of the facilitation, acceleration, and sustaining strategies require that organizations in which they are implemented possess certain structural, size, and cultural characteristics. For example, some of the actions (e.g. facilitating communication among organizational members) that represent these strategies require an organizational structure that influences innovation in a positive, reinforcing way. Also, actions such as setting aside time for employees to generate and discuss ideas imply that organizations may have to meet a size requirement (in terms of financial and human resources) to implement these strategies successfully. Finally, organizations that celebrate successes as well as failures will likely have the type of culture that encourage experimentation among employees to

Implementation requirements

85




that they: encourage employees to experiment with new ideas; reward employee successes and failures as they go through the experimentation process; and celebrate mistakes, in a positive way, that result from employee experimentation. As noted earlier in this article, the culture of some organizations rewards employees for the absence of failures rather than for the presence of successes (Nee, 1997; Sheridan, 1994). Robbins further notes that such cultures extinguish risk taking and innovation, and employees will suggest and try new ideas only when they feel that such behaviors will exact no penalties. Suggested here is that the successful implementation of facilitating, accelerating, and sustaining strategies requires a corporate culture that is supportive of such strategies.

generate innovative ideas. In the next few sections of this article we will go into more detail about these implementation requirements. Organic structure As we stated earlier in this article, any actions taken by organizations to increase contact rates between infectives and susceptibles represent facilitating strategies. Classic (e.g. Burns and Stalker, 1961) and more recent (Courtright et al., 1989) research on organizational structure suggests that these actions are best supported in what is called `òrganic'' structures. These types of structures are argued to positively influence innovation because they tend to rely heavily on teams to cut across functional departments and hierarchical levels, which increases the contact rate. They also have a low degree of formalization (i.e. require a minimal degree of formal rules and little direct supervision) and centralization (i.e. all employees are actively involved in decision making), and possess a comprehensive information network that utilizes lateral, upward, and downward channels of communication. These characteristics of organic organizational structures highlight their importance to the implementation of facilitating strategies.

Other considerations While the successful implementation of the facilitating, accelerating, and sustaining strategies depend on the implementation requirements just discussed, there are other factors that must be considered with respect to these requirements. For example, organizations with organic cultures tend to be smaller ± in terms of workforce size ± than those with mechanistic cultures. Burns and Stalker (1961) describe mechanistic cultures as being rigidly and tightly controlled, and characterized by high specialization, extensive departmentalization, narrow spans of control, high formalization, a limited information network (mostly downward communication), and little participation by low-level employees in decision making. As noted by Blau and Schoenherr (1971), once an organization has around 2,000 employees it is already fairly mechanistic. The implication here is that the innovation diffusion process is not only facilitated and sustained in smaller organizations because they tend to have organic cultures, but also may be accelerated because of the smaller number of employees. That is, a smaller number of employees allow an innovative idea to spread throughout the organization at a faster rate than when the idea has to spread among a larger number of employees. Another consideration is that although an innovative idea may spread faster in smaller organizations, such organizations may not have a sufficient amount of human and

Sufficient resources According to Smith (2000) there are resource requirements associated with innovation diffusion. On the one hand, setting aside time for employees to generate and discuss ideas implies that the organization has a sufficient amount of human resources to cover the workload of those employees who are producing ideas rather than products or services for the organization. Moreover, purchasing innovations resulting from the idea generating processes, bearing the cost of instituting the innovations, absorbing failures, giving employees access to necessary resources (e.g. computers, email, internet, etc.), modifying physical settings, and even having luncheons for celebrating successes, require that organizations have sufficient financial resources. The presence of these types of resources not only facilitates the implementation process, but also helps to sustain the innovation diffusion process. Supportive culture Robbins (2000) suggests that innovative organizations tend to have similar cultures, in 86




`ìdea champions'' that possess the entrepreneurial spirit. Like entrepreneurs, these champions are characterized as high achievers, risk takers, persuasive, persistent, and innovative (Howell and Higgins, 1990). Thus, champions can be used in small organizations that already possess organic structures and supportive cultures to not only develop innovative ideas, but also diffuse them quickly throughout the organization. Moreover, the financial savings from productivity gains, realized from not needing to set aside time for several employees to generate innovative ideas, can be used to offset the cost of instituting innovations, absorbing failures, etc.

financial resources to implement the strategies successfully. On the one hand, then, large organizations may have the resources to implement the strategies but may not have the appropriate culture or structure. On the other hand, smaller organizations may have the appropriate culture and structure but insufficient resources to implement the strategies. Pinchot (1985) suggests that organizations that find themselves in this situation might consider `ìntrapreneurship'' as an organizational strategy for affecting the innovation diffusion process. Pinchot describes the concept of intrapreneurship as the pursuit of entrepreneurial behavior by individuals within large organizations, which includes the development of small organic structures inside large, mechanistic organizations that allows entrepreneurship behavior to flourish. As suggested by Schermerhorn (1993), the recognition that continued innovation is necessary for gaining and maintaining a competitive advantage in the marketplace is causing large organizations to use simultaneous structures, where mechanistic and organic structures coexist to meet organizational need for continued innovation. The development of these small organic structures (or subunits) within large organizations allows employees staffing these subunits to work together in a setting that is highly creative and free of many of the restrictions associated with mechanistic structures. Further suggested by Schermerhorn is since large organizations are already likely to have sufficient human and financial resources, the adoption of intrapreneurship as a ``grand'' strategy provides them with the other ingredients (i.e. organic structure and supportive culture) required to implement the facilitating, accelerating, and sustaining strategies. Although the term intrapreneurship is used to describe the effort to create the entrepreneurship spirit in large organizations, intrapreneurial practice in small organizations can help these organizations meet (at least partially) the resource requirements for implementing the facilitating, accelerating, and sustaining strategies. For example, rather than developing subunits staffed by several individuals with entrepreneurial tendencies, the focus might be on developing one or two

Summary and conclusions The literature we have cited in this article strongly suggests that organizations must continue to innovate or face extinction (cf. Quinn, 2000). Other literature cited (cf. Kessler and Chakrabarti, 1996) suggests that facilitating, accelerating and sustaining the innovation diffusion process has become increasingly important to the survival and growth of organizations competing in industries that are characterized by shortened product lifecycles. We concluded from this literature that there appears to be a need for some type of framework designed to help practicing managers facilitate, accelerate, and sustain the innovation diffusion process within their respective organization. Subsequently, the purpose of this article was to develop such a framework. A major theme inherent to our framework is that it is often simple factors like proxemics and organizational structure that can directly affect the innovation diffusion process within organizations. We have attempted to demonstrate in this article how factors such as these contribute to the facilitation, acceleration, and sustainability of the innovation diffusion process. Hopefully our attempts will be useful to practicing managers as they go about the task of influencing the innovation diffusion process, and to future research efforts that will provide additional insights into how the process might be further refined to give organizations a competitive advantage in their respective industries. 87




Kleindorfer, P.R (Ed.), The Management of Productivity and Technology in Manufacturing, pp. 275-300. Keily, T. (1993), ``The idea makers'', Technology Review, pp. 33-40. Kessler, E.H. and Chakrabarti, A.K. (1996), `Ìnnovation speed: a conceptual model of context, antecedents, and outcomes'', Academy of Management Review, Vol. 21 No. 4, pp. 1143-91. Lawless, M.W. and Anderson, P.C. (1996), ``Generational technological change: effects of innovation and local rivalry on performance'', Academy of Management Journal, Vol. 39 No. 5, pp. 1185-217. Mansfield, E. (1981), ``How economists see R&D'', Harvard Business Review, November-December, pp. 98-106. Mansfield, E. (1988), ``The speed and cost of industrial innovation in Japan and the United States: external vs internal technology'', Management Science, Vol. 34 No. 10, pp. 1157-69. Mische, M.A. (2001), Strategic Renewal: Becoming a High-performance Organization, Prentice-Hall, Upper Saddle River, NJ. Monge, P.R., Cozzens, M.D. and Contractor, N.S. (1992), ``Communication and motivational predictors of the dynamics of organizational innovation'', Organization Science, Vol. 3, pp. 250-74. Murmann, P.A. (1994), `Èxpected development time reductions in the German mechanical engineering industry'', Journal of Product Innovation Management, Vol. 11 No. 3, pp. 236-52. Nee, E. (1997), ``What have you invented for me lately?'', Forbes, July 28, pp. 76-82. Paulus, P.B. (1989), Psychology of Group Influence, Lawrence Erlbaum, Hillsdale, NJ. Pinchot, G., III (1985), Intrapreneuring: Or, Why You Don't Have to Leave the Corporation to Become an Entrepreneur, Harper & Row, New York, NY. Quinn, J.B. (2000), `Òutsourcing innovation: the new engine of growth'', Sloan Management Review, Summer, pp. 13-28. Robbins, S.P. (2000), Managing Today!, Prentice-Hall, Upper Saddle River, NJ. Roberts, E.B. and Fusfeld, A.R. (1982), ``Critical functions: needs and roles in the innovation process'', in Katz, R. (Ed.), Career Issues in Human Resource Management, Prentice-Hall, Englewood Cliffs, NJ, pp. 182-207. Rogers, E.M. (1983), Diffusion of Innovation, Free Press, New York, NY. Sahal, D. (1985), ``Technical guideposts and innovation avenues'', Research Policy, Vol. 14, pp. 61-82. Schermerhorn, J.R. Jr (1993), Management for Productivity, John Wiley & Sons, New York, NY. Schilling, M.A. (1998), ``Technological lockout: an integrative model of the economic and strategic factors driving technology success and failure'', Academy of Management Review, Vol. 23 No. 2, pp. 267-84. Scott, G.M. (1999), ``Top priority management concerns about new product development'', Academy of Management Executive, Vol. 13 No. 3, pp. 77-84.

References Bart, C.K. (1988), ``New venture units: use them wisely to management innovation'', Sloan Management Review, Vol. 30, pp. 35-43. Beltrami, E. (1993), Measles Epidemic: Mathematical Models in the Social and Biological Sciences, Jones and Bartlett, Boston, MA. Birnbaum-More, P.H. (1990), ``Competing with technology in 8-bit microprocessors'', Journal of High Technology Management Research, Vol. 1, pp. 1-13. Blau, P.M. and Schoenherr, R.A. (1971), The Structure of Organizations, Basic Books, New York, NY. Bouty, I. (2000), `Ìnterpersonal and interaction influences on informal resource exchanges between R&D researchers across organizational boundaries'', Academy of Management Journal, Vol. 43, pp. 50-65. Brown, S.L. and Eisenhardt, K.M. (1995), ``Product development: past research present findings, and future directions'', Academy of Management Review, Vol. 20, pp. 343-78. Burns, T. and Stalker, G. (1961), The Management of Innovation, Tavistock, London. Byrne, J.A. (2000), ``The corporation of the future'', in Brown, F.W. (Ed.), Management Perspectives, Coursewise Publishing, Chicago, IL, pp. 180-2. Courtright, J.A., Fairhurst, G.T. and Rogers, L.E. (1989), `Ìnteraction patterns in organic and mechanistic systems'', Academy of Management Journal, Vol. 32, pp. 773-802. Damanpour, F. (1991), `Òrganizational innovation: a meta-analysis of effects of determinants and moderators'', Academy of Management Journal, Vol. 34, pp. 555-90. Day, D.L. (1994), ``Raising radicals: different processes for championing innovative corporate ventures'', Organization Science, Vol. 5, pp. 148-63. Dory, A. and Baker, E. (1993), ``The role of influence tactics in the information technology implementation process'', Third Biennial High Technology Management Conference Proceedings, pp. 75-84. Dosi, G. (1982), ``Technological paradigms and technological trajectories'', Research Policy, Vol. 11, pp. 147-62. Emmanuelides, A.P. (1991), ``Determinants of product development time: a framework for analysis'', Academy of Management Best Paper Proceedings, pp. 342-6. Ford, C.M. (1996), `À theory of individual creative action in multiple social domains'', Academy of Management Review, Vol. 21, pp. 1112-42. Howell, J.M. and Higgins, C.A. (1990), ``Champions of change'', Business Quarterly, Spring, pp. 32-3. Kanter, R.M. (1988), ``When a thousand flowers bloom: structural, collective, and social conditions for innovation in organizations'', in Staw, B.M. and Cummings, L.L. (Eds), Research in Organizational Behavior, Vol. 10, pp. 169-211, JAI Press, Greenwich, CT. Katz, R. and Allen, T.J. (1985), `Òrganizational issues in the introduction of new technologies'', in

88




Sheridan, J.H. (1994), ``Lew Platt: creating a culture for innovation'', Industry Week, December 19, pp. 26-30. Sheridan, J.H. (1997), ``Culture-change lessons'', Industry Week, February 17, p. 20. Smith, T. (2000), Technology and Capital in the Age of Lean Production, State University of New York Press, Albany, NY. Sommers, R. (1969), Personal Space: The Behavioral Basis of Design, Prentice-Hall, Englewoods Cliffs, NJ. Stalk, G. and Hout, T.M. (1990), Competing against Time: How Time-based Competition Is Reshaping Global Markets, Free Press, New York, NY.

Thamhain, H.J. and Wileman, D.L. (1987), ``Building high performing engineering project teams'', IEEE Transactions on Engineering Management, Vol. 34, pp. 130-7. Van de Ven, A. (1986), ``Central problems in the management of innovation'', Management Science, Vol. 32, May, pp. 590-607. Vesey, J.T. (1991), ``The new competitors: they think in terms of speed-to-market'', Academy of Management Executive, Vol. 5 No. 2, pp. 23-33. Wolfe, R.A. (1994), `Òrganizational innovation: review, critique, and suggested research directions'', Journal of Management Studies, Vol. 31 No. 3, pp. 405-29.

89

Introduction

Consumer adoption of technological innovations

Technological innovations such as cellular phones, PDAs, interactive home shopping, and digital TV, have re-cultivated researcher interest towards the field of consumer innovation adoption (Danaher et al., 2001; Roehm and Sternthal, 2001; Alba et al., 1997; Eastlick, 1996). Consumer adoption is identified as a process (Rogers, 1976), traditionally conceptualized as a sequence of steps in which the consumer passes from initial knowledge of an innovation, to forming an attitude towards it, to reaching an adoption decision (Rogers, 1962). Innovation literature has largely relied on Rogers' (1962) classification of adopter segments (innovators, early adopters, early majority, late majority, laggards) for identifying consumers' adoption propensity. This view has been challenged due to measurement problems of innovativeness (Goldsmith and Hofacker, 1991; Hirschman, 1980; Midgley and Dowling, 1978) and personal characteristic differences regarding the technology market (Dickerson and Gentry, 1983). Recently, Moreau et al. (2001) proposed a new approach for segmenting adopter categories based on core and supplemental knowledge. Both research in psychology and marketing has documented that consumers' knowledge has a significant effect on their decision-making (e.g. Gatignon and Robertson, 1991; Alba and Hutchinson, 1987). Moreau et al. (2001) proposed knowledge to be innovation type specific (continuous or discontinuous). To use knowledge alone as segmentation criteria as suggested by Moreau et al. (2001) is not likely to suffice (Rogers, 1995). Knowledge can determine how interested consumers are in an innovation, but has limited usefulness regarding adoption (Rogers, 1995). This paper extends on the concept of a knowledge-based approach of innovation adoption. It proposes core knowledge and supplemental knowledge to be combined with a third dimension in the adoption framework, compatibility (``congruence''), which earlier research has found to be an important predictor of adoption behavior, to segment consumers into adopter categories. Compatibility has traditionally been regarded as a component included in attitude development (Rogers, 1995). While it may be useful also at the

Maria Saaksjarvi

The author Maria Saaksjarvi is PhD Candidate and Consultant at the Swedish School of Economics and Business Administration, Helsinki, Finland. Keywords Technological innovation, Consumer attitudes Abstract This paper introduces a conceptual model of consumer innovation adoption based on knowledge and compatibility. More specifically, innovation adoption is proposed to be determined by four adopter groups: technovators, supplemental experts, novices, and core experts, and the interaction between their knowledge and compatibility with the technological innovation. Compatibility occurs when a potential adopter perceives the innovation as being consistent with his/her existing values, past experiences, and needs. The model presented is intended to help researchers and practitioners successfully identify potential adopters of a technological innovation. Electronic access The Emerald Research Register for this journal is available at http://www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/1460-1060.htm

European Journal of Innovation Management Volume 6 . Number 2 . 2003 . pp. 90-100 # MCB UP Limited . ISSN 1460-1060 DOI 10.1108/14601060310475246

90



Maria Saaksjarvi

Continuous products are slight modifications to existing products and/or services (e.g. introducing a new flavor for toothpaste, adding more processing power to a computer), whereas dynamically continuous innovations may involve the creation of a new product or service or modifications to existing ones (e.g. wide-screen TVs, conference calling). Discontinuous innovations represent the creation of previously unknown products that usually require a significant amount of new learning, such as digital cameras and videoconferencing. Lately, an additional innovation level has been proposed, namely multigenerational innovations that are newer versions of existing products or services, such as operating systems or game consoles (Kim et al., 2001; Danaher et al., 2001). The innovation classification scheme is of importance when considering adoption behavior since the innovation type will directly affect the kind of knowledge that is transferred to the new product/service; continuous innovations are comprehended differently from discontinuous ones (Moreau et al., 2001). Technological innovations are most likely to fall into the discontinuous innovation category (Moore, 1999) and can thus be regarded as knowledge intensive innovations. The knowledge needed for technological innovation comprehension is likely to be contingent upon the aspects of technology. According to Rogers (1995), technology consists both of a software and a hardware component; the hardware aspect embodies the technology as a material or physical object (e.g. computers have hardware such as semiconductors and electric cables) and software is the information base used (e.g. coded commands and instructions and other information aspects). In many instances the software part of technology is less observable than the hardware part, but should nevertheless be taken into consideration when researching technology (Rogers, 1995). The hardware-software mixture present in technological innovations implies that consumers might need to combine their knowledge from several domains for complete innovation comprehension; i.e. according to Rogers' distinction both hardware and software knowledge would be needed.

attitude stage of the adoption process, this paper suggests consumer interest towards adopting an innovation will already be limited if the consumer does not experience any kind of ``fit'' between his/her lifestyle, values, past experiences and the technological innovation. Hence, it should be taken into consideration already at the knowledge stage. This paper focuses on technological innovations, for several reasons: first, the lifecycle of technological products and services is usually short; second, technological innovations are more complex than other innovative products or services and thus require a great deal of consumer learning; and third, the risk factor in the adoption decision is high, since new technological products or services rapidly become obsolete in terms of being replaced with even newer products and services. The definition of technology used throughout this paper is the one by Rogers, which emphasizes the uncertainty-reduction and information aspect of technology, i.e. technology is described as a means for uncertainty reduction about the cause-effect relationship involved in achieving a certain outcome (Rogers, 1995, p. 12). The purpose of this article is to present a conceptual framework based on knowledge and compatibility that would help researchers and practitioners successfully identify potential adopters of a technological innovation. First, the innovation learning process is analyzed and the impact of knowledge on innovation comprehension is examined. Thereafter, adopter categories are presented based on knowledge and the effect of compatibility on these categories is shown. Finally, the implications of the model are discussed.

Innovation types and their effect on adoption An innovation is `àn idea, practice, or object that is perceived as new by an individual or other unit of adoption'' (Rogers, 1995, p. 11). The degree of the innovation is a subjective phenomenon; the varying degree of consumer expertise with different product categories will influence the perceived innovation level. Robertson (1971, p. 7) classifies innovations based on their impact on behavior and social structure into continuous, dynamically continuous, and discontinuous. 91



Maria Saaksjarvi

Consumer learning of discontinuous innovations

outcome Y but to Z) they actually become more aware than novices of what they do not understand (Gentner et al., 1993). Novices, on the other hand, are still likely to be able to map a number of attributes from the base to the target, and do not become as aware of the differences. Moreau et al. (2001) used the example of a digital camera to illustrate the discontinuous mapping process. Camera novices can map several surface-based attributes such as lens, viewfinder, size and shape to a digital camera, but experts realize the relations they had previously mapped are no longer valid (such as light no longer exposes film, chemicals and darkrooms are no longer needed etc.). Since novices are still able to map perceived similarities between existing products and the innovation whereas experts are not, novices actually have a better comprehension of the innovation than do experts (Moreau et al., 2001). Since many discontinuous innovations cannot be successfully mapped into any existing product or service category, knowledge from additional domains might be needed to comprehend fully the innovation. The primary domain still serves as the basis for the analogical learning process, enabling consumers to develop a rudimentary structure for the target domain, but a supplementary domain is needed to fill in gaps that cannot be comprehended by using the primary domain (Moreau et al., 2001). In the example of the digital camera, the primary domain (filmbased camera) does not explain how images are processed. Hence, consumers might combine this knowledge with information from another domain, such as computers, graphics software, and printing (Moreau et al., 2001). The evaluation a consumer makes about an innovation is thus dependent on the knowledge a consumer possesses both in the main product category and the supplemental product category. Moreau et al. (2001) discovered that regarding discontinuous innovations, the most propensive adopters were likely to be consumers with extensive knowledge in the supplemental product category or those knowledgeable in both core and supplemental product category, i.e. not solely experts in the core domain. This notion contradicts the traditional belief in innovation research that innovators are characterized by vast product category experience (Gatignon and Robertson, 1991; Dickerson and Gentry,

Recent research has suggested that consumers often use existing knowledge to learn about innovative products or services (Yamauchi and Markman, 2000; Gregan-Paxton and Roedder John, 1997). Hence, when evaluating a new product or service, consumers often try to form an evaluation of it by using existing nodes of knowledge from multiple product or service categories. Analogical learning theory suggests that consumers faced with something unfamiliar use familiar knowledge to understand and comprehend the new phenomenon (Roehm and Sternthal, 2001; Gregan-Paxton and Roedder John, 1997). More specifically, consumers use information from a familiar domain (a base) and transfer it to the novel domain (the target). This transfer occurs in three stages: access, mapping, and transfer, and the logic through which information is transferred from the base to the target is the ease through which the new product is recognized as being something similar to what a consumer has been exposed to before. The mapping stage in the learning process can be achieved through both relational and attribute-based mappings depending on the knowledge a consumer possesses in the base area (Medin et al., 1993; Gentner and Toupin, 1986). Experts are primarily relation-driven (they know that function X is related to outcome Y) while novices are often attribute-driven (Gregan-Paxton and Roedder John, 1997; Novick, 1988); often novices do not possess enough knowledge in the primary base domain to be able to recognize the relational similarities between a base and a target (Gentner, 1983). Hence, novices rely on attribute-based information such as visible product attributes (McKeithen et al., 1981). Comprehension of discontinuous innovations involves the introduction of entirely new knowledge structures (GreganPaxton and Roedder John, 1997), hence requiring extensive consumer learning. Experts that mainly rely on relational mappings are better able than novices to understand what the new features of the innovation are (Gregan-Paxton and Roedder John, 1997). Realizing they cannot construct a number of relational-based mappings (suddenly function X does not relate to 92



Maria Saaksjarvi

individual characteristics, several studies have documented that their effect on adoption is weak (Lockett and Littler, 1997; Holak, 1988; LaBay and Kinnear, 1981). Moreover, the traditional personality variables given for innovators seem to be less appropriate regarding technological innovations. Dickerson and Gentry (1983) found early adopters of home computers to be ``logical introverts'' in contrast to the social, cosmopolitan view of innovators. The major construct in Rogers' adopter segments, innovativeness, is described as the degree to which an individual or other unit of adoption is relatively earlier in adopting new ideas than the other members of a system (Rogers, 1995, p. 22). According to this definition, innovators that are the first to adopt an innovation possess the greatest degree of innovativeness, followed by early adopters, early majority, late majority and laggards. Innovativeness has caught the interest of many researchers but has proven difficult to measure. A common consensus exists among researchers that there are different kinds of innovativeness. Hirschman (1980) and Goldsmith and Hofacker (1991) distinguish between innate innovativeness and domain specific innovativeness. Innate innovativeness has been explained by a consumer's cognitive style (Kirton, 1976) and is, according to Goldsmith and Hofacker (1991), of less interest for researchers to measure than domain specific innovativeness, since there is little if any innovativeness overlap among product categories or domains (Gatignon and Robertson, 1985; Midgley and Dowling, 1978). Goldsmith and Hofacker (1991, p. 211) define domain specific innovativeness as reflecting ``. . . the tendency to learn about and adopt innovations within a specific domain of interest'', consisting of both attitudinal and behavioral elements. The former is reflected by positive feelings consumer innovators have toward new products in the category, and the latter manifests behaviors resulting from their feelings (Goldsmith and Hofacker, 1991, p. 211). Hence, innovativeness is closely related to consumers' willingness to educate themselves about new products, having positive attitudes towards new products, and on basis of these positive attitudes adopting them. In technological markets innovativeness has been described as a tendency to be a thought leader and

1983; see Gatignon and Robertson, 1985 for a review). Although experts' opinions about technological innovations have not been widely researched in academic literature, Leonard-Barton's (1985) research about specialized dentists supports the indication that experts do not necessarily have a positive attitude towards a technological innovation and might work against its adoption.

Traditional consumer adopter categories Researchers have traditionally analyzed consumers' adoption of innovations using Rogers' (1962) five categories of adopters: (1) namely innovators; (2) early adopters; (3) early majority; (4) late majority; and (5) laggards. This distinction, which is built on innovativeness, suggests targeting new products and services to innovators who start the diffusion process by communicating to other adopter segments. This view has been challenged in recent years, suggesting targeting the majority might be more fruitful than targeting innovators (Boyd and Mason, 1999; Mahajan and Muller, 1998) and the time-of-adoption method used by Rogers (1962) for measuring innovativeness is a temporal concept that cannot be used for predicting future behavior (Goldsmith and Hofacker, 1991). Rogers' (1962) adopter segments have been researched to a large extent using personal characteristics; innovators are described as venturesome (``venturesomeness almost an obsession'', Rogers, 1962), young, having more cosmopolite social relationships, and having a high degree of innovativeness. Both personal characteristics and innovativeness have received considerable attention in academia. Individual adopter variables have mostly been researched from an innovator perspective (Ostlund, 1974; Darden and Reynolds, 1974; Ostlund, 1972; Boone, 1970; Uhl et al., 1970; Robertson, 1968, 1967) more recently in combination with perceived innovation attributes (Eastlick and Lotz, 1999; Eastlick, 1996) building a consensus around the consumer innovator profile proposed by Rogers (1962). Despite the attention given to 93



Maria Saaksjarvi

since adoption refers to the continued use of a product or service (Robertson, 1971; ``full use'' Rogers, 1995) but due to innovators' high interest in technological innovations they do at least achieve the trial stage of most innovations they encounter. This paper defines adoption as ``continuous, voluntary use of a product or service'' which means that buying does not necessarily constitute adoption (Venkatraman, 1991). Take the Internet as an example. Many consumers first learned about the Internet in their workplaces, used it and learned to appreciate it before they bought Internet access to their homes. Hence, they were already adopters before they actually bought and paid for the innovation themselves. Still, many people use Internet cafeÂs, libraries, schools and other access points to use the Internet on a frequent basis; they are adopters but not new product buyers.

technology pioneer (Parasuraman, 2000) and comprises self-sufficiency in terms of confidently operating new technology and having extensive technical knowledge (Parasuraman and Colby, 2001). The criterion for the adopter categorization is innovativeness, but venturesomeness is the salient value of innovators. Rogers (1995) stated that the prerequisites of innovators involve having substantial financial resources to absorb possible loss from an unprofitable innovation, the ability to understand and apply complex technical knowledge, and coping with a high degree of uncertainty. Innovators' situation in current technological markets might, however, emphasize the emergence of other factors concurrent to the ones proposed by Rogers. In technology literature, innovators have been classified as ``techies'' or ``nerds'' that test the usefulness of new innovations for corporations (Moore, 1991). Innovators are usually allowed to buy `òne of everything'' into organizations (Moore, 1991), which drastically reduces the risk (and thus the exercising of venturesomeness) involved in acquiring new products and services. Innovators also get access to a large number of free products and services (demos, alpha- or beta-versions, samples) that they are asked to test and possibly debug to reduce possible errors. Hence, the decision to acquire technological innovations is not related to innovativeness, but rather to the number of technological innovations introduced into the market. Since innovations are usually free for innovators (paid either by the corporation they work for or the innovation is on a test stage and thus free), the financial investment innovators have to make has been reduced to a minimum. Thus, factors other than possible financial loss and a high degree of uncertainty are likely to determine members of the technological innovator category. This leaves the third prerequisite, to understand and apply complex technical knowledge, in a crucial position when segmenting technological innovators. Innovators' positions make them more exposed to technological innovations than other adopter segments. Exposure to innovations is of importance to innovators who are interested in technology for its own sake and enjoy examining technological innovations. This innovation exposure does not necessarily make innovators adopters,

A new approach to segmenting consumer adopters: knowledge and compatibility In technological markets, innovativeness is characterized by extensive technical knowledge, confidence in independently operating new technology, and a willingness to learn about technological innovations. A more positive attitude towards technology is also apparent. These innovativeness constructs can be comprised under a more general dimension, extensive technical knowledge, since it is likely that consumers knowledgeable in technology are more interested in acquiring technological knowledge than are novices (Mitchell and Dacin, 1996), self-sufficient, and technically confident (Parasuraman and Colby, 2001). Since the knowledge dimension is part of the model to be proposed in this paper, innovativeness will not be represented as a separate construct, but rather as an embedded part of the proposed knowledge dimensions. Hence, consumers with extensive technical knowledge are assumed to be more innovative than novices. Consumer knowledge has been proposed to consist of two elements: familiarity, which is the number of product-related experiences that has been accumulated by the consumer, and expertise, the ability to perform productrelated tasks successfully (Alba and 94



Maria Saaksjarvi

Hutchinson, 1987). According to Rogers (1995), knowledge occurs when an individual learns of an innovation's existence and gains some understanding of how it functions. More specifically, in the knowledge stage, an individual seeks information that reduces uncertainty about the cause-effect relationship involved in the innovation's capacity to solve an individual's problem (Rogers, 1995, p. 21). Knowledge about an innovation is often quite different from using it and knowledge alone cannot determine the basis for adoption (Rogers, 1995, p. 167). Congruence, or compatibility, has been found to significantly affect adoption behavior (Eastlick, 1996; Dabholkar, 1992; Dickerson and Gentry, 1983; Tornatzky and Klein, 1982; Turnbull and Meenaghan, 1980; Brandner and Kearl, 1964). Compatibility is defined as the degree to which an innovation is perceived as being consistent with the existing values, past experiences, and the needs of potential adopters (Rogers, 1995, p. 15). Compatibility can also be related to a lifestyle (Eastlick, 1996; Holak, 1988). Research on technological innovations, e.g. consumer durables and computer adoption, has demonstrated that compatibility has a significant impact on adoption behavior. In their study of home computer adoption, Dickerson and Gentry (1983) found adopters to have more experience with a variety of technical products than non-adopters. Holak (1988) examined technological consumer durables and found compatibility to have a dominating, positive impact on consumer purchase intention. Based on her results, she stated:

report about wireless usage (2001) shows that despite the US lags after many European countries and Japan in mobile penetration and mobile data usage, US consumers are still more likely to engage in mobile commerce than those in high penetration countries. US consumers, being pioneers in online buying, are used to online and catalogue shopping and have adopted in-home shopping as part of their lifestyles. Compatibility has often been used in the evaluation stage of the adoption process as a variable for attitude formation. This paper suggests moving it to the knowledge dimension, since consumers who feel that the new product or service is not in tact with their past experiences, lifestyle, values, and needs are likely to reject the product or service before it enters their consideration sets. Rogers (1995, p. 164) states that individuals avoid messages that are conceived to be in conflict with existing needs, beliefs, and attitudes; consumers do not ``see'' the innovation even if they would be exposed to it. In situations where consumers are explicitly shown an innovation (e.g. by a friend, salesperson, customer, at exhibitions and trade shows), perceived compatibility or incompatibility is likely to have an immediate effect. Olshavsky and Spreng's (1996) research experiment provides support for this effect; they found that consumers experiencing incompatibility with an innovation rejected it without hesitance (``quickly rejected'') and without assessing its advantages and usability. Thus, a consumer perceiving incompatibility between the product and him/her will not progress further in the adoption process but stop at the knowledge stage. This paper proposes a model for identifying potential adopters based on knowledge and compatibility. By moving the compatibility dimension to the knowledge stage, we can construct a more comprehensive picture of potential adopter identification. Figure 1 describes the adopter segments based on core and supplemental knowledge, and Figure 2 shows the connection between knowledge and compatibility. Moreover, this paper proposes generic labels for the adopter categories based on knowledge. In the order of their adoption propensity, the proposed adopter groups are: technovators (experts in both core and supplemental area), supplemental experts, novices, and core experts. Examples of core

Consumers are notably more concerned with physical space and/or lifestyle compatibility than with the operation or performance of the innovation when considering purchase (Holak, 1988, p. 64).

Similarly, in a more recent study focusing on technologically intensive innovations, Holak and Lehmann (1990, p. 69) described the following effect of compatibility on consumer adoption: Consumers are more concerned with a new item's compatibility with their living patterns and self-images than they are with more specific information about its operating features or benefits related to perceived relative advantage.

Moreover, non-scholarly research demonstrates the effects of compatibility. Accenture Institute for Strategic Change's 95



Maria Saaksjarvi

just to get access to the latest technology (Moore, 1991). Access to new technology also brings technovators mental stimulation (Parasuraman and Colby, 2001 using the term `èxplorers''). Technovators are high involvement consumers. They are likely to ascribe more net benefits to the innovation than those with expertise in one or neither base domain (Moreau et al., 2001). Experts in a supplemental category are proposed to be the next category to adopt. Moreau et al.'s (2001) research experiment showed that consumers low in camera knowledge (core) yet high in computer knowledge (supplemental) were the most likely to adopt a digital camera. Supplemental experts have the advantage of being able to apply their knowledge into several different products and services; their knowledge is not constrained by a particular product or service but rather the domain in which they operate (e.g. software). The product or service itself might require additional learning from this segment; a person knowledgeable in radio technologies understands the logic behind the functionality of a GPRS phone, but might not be able to use the phone without assistance. Supplemental experts' flexible knowledge structures make them evaluate innovations more positively than core experts whose knowledge structures are entrenched due to earlier usage experiences of the same product class. Novices have no expertise in either core or supplemental product or service area, which makes them more open to innovations than core experts since they have yet to establish usage patterns and attach affect to the product or service. They have fewer dimensions available for comparing the innovation to other product or services, and are not able to understand the benefits of using the innovation on such a thorough level as experts (Alba and Hutchinson, 1987; Cohen and Basu, 1987; Bettman and Park, 1980). However, Moreau et al. (2001) found that for electrical cars, novices reported higher preferences for the innovation than did experts in one category only. Since novices are not constrained by established knowledge structures they are able to evaluate more positively the innovation than core experts, making them the third adopter category. Core experts are the last group to adopt an innovation. When realizing they cannot construct a number of relational-based

Figure 1 The technology adoption cycle

Figure 2 A model of adoption likelihood

and supplemental knowledge include e.g. digital TVs (TV and Internet knowledge) and PDAs (computer and software knowledge).

Consumer adopter categories The technovators, or the technological innovators, are the first ones to adopt new technology. These consumers are thought leaders and technology pioneers (Parasuraman, 2000; Moore, 1999, both using the term `ìnnovators''). This paper defines a technovator as `à person who recognizes the benefits of new technology earlier than others, adopts it, and communicates these benefits to other adopter segments''. Technovators appreciate technology for its own sake, and are willing to test and reduce errors in innovative products 96



Maria Saaksjarvi

curiosity. They could use it for demo purposes or to promote the manufacturer or service provider (e.g. own workplace or strategic partner), but long-term usage is likely to be low. Hence, the adoption is based on not finding anything newer or better to use at the moment. This decision is volatile; switching to another product or service is easy. Core experts who do not feel that the product or service is compatible with their current needs, lifestyles, and past experiences, will stick to products or services that allow them to construct more fully relation-based mappings. Instead of buying a digital camera, they prefer a more traditional innovative camera with new features, which is easier for them to comprehend and to which to associate benefits. Compatibility, on the other hand, is likely to enhance every segment's adoption propensity. A consumer who realizes that an innovation would be compatible with his/her needs, lifestyle, and/or values is more willing to adopt. Compatibility is of special importance in technological markets, since a common reason cited by consumers for not adopting technological innovations is ``no need'' (see, for example, Zeithaml and Gilly, 1987) even though a technological innovation usually entails at least some degree of benefit for its potential adopters (Rogers, 1995, p. 13). As examples of the effect of compatibility, we can examine the corresponding segments as in incompatibility. Hence, in the example of a digital camera, a camera expert who is used to sending a large number of pictures over the Internet using his/her scanner might realize that the digital camera would be more suitable for his/her needs than a regular one. Thus, he/she might realize that there would be a number of benefits associated with the digital camera (e.g. in terms of saving time, reduced effort, better picture quality). The compatibility of the digital camera makes the camera expert willing to learn and educate him/herself in order to be able to operate the innovation fully, which eventually moves the camera expert closer to the technovator dimension. For novices, compatibility might entail starting to use self-service banking if they have difficulties going to the bank during its opening hours, or perceive they have better control over financial transactions by using electronic means. In such situations, novices are likely to perceive self-service banking to be

mappings, their established knowledge creates resistance towards the innovation, reducing both comprehension and perceived net benefits. Experts have elaborate knowledge structures (Peracchio and Tybout, 1996) that are entrenched and difficult to change (Moreau et al., 2001). These knowledge structures serve core experts to understand continuous innovations, but hinder them to understand discontinuous ones. Core experts are confounded by not being able to comprehend fully discontinuous innovations, which they are not used to, since most innovations introduced into the marketplace are continuous (see Robertson, 1971). Thus, core experts are likely to show distrust towards new technology (``still an unproven technology'', see Leonard-Barton, 1985) doubting that it will work properly and more efficiently (``severe technical problems associated with use'', see Leonard-Barton, 1985) and be better than what they currently use. Several experts are also likely to feel that part of their knowledge base is becoming obsolete by the introduction of new technologies and hence oppose discontinuous innovations.

The effect of compatibility Compatibility and respectively incompatibility will affect adopter segments differently. The effects of both compatibility continuums are summarized in Figure 2. These effects are simply illustrative examples; there are a number of other ways in which the same effect could be documented. Figure 2 serves the purpose of showing the direction of the adoption likelihood. On a general level, low compatibility (or incompatibility, terms will be used interchangeably) will affect potential adopters in a negative manner (i.e. they are less willing to adopt) since the innovation does not fill a need or fit into their lifestyles or current situations. An example could be consumers that value interpersonal contact that are unwilling to switch to Internet shopping or electronic banking due to loss of social contact. As more specific examples of incompatibility, we can take a closer look at technovators and core experts. For technovators the innovation represents new technology so they will try it out of 97



Maria Saaksjarvi

p. 12) utilizing hardware knowledge as core product knowledge and software as supplemental. Expertise could be determined by self-reported measures of knowledge (Sujan, 1985), consumer familiarity with product categories (Johnson and Russo, 1984), knowledge elaboration levels (Peracchio and Tybout, 1996), or a combination of the methods described above. Empirical research is needed to assess the appropriateness of different methods for developing a measurement tool for the proposed framework. Technological innovations usually involve a substantial learning effort. Thus, consumers are likely to feel that once they learn how to operate one brand's products or services, they are hesitant to switch, since it would involve learning a new ``logic'' or process flow. As proposed by the framework, consumers are more likely to learn and educate themselves about an innovation if it is perceived compatible. Learning or education should, however, be targeted to each adopter segment. Core experts could find it useful to learn about a supplemental product category that can complement their existing knowledge, whereas supplemental experts are likely to appreciate core category knowledge to learn how to operate the innovation. If, however, the product or service is perceived as incompatible, education might increase resistance among some adopter categories. This framework could be used to indicate how complex a company's product should be. Technovators are likely to appreciate a more complex innovation that allows them to utilize their expertise in a more coherent manner whereas for novices, a simple version of the same product is likely to suffice. The estimated complexity should be weighted towards consumer willingness to learn about the new product and/or service. Each adopter segment is likely to view perceived innovation attributes differently. Further research should examine the effects of the proposed framework on perceived net benefits (relative advantages versus risk) and its effect on the adoption decision. Previous research results indicate that technovators are likely to weigh perceived risk in a less negative manner than novices (Parasuraman and Colby, 2001, using the term `èxplorers'' to signify innovators), but little is known about experts in core and supplemental product or service category. Compatibility is likely to

more compatible with their current needs and lifestyles than the personal service at a bank branch. Similarly, research has found that consumers that are used to catalog shopping are more likely to adopt other forms of inhome ordering (Greco and Fields, 1991; Ledingham, 1984), such as Internet shopping, Digital TV shopping, and mobile shopping. The adopter categories built on knowledge and the hypothesized intertwined role of compatibility are likely to have an effect on the adoption process as a whole. The evaluation stage, which is the proceeding stage of knowledge, is likely to be significantly affected by the model proposed in this paper. The evaluation stage is signified by attitude development and attribute and benefit interpretation, first on a more general level and then on a brand specific level (Bettman and Park, 1980). Every adopter category is likely to interpret the perceived benefits of innovations differently, a process in which existing knowledge and compatibility are likely to have significant roles.

Discussion and implications The two knowledge dimensions used in the framework are oversimplified, taken into account that knowledge is a multidimensional construct (Alba and Hutchinson, 1987). Consumers can have a number of supplemental areas they combine knowledge from to comprehend a technological innovation. Increasingly complex products or services are being introduced to the market, positively affecting the number of supplemental categories consumers might use (e.g. when evaluating a digital set-top box, consumers might need to combine the knowledge they have from digital video recorders, CD players, DVD players, MP3 music players, and Internet usage to comprehend fully the innovation). The number of supplemental categories should not be limited if one wants to fully capture the areas that consumers use to comprehend the innovation. To capture core and supplemental categories, researchers could examine consumer associations with the innovation (e.g. with the help of key-word memory probes, see Mitchell and Dacin, 1996, p. 220) or use the hardware and software aspects of technology (Rogers, 1995, 98



Maria Saaksjarvi

increase the relative advantages associated with adoption (Holak and Lehmann, 1990), but its impact on perceived net benefits has not been researched extensively. Consumer education about a product or service is likely to reduce the perceived uncertainty of adopting new technology, since education could serve as a mean for companies to address potential adopter concerns about perceived risk factors associated with adoption of technological innovations (e.g. security and reliability issues).

Eastlick, M.A. (1996), ``Consumer intention to adopt interactive teleshopping'', Marketing Science Institute Working Paper No. 96-113. Eastlick, M.A. and Lotz, S. (1999), ``Profiling potential adopters and non-adopters of an interactive electronic shopping medium'', International Journal of Retail and Distribution Management, Vol. 27 No. 6, pp. 209-23. Gatignon, H. and Robertson, T.S. (1985), `À propositional inventory for new diffusion research'', Journal of Consumer Research, Vol. 11 No. 4, pp. 849-67. Gatignon, H. and Robertson, T.S. (1991), `Ìnnovative decision processes'', in Robertson, T.S. and Kassarjian, H.H. (Eds), Handbook of Consumer Behavior, Prentice-Hall, Englewood Cliffs, NJ, pp. 316-48. Gentner, D. (1983), ``Structure mapping: a theoretical framework for analogy'', Cognitive Science, Vol. 7, pp. 155-70. Gentner, D. and Toupin, C. (1986), ``Systematicity and surface similarities in the development of analogy'', Cognitive Science, Vol. 10, pp. 277-300. Gentner, D., Ratterman, M.J. and Forbus, K. (1993), ``The roles of similarity transfer: separating retrievability from inferential soundness'', Cognitive Psychology, Vol. 25, pp. 524-75. Goldsmith, R.E. and Hofacker, C.F. (1991), ``Measuring consumer innovativeness'', Journal of the Academy of Marketing Science, Vol. 18 No. 3, pp. 209-21. Greco, A.J. and Fields, D.M. (1991), ``Profiling early triers of service innovations: a look at interactive home video ordering services'', Journal of Services Marketing, Vol. 5, pp. 19-26. Gregan-Paxton, J. and Roedder John, D. (1997), ``Consumer learning by analogy: a model of internal knowledge transfer'', Journal of Consumer Research, Vol. 24, pp. 266-84. Hirschman, E.C. (1980), `Ìnnovativeness, novelty seeking and consumer creativity'', Journal of Consumer Research, Vol. 7, pp. 283-95. Holak, S.L. (1988), ``Determinants of innovative durable adoption: an empirical study with implications for early product screening'', Journal of Product Innovation Management, Vol. 5, pp. 50-69. Holak, S.L. and Lehmann, D.R. (1990), ``Purchase intentions and the dimensions of innovation: an exploratory model'', Journal of Product Innovation Management, Vol. 7, pp. 59-73. Johnson, E.J. and Russo, J.E. (1984), ``Product familiarity and learning new information'', Journal of Consumer Research, Vol. 11, pp. 542-50. Kim, N., Srivastava, R.K. and Han, J.K. (2001), ``Consumer decision-making in a multi-generational choice set context'', Journal of Business Research, Vol. 53, pp. 123-36. Kirton, M.J. (1976), `Àdapters and innovators: a description and measure'', Journal of Applied Psychology, Vol. 61, pp. 622-9. LaBay, D.G. and Kinnear, T.C. (1981), `Èxploring the consumer decision process in the adoption of solar energy systems'', Journal of Consumer Research, Vol. 8, pp. 271-8. Ledingham, J.A. (1984), `Àre consumers ready for the information age? Consumer predispositions and videotex'', Journal of Advertising Research, Vol. 24 No. 4, pp. 31-7.

References Accenture Institute for Strategic Change (2001), ``The future of wireless: different than you think, bolder than you imagine'', Research Report, Cambridge, MA, pp. 1-55. Alba, J.W. and Hutchinson, J.W. (1987), ``Dimensions of consumer expertise'', Journal of Consumer Research, Vol. 13, pp. 41-454. Alba, J., Lynch, J., Weitz, B., Janiszewski, C., Lutz, R., Sawyer, A. and Wood, S. (1997), `Ìnteractive home shopping: consumer, retailer, and manufacturer incentives to participate in electronic marketplaces'', Journal of Marketing, Vol. 61, pp. 38-53. Bettman, J.R. and Park C.W. (1980), `Èffects of prior knowledge and experience and phase of the choice process on consumer decision processes: a protocol analysis'', Journal of Consumer Research, Vol. 7, pp. 234-48. Boone, L.E. (1970), ``The search for the consumer innovator'', Journal of Business, Vol. 43, pp. 135-40. Boyd, T.C. and Mason, C.H. (1999), ``The link between attractiveness of èxtrabrand' attributes and the adoption of innovations'', Journal of the Academy of Marketing Science, Vol. 27, pp. 306-19. Brandner, L. and Kearl, B. (1964), `Èvaluation for congruence as a factor in adoption rate of innovations'', Rural Sociology, Vol. 29, pp. 288-303. Cohen, J.B. and Basu, K. (1987), `Àlternative models of categorization: toward a contingent processing framework'', Journal of Consumer Research, Vol. 13 No. 4, pp. 455-72. Dabholkar, P.A. (1992), ``Role of affect and need for interaction in on-site service encounters'', in Sherry, J.F. and Sternthal, B. (Eds), Advances in Consumer Research, Association of Consumer Research, Provo, UT, pp. 563-9. Danaher, P.J., Hardie, B.G. and Putsis Jr, W.P. (2001), ``Marketing-mix variables and the diffusion of successive generations of a technological innovation'', Journal of Marketing Research, Vol. 38, pp. 501-14. Darden, W.R. and Reynolds, F.D. (1974), ``Backward profiling of male innovators'', Journal of Marketing Research, Vol. XI, pp. 79-85. Dickerson, M.D. and Gentry, J.W. (1983), ``Characteristics of adopters and non-adopters of home computers'', Journal of Consumer Research, Vol. 10, pp. 225-35.

99



Maria Saaksjarvi

Leonard-Barton, D. (1985), `Èxperts as negative opinion leaders in the diffusion of a technological innovation'', Journal of Consumer Research, Vol. 11, pp. 914-26. Lockett, A. and Littler, D. (1997), ``The adoption of direct banking services'', Journal of Marketing Management, Vol. 13, pp. 791-811. McKeithen, K., Reitman, J., Rueter, H. and Hirtle, S. (1981), ``Knowledge organization and skill differences in computer programmers'', Cognitive Psychology, Vol. 13 No. 3, pp. 307-25. Mahajan, V. and Muller, E. (1998), ``When is it worthwhile targeting the majority instead of the innovators in a new product launch?'', Journal of Marketing Research, Vol. XXXV, pp. 488-95. Medin, D., Goldstone, R. and Gentner, D. (1993), ``Respects for similarity'', Psychological Review, Vol. 100 No. 2, pp. 254-78. Midgley, D.F. and Dowling, G.R. (1978), `Ìnnovativeness: the concept and its measurement'', Journal of Consumer Research, Vol. 4, pp. 229-42. Mitchell, A.A. and Dacin, P.A. (1996), ``The assessment of alternative measures of consumer expertise'', Journal of Consumer Research, Vol. 23, pp. 219-39. Moore, G.A. (1991), Crossing the Chasm, Harper Business, New York, NY. Moreau, C.P., Lehmann, D.R. and Markman, A.B. (2001), `Èntrenched knowledge structures and consumer response to new products'', Journal of Marketing Research, Vol. 38, pp. 14-29. Novick, L. (1988), `Ànalogical transfer, problem similarity, and expertise'', Journal of Experimental Psychology: Learning, Memory, and Cognition, Vol. 14 No. 3, pp. 510-20. Olshavsky, R.W. and Spreng, R.A. (1996), `Àn exploratory study of the innovation evaluation process'', Journal of Product Innovation Management, Vol. 13, pp. 512-29. Ostlund, L.E. (1972), `Ìdentifying early buyers'', Journal of Advertising Research, Vol. 12 No. 2, pp. 25-30. Ostlund, L.E. (1974), ``Perceived innovation attributes as predictors of innovativeness'', Journal of Consumer Research, Vol. 1, pp. 23-9. Parasuraman, A. (2000), ``Technology readiness index (TRI): a multiple-item scale to measure readiness to embrace new technology'', Journal of Service Research, Vol. 2 No. 4, pp. 307-20. Parasuraman, A. and Colby, C.L. (2001), Techno-Ready Marketing, The Free Press, New York, NY. Peracchio, L.A. and Tybout, A.M. (1996), ``The moderating role of prior knowledge in schema-based product evaluation'', Journal of Consumer Research, Vol. 23, pp. 177-92. Robertson, T.S. (1967), ``Consumer innovators: the key to new product success'', California Management Review, Vol. 10, pp. 23-30.

Robertson, T.S. (1968), ``Purchase sequence responses: innovators vs non-innovators'', Journal of Advertising Research, Vol. 8 No. 1, pp. 47-52. Robertson, T.S. (1971), Innovative Behavior and Communication, Holt Rinehart and Winston, New York, NY. Roehm, M.L. and Sternthal, B. (2001), ``The moderating effect of knowledge and resources on the persuasive impact of analogies'', Journal of Consumer Research, Vol. 28 No. 2, pp. 257-72. Rogers, E.M. (1962), Diffusion of Innovations, The Free Press, New York, NY. Rogers, E.M. (1976), ``New product adoption and diffusion'', Journal of Consumer Research, Vol. 2, pp. 290-301. Rogers, E.M. (1995), Diffusion of Innovations, 4th ed., The Free Press, New York, NY. Sujan, M. (1985), ``Consumer knowledge: effects on evaluation strategies mediating consumer judgements'', Journal of Consumer Research, Vol. 12, pp. 31-46. Tornatzky, L.G and Klein, K.J. (1982), `Ìnnovation characteristics and innovation adoptionimplementation: a meta-analysis of findings'', IEEE Transactions on Engineering Management, Vol. 29, pp. 28-45. Turnbull, P.W. and Meenaghan, A. (1980), ``Diffusion of innovation and opinion leadership'', European Journal of Marketing, Vol. 14 No. 1, pp. 3-33. Uhl, K., Andrus, R. and Poulsen, L. (1970), ``How are laggards different? an empirical inquiry'', Journal of Marketing Research, Vol. VII, pp. 51-4. Venkatraman, M.P. (1991), ``The impact of innovativeness and innovation type on adoption'', Journal of Retailing, Vol. 67 No. 1, pp. 51-67. Yamauchi, T. and Markman, A.B. (2000), `Ìnference using categories'', Journal of Experimental Psychology: Learning, Memory, and Cognition, Vol. 26, pp. 776-95. Zeithaml, V.A. and Gilly, M.C. (1987), ``Characteristics affecting the acceptance of retailing technologies: a comparison of elderly and non-elderly consumers'', Journal of Retailing, Vol. 63 No. 1, pp. 49-68.

Further reading Goldstone, R., Medin, D. and Gentner, D. (1991), ``Relational similarity and nonindependence of features in similarity judgements'', Cognitive Psychology, Vol. 23, pp. 222-62. Shim, S., Eastlick, M.A., Lotz, S.L. and Warrington, P. (2001), `Àn online prepurchase intentions model: the role of intention to search'', Journal of Retailing, Vol. 77, pp. 397-416.

100

Corporate consulting in product innovation: overcoming the barriers to utilization Robert Sandberg and Andreas Werr

The authors Robert Sandberg is a Researcher and Andreas Werr is an Assistant Professor and Research Director, The Fenix Program, Stockholm School of Economics, Stockholm, Sweden. Keywords Corporate consulting, Customer solutions, Innovation management, Knowledge filters Abstract Companies in the business-to-business segment increasingly try to expand their product offerings into customer solutions offerings. This often implies adding value through professional services such as systems integration and business consulting related to the parent organization's products. The addition of a consultative component to the product business both poses new challenges and provides new possibilities for the product organization's innovation processes. We argue that corporate consulting units provide a vital source of knowledge for organizations seeking to increase their innovation capacity by learning about and from their customers. The current paper discusses the knowledge created in such consulting business as well as the filters that hinder utilizing this knowledge in the innovation processes of the product-oriented organization. Electronic access The Emerald Research Register for this journal is available at http://www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/1460-1060.htm


Introduction ``We offer customer solutions, not just products . . . '' is a common formulation in mission statements of many organizations today. It has become fashionable to declare oneself a solutions provider (Davies et al., 2001; Foote et al., 2001; Sharma and Molloy, 1999) but as with many other fashionable management concepts, the concept of ``solutions provider'' is widely misused, with many suppliers merely labeling bundles of standardized products or services ``solutions''. However, based on the increasing service content in many organizations' offerings (Normann, 2001), increased business complexity through privatization and outsourcing (Davies et al., 2001) and the need for greater integration of technologies (Shepherd and Ahmed, 2000), there is also a growing interest in a genuine solutions strategy. This means moving the business focus from the products to the customer (Hax and Wilde, 1999; Vandermerwe, 2000). In the business-to-business segment, the customer-centric logic of a solutions business is often represented in a stand-alone consulting business with a distinct identity (Cornet et al., 2000). This consultative component (Sharma and Molloy, 1999), i.e. offering consulting services such as systems integration and business consulting, distinguishes a solutions business from a product-oriented business. Based on Good (1985), we use the term corporate consulting below to designate this type of consulting unit, which is further illustrated by two examples. IBM is often cited as an illustration of a firm that has successfully transformed itself from a provider of hardware-based products to more software-based services (see for example Normann, 2001; Vandermerwe, 2000). The ``new'' IBM is built around the service organization IBM Global Services, a corporate consultancy in part, which accounts for approximately 40 per cent of IBM's total revenue. More importantly, the services provided, such as business consulting, ITconsulting and outsourcing, are seen as a The authors are listed in alphabetical order indicating their equal contribution to the paper. They would like to express their gratitude to Tomas HellstroÈm, Richard Normann, Bengt Stymne and Rami Shani for their valuable comments on earlier versions of this paper.

101

Corporate consulting in product innovation


Robert Sandberg and Andreas Werr

central mechanism for leveraging the technological capabilities of the parent organization. This is also true for PeopleSoft Consulting. As a part of the ERP/CRM software supplier PeopleSoft, the unit's 2,500 consultants handle software implementations, system optimizations, upgrades and other pre- and post-sales assignments. These services are closely tied to the parent organization's core business ± the PeopleSoft Software package ± and aim to turn the customer into a life-long client (Gregoire, 2001). The customer-centric characteristic of a solutions business changes the conditions and strategies for managing innovation, from product innovation to customer-sourced innovation (Hax and Wilde, 1999), typically characterized by co-creation and customization (Cornet et al., 2000). However, since customer solutions are an extension of their traditional offerings, which still have to be renewed and sold as stand-alone products, many organizations adopt a somewhat schizophrenic business logic (Berggren and Nacher, 2001). For these hybrid organizations (see e.g. Brown et al., 2001) the solutions business should offer exceptional possibilities for customer-driven product innovation by enabling the application of innovation processes with anthropological characteristics (Berggren and Nacher, 2001). With a heavy emphasis on direct questions and observations drawn from the solutions business, these methods provide a deep understanding of unarticulated user needs to be applied in the product innovation processes. As organizational front-end units working with direct market relations and profit/loss responsibility, many corporate consulting units have a boundary-spanning organizational position (Foote et al., 2001; Sawhney and Parikh, 2001). In combination with their knowledge-intensive characteristic (compare with Alvesson, 1995; Starbuck, 1992), the corporate consulting unit has the potential to build an essential stock of customer-centric market knowledge. Their unique make-up also enables them to develop a deep understanding of the parent organization's products and the core capabilities they incorporate. Market knowledge and knowledge about the parent organization's products, services and incorporated core capabilities, could be

exchanged between the market and the product business through a mix of internal and external assignments. This ``crosspollination'' (Bessant and Rush, 1995) gives the corporate consulting unit great potential to contribute to new product development (NPD) in the parent organization. Growing academic interest in customer solutions businesses has focused mainly on strategic aspects. Apart from consulting reports (for example Cornet et al., 2000; Foote et al., 2001), studies on the internal consequences of moving towards a solutionbased business are lacking, not least from an innovation management perspective (Shepherd and Ahmed, 2000 is a notable exception). This is a topic of practical importance, especially for corporations that, like IBM, embark on a path of mixed business ± offering solutions and stand-alone products. The purpose of this paper is to contribute to this area of neglect, focusing on the consultative component of a solutions business and its interaction with the product business' innovation processes. More specifically, our aim is to identify the key factors that hinder the knowledge generated in consulting operations from being applied in the product business. This application of knowledge will be analyzed in the context of an IT consulting business, Telco Consulting[1], owned by Telco, a large corporation in the fast-moving telecom industry. The paper is divided into three main parts. In the first part, we describe the case of Telco Consulting, focusing on knowledge created and extended through its consulting assignments. In the second, we analyze and discuss the knowledge extension from Telco Consulting. Three knowledge filters are identified as key barriers to the use of Telco Consulting's knowledge in the product business. The third part of the paper presents a summary of the findings and elaborates on the implications thereof for innovation management practice and research.

Methodology The data underlying the following descriptions of the activities of Telco Consulting and the unit's interactions with the parent organization Telco are taken from a series of 13 semi-structured interviews with

102




personnel from both the consulting unit and the parent organization, Telco. The focus of these interviews was on the corporate role of Telco Consulting and its relations with other parts of Telco. Special attention was given to knowledge creation and extension in innovation processes in general and in NPD activities in particular. The interviews were transcribed and content analyzed using a text analysis software package (NVivo). Quotations presented in the case description are drawn directly from these interviews. The information gained through the interviews was supplemented by the observations and experience of one of the authors, who was a part-time employee of Telco Consulting during the period studied. This selfethnographic approach (Alvesson, 1999) was thus another important source of information in the case study.

The case of Telco Consulting The case of Telco Consulting focuses on the second half of the 1990s, during which the unit's organizational position in Telco can be described as semi-integrated, with half of its turnover coming from internal clients within the traditional Telco product business, and the other half from clients outside Telco. At that time, Telco Consulting had approximately 300 employees, of which a majority acted as IT- and business consultants. As a part of Telco, a large Nordic telecom operator with thousands of employees, the consulting unit's external home market consisted of Telco's largest customers. The case description is structured such that we begin by describing new product development in Telco. Next, follows a description of the consulting services offered by Telco Consulting and how the consulting unit acquired knowledge of the customer through their assignments, and finally a description of how knowledge is extended to the product business. New product development in Telco Telco's product business was divided among several different units of which three types are especially important for this study: market units, product management units and product development units. The market units were divided on the basis of market segment, and each market unit was responsible for

marketing and sales for its particular segment. The product management units were responsible for overall planning, with a product manager in charge of each product group. NPD was purchased from the product development units, which used both their own resources as well as internal and external consultants. After decades of development of infrastructure for tele- and datacommunications, Telco's NPD process was rigorous, with high standards for accessibility and stability. NPD procedures were therefore bureaucratized through a stage-gate process with extensive guiding principles regarding tollgates and documentation. The standard lead-time for new telecom services was over one year. The services offered by Telco Consulting Telco Consulting's mission was to act as Telco's consulting firm on the external market, offering business consulting and systems integration. Most projects were delivered as customer-specific turnkey solutions based on Complex Product Systems (CoPS) (Hobday, 1998) and included software-intensive elements such as computer telephony integration and Internet/intranet applications. Telco's product business provided parts of these solutions in the form of communications services. Telco Consulting's assignments normally spanned several stages, covering strategic analysis, functional specifications, software development and systems integration. Implementation projects were sometimes followed by additional management support services in order to help the client to start using the installed functions. Acquiring knowledge of the customers In delivering these services, Telco Consulting had to expand the parent organization's contacts with its customers. Traditionally, Telco had maintained relations with the customer's IT- and telecom support functions. The consulting unit, however, needed access to management representatives from the client's business, since the solutions included applications that were highly customized and integrated into the client's processes and IT systems. This enabled project managers to build broad and deep personal networks with individuals in the client organizations.

103




In carrying out their projects, the consultants also acquired an understanding of their client's business. They learned about the client's role in the supply chain of its industry and the client's competitive advantages, as well as the types of solutions and offers needed to support these. They also learned about functional specialties (i.e. R&D, operations, marketing and sales) of the client's organization and/or industry. Information about the client's own customers, suppliers and partners also helped to give the consulting unit an overall picture of the client's industry. Through their deep involvement in client companies, the consultants also learned about the client's role as customer of Telco. This included learning how clients used Telco's products and services and about the gaps between what Telco offered and the specific needs of the clients. The knowledge gained about the client was combined with technological knowledge to create new knowledge: Our ability to integrate solutions is important. First, we have the knowledge of the products and services. Then, we have a lot of contact with the customers, which forces us to be creative. In this way, we can see the synergies (Project manager at Telco Consulting).

Examples of such synergistic effects include development of the first Internet banking solutions in Sweden during the second half of the 1990s and, more recently, the development of a new type of call center solution enabling speech recognition and control. Table I summarizes the knowledge created within Telco Consulting.

for different units and functions. Three important groups of internal clients for Telco Consulting were the market units, the product management units and the product development units, i.e. core actors in the innovation process at Telco. The focus of Telco Consulting assignments in the market units, based on their combined knowledge on markets and technology, was generally that of supporting sales activities. Such assignments were however relatively rare, as the consultants were regarded by the salespeople with some skepticism. This skepticism can be traced back to three factors. First, Telco Consulting's direct contact with customers was often disliked by the salespeople, since this threatened the single point of contact strategy maintained by the market units. Second, the consultants were regarded as costly, so involving Telco Consulting was often avoided. There was a general feeling among the salespeople that the consultants' main objective was to maximize consulting hours rather than Telco sales. Third, account managers at times expressed fears that the advice of consultants could disrupt projected sales by enhancing the performance of the client's existing products, thus delaying the need for new equipment or making its purchase unnecessary altogether. The second group of internal clients were the product development units. Telco Consulting was often given the assignment of supporting development projects in these units. These assignments mainly included technical specification and implementation of new products and services, in which the market knowledge of the consulting unit was appreciated:

Extending knowledge to the product business The consultants were regarded as the troubleshooters of Telco and were continuously engaged in internal assignments

Their close relationships with external clients are very important for us using them. Of course, they could have been 100 per cent external, but the internal assignments are crucial for us in order to get feedback from the market (Manager at Telco R&D).

Table I Knowledge created within Telco Consulting Knowledge created

Market knowledge Extension of networks with the client organization Increased understanding of the client: the client's business and strategy the client's industry the client's customers Knowledge on the role of Telco's products Gaps in funtionality of Telco's products

Technical knowledge Early use of new technology (within CTI, Internet/intranet, etc.) Knowledge of external technical platforms Understanding of limitations in product business' platforms and development tools Understanding of customer's technical systems Possibilities of bundling and systems integration

104




Telco Consulting also possessed critical technical knowledge derived from an early adoption strategy for new technologies. This knowledge was seldom regarded as relevant by the product development units, however, as it did not fit the large-scale telecom systems that were the focus of these units. The product development units' focus on products for a mass market, where stability and quality were regarded as central, also led to the application of an elaborate new NPD process resulting in lead-times that were considerably longer than those in Telco Consulting. Consequently, Telco Consulting and the product development units had very different views of the NPD process, leading to somewhat negative attitudes towards one another's ways of working. In relation to the product development units' NPD process, the consultants' pragmatic, customer-focused approach was often regarded as ``quick and dirty''. The third main group of internal clients were the product management units. Although the relationship between Telco Consulting and the product business was in general somewhat strained, product managers repeatedly used the consultants for customerdriven development. With the support of Telco Consulting, external clients were invited in as pilot customers in the development of new products and services. Through these pilot projects, knowledge on market and technology was created, linked and evaluated. The product managers were pleased with the knowledge provided by the consulting unit in such projects. However, they also reported feeling abandoned when these projects were over. To secure a continuous stream of market input, they repeatedly purchased business development support. On a more emotional level, the feelings between the consultants and different representatives of the product business were in general strained due to the role and power position of the consulting unit being perceived as a threat by the larger product business at Telco's core. One consultant, a former division manager at Telco Consulting, summarized the problem as follows: It's hard not to be perceived as a threat by other units given our role and mission. We take their people, we take their technology and we take their customers. Then we come back as consultants and charge them (Former division manager, Telco Consulting).

It can be concluded that knowledge creation within the consulting unit was intensive, but that extension of this knowledge to the rest of the organization was neither conscious nor systematic, though the position and role of the unit represented a high potential for this.

Understanding the barriers to knowledge extension The above case illustrates the potential of the corporate consulting unit to act as a source for generating knowledge vital to the innovation processes of the product business. However, the different units of the product business showed limited interest in the activities and knowledge of the consulting unit. Suspicion and ignorance of the other party's competence and motives governed the relationship between the consulting unit and the product business. Analysis of the impediments to knowledge extension is the focus of the following section. Conflicting business logics A central source of the strain in relationships between the consultants and the different parts of the product business were the differences that existed between the productdriven dominant logic (Normann, 1977; Prahalad and Bettis, 1986) and the consulting logic of the consulting unit (see Table II). The respective organizational logics that underlie the consulting unit and the product business differ largely in both their perceived missions and the type of knowledge deemed necessary to achieve these missions. At the same time as these differences are beneficial in the sense that they both have their strengths, they are also problematic in that they impede knowledge extension between the logics, thereby also leveraging these strengths. Such organizational differences, and how they can hinder innovation, have earlier been described by Dougherty (1992) as interpretive barriers between different thought worlds. However, Dougherty deliberately limits her discussion to the cognitive aspects of the differences between the thought worlds of organizational units. The above case indicates a broader range of aspects, which leads us, in the following, to introduce the concept of knowledge filters. This concept covers three aspects of

105




Table II The differences in business logic Consulting business Timeframe for planning Short Perception of market Unique clients Operational focus Flexibility, effectiveness, one off Character of expertise Integrative, generalist

Product business Long Homogeneous market Productivity, efficiency, repetition Specialized, technical

knowledge extension ± knowledge search, cognition and politics. Knowledge filters a hinderance Based on Ansoff (1984), we argue that there are three types of knowledge filters that can impede the flow of knowledge between organizations ± the surveillance filter, the mentality filter and the power filter. The surveillance filter determines the direction and scope of the organization's information search behavior and thereby what knowledge is perceived as relevant and worthwhile to acquire. The mentality filter acts in favor of knowledge that matches the existing basic assumptions of the individual, as this knowledge is more readily accepted than knowledge that points in other directions. The third, the power filter, tends to filter out information that constitutes a threat to existing power structures and works in favor of knowledge that strengthens one's own position. In the following, these knowledge filters are applied as an analytical framework to help us understand the observed impediments to the application of Telco Consulting's knowledge in Telco's innovation processes. In doing this, we discuss Telco Consulting's relations with Telco's market units, product development units and product management units. Market units defend their customer relationships The flow of knowledge and expertise from the consulting unit to the market units was hampered by a number of factors relating to all of the three knowledge filters. Many people in the market units were not aware of Telco Consulting's knowledge, indicating a strong surveillance filter. Normally, salespeople found information on the products and services they sold in catalogues and databases on the intranet. These sources covered the standardized products and services of Telco. The more abstract services of Telco Consulting, however, were seldom visible in

these systems. Furthermore, the salespeople's incentives to engage in further investigation was limited since selling consulting services was regarded as time-consuming, and rendered less sales commission than standard products. The mentality filter was also strong, owing to the differences in logic described above. Although Telco Consulting's professional services were repeatedly marketed by managers in the market units as an essential part of Telco's offer, people on the sales end still saw Telco as a provider of communications capacity and the necessary hardware that went with it. Consequently, customer needs and problems were often treated by adding capacity rather than by providing advisory services that could, for example, increase the utility of the client's existing technical solutions. Beyond the mentality filter, the market units' resistance to the knowledge created in the corporate consulting unit could be understood in terms of power filter. For the people in the market units, Telco Consulting's close customer contact and market knowledge were perceived as a threat to their own official responsibility as the customer's sole contact point at Telco. Furthermore, as a typical project-based frontend unit (Davies and Brady, 2000), Telco Consulting had developed strong capabilities in tendering and bidding including pre-sale marketing activities. The market units' position as the single point of contact for the customer required them to mediate in these activities. However, the market units' limited experience of selling customer-specific solutions rather than products was a constant source of misunderstanding and conflict between the market units and Telco Consulting. The conflicts had a strong political dimension as they concerned the access to the critical resource ± customers. Rigorous NPD process suffocates knowledge extension The knowledge flow between Telco Consulting and the product development units was also impeded by all three knowledge filters. The surveillance filter often caused the product business to regard the knowledge produced in Telco Consulting as irrelevant. Telco focused on large-scale development of standardized telecom services, making technical platforms the ultimate goal of the

106




NPD process. For the customer solutions developed by the consulting unit, on the other hand, the technical platforms, often purchased from external suppliers, were a means of solving the specific needs of individual customers. These external platforms were often hard to integrate with the technical systems of Telco. Consequently, Telco Consulting was not always viewed as a potential source of technical knowledge by the people in the product development units. The typical thought world of the technical people (Dougherty, 1992) also meant that the people in product development focused on following a structured NPD process and technical policies. For them, the direct customer access of the consulting unit was not always seen as a resource, as it often generated a continuous flow of new and changing requirements on the product, something that hindered the product development units from meeting their internal targets. The differences in logic not only activated the mentality filter, but also the power filter. People in product development often saw the technical knowledge of Telco Consulting, at times based on new platforms and technologies developed outside Telco, as a threat rather than a resource, since it was not compatible with the knowledge and expertise on which their current power position was based. As one manager in product development at Telco expressed it, ``Telco Consulting might see ways to make our business their own.'' An important resource for product managers Whereas the extension of knowledge from the consulting unit to the market- and product development units was problematic due to the co-existence of the three knowledge filters, the relationship with product management was more positive. In this relation, only the surveillance filter was activated because the established processes of innovation in Telco did not recognize Telco Consulting as a potential source of customer knowledge or access point to deeper customer contacts, e.g. for lead user development (Von Hippel, 1986). When product managers found consultants and/or assignments that matched the needs of the product business, the consulting services became highly valued. Being typical planning

people (Dougherty, 1992), the thought worlds of the product managers were dominated by conceptual thinking in terms of the linking of market and technology. With the support of the consulting unit, their abstract ideas could be turned into real projects because of the consultants' closeness to the market and integrative abilities. Neither the market knowledge nor the technological knowledge threatened the established knowledge of the product managers, but rather complemented it. The consultants supported product managers not only in the process of making their ideas more concrete, but also in the process of generating ideas. In the consultants' external assignments, new functionality based on new high-technology components and platforms was often introduced. Through these customer-specific solutions, the product managers gained new ideas for future commoditized services in the intense linking of technology-market that characterizes the development of complex turnkey solutions (Bonacorsi et al., 1999). Consequently, Telco product managers were frequent internal clients of Telco Consulting. Assignments often focused on the front-end of innovation. In these early stages of the innovation process, the dominant logic of the consulting unit was not as incompatible with the product logic as it was in the later stages, where a more rigorous NPD process was followed. In the early phases of innovation, the differences in the technical platforms applied by the consultants as opposed to those applied by the product business were also less of a problem. In this phase, the conceptual ideas and the functionality perceived by the user were in focus. The case of Telco Consulting thus shows that corporate consultants can act as knowledge brokers in the innovation process even without systematically established mechanisms that support the knowledge flows between the product business and the consulting unit. Hargadon (1998) has described knowledge brokers as external, acting between firms, or internal, acting between divisions. However, corporate consultancies could be described as a combination of the two, acting between the product business and its external environment.

107




Conclusions and implications In this paper, we have explored the role of a corporate consulting unit in the innovation processes of what might be called a hybrid organization. The literature suggests that such organizations combine a product-centered logic, in which standard products for a mass market are provided, with a customercentered logic that focuses on satisfying the specific needs of individual customers. The synergies between these two business logics are potentially strong, especially in innovation processes, where the customer-oriented consulting business can provide customer knowledge. Based on a case study of the relations between Telco and Telco Consulting, a Swedish telecom operator and its consulting unit, we have argued that the unit responsible for systems integration and consulting is an important source of knowledge about customers in Telco's innovation processes. However, we also found that tapping into this source of knowledge was not unproblematic. Although the consulting unit supported product and market units through internal consulting assignments in product- and business development, knowledge transfer was strained by a number of knowledge filters ± the surveillance filter, the mentality filter and the power filter. The surveillance filter could be observed in the relation with the market units, product development, and to a certain degree also product management, and was due to a limited awareness of the consulting unit and its specific knowledge. The mentality filter could be observed mainly in relations with the market units and product development units, and was based on the differing logics between the consulting business and the product business. And lastly, the power filter was again most salient in the consulting unit's relations with the market units and product development units, in the form of a perceived threat of losing out to, or being taken advantage of, by the consulting unit (see Table III). Managerial implications Corporate consultancies represent a potentially powerful tool for organizations wanting to move from a product-driven logic towards a customer-driven logic without giving up their existing product business.

Through a mixture of external and internal assignments, corporate consulting units in this situation can act as knowledge brokers between the client organization and the innovation processes of the product business. This is a potentially important function yet often neglected since corporate consultancies are largely legitimized as ways of generating extra income and/or protecting the product business' technological core through competitive differentiation (Cornet et al., 2000; Davies et al., 2001). Realizing this potential requires that managers begin to view corporate consulting services as an integral part of the innovation process rather than a mere extension for customization, which is a common view in many product businesses (Nambisan, 2001). The realization of the knowledge flows underlying these potential synergies is however not trivial. As has been shown by the case described above, achieving this synergy is impeded by a number of knowledge filters. Handling of the knowledge filters requires active management of the relation between the corporate consulting unit and the product business. This calls for mechanisms that coordinate the differing logics. One approach to managing the surveillance filter might be to identify clearly the corporate consulting unit as a source of knowledge in the product- and business development of the product business. This is especially true for the early phases of innovation, often characterized as the ``fuzzy front-end of new product development'' (Zhang and Doll, 2001). Here, consulting services may be a way of decreasing some of the ``fuzziness'' by enabling customers to become involved in and share in the financing of the innovation process. Overcoming the mentality filter requires building a mutual understanding of the other organization's business logic and practice. Dougherty (1992) suggests three intermediary processes for such thought world awareness: building on the unique insight from each thought world; developing collaborative mechanisms; and developing organizational context for collective action. Tackling the power filter requires designing and adapting organizational governance structures that support rather than impede cooperation. This could be achieved by ``success fees'' for the corporate consulting unit's participation in NPD projects, a clear

108




Table III Knowledge filters observed in Telco Surveillance filter Market units

Consulting services are perceived as abstract Limited information available in salespeople's information sources Product development Consultant's technical knowledge units perceived as irrelevant

Product management Consulting unit not formally units recognized as a knowledge source in NPD process

Mentality filter

Power filter

Consultants' focus on selling hours Consultant's closeness to customer threatens the single point-ofis incompatible with a logic of contact position selling products Consulting services viewed as ``quick and dirty'' Consultant market knowledge perceived as a disturbance ±

statement of the respective units' responsibilities in terms of product responsibility vs consulting, etc. Based on our findings from this case study, we argue that product management units could serve as an effective mediator between the solutions business and the product business and that this role should be more formally recognized. However, closer integration of the consulting unit and the product business carries the risk of eliminating the specific characteristics of the consulting unit that made it valuable in the first place, i.e. its ability to create knowledge from and about the market. Therefore, integration of the consulting and product businesses must aim for both responsiveness and distinctiveness, thus requiring a loosely coupled relation (Orton and Weick, 1990; Weick, 1976). Research implications The above study sheds light on the innovation processes of hybrid organizations simultaneously pursuing a customer solutions business and a product-oriented business. The differences between the product-oriented logic dominant in the product business, and the consulting logic that prevails in the consulting unit, is identified as one of the main underlying causes of a number of knowledge filters hindering the transfer of consultants' knowledge to the product business. This indicates that future studies of innovation processes in hybrid organizations should be attentive to the character and effects of different business logics (compare with Nambisan, 2001). Further investigation of these logics in a large sample of organizations is motivated by this single case study.

Afraid of takeover by consulting unit Competing technical knowledge within consulting unit ±

Another aspect that should be addressed in further research is the complexity of the products offered by the parent organization. Consulting services are often offered as an extension of high-value, engineering and software-intensive capital goods, so-called Complex Product Systems (CoPS) (Hobday, 1998). We may find that suppliers of CoPS, such as the parent organizations of earlier mentioned IBM Global Services and PeopleSoft Consulting, find it less problematic to integrate the consulting business with the product business. Finally, research should further investigate possible ways of managing the knowledge filters identified. This would include research on the structural relations between the consulting business and the product-oriented business, as well as incentive structures and management systems used to steer the corporate consulting operation.

Note 1 For purposes of confidentiality, pseudonyms are used in the paper.

References Alvesson, M. (1995), Management of Knowledgeintensive Companies, Walter de Gruyter, Berlin/New York, NY. Alvesson, M. (1999), ``Methodology for close up studies: struggling with closeness and closure'', Working Paper 1999/4, School of Economics and Management, Lund University, Lund. Ansoff, H.I. (1984), Implanting Strategic Management, Prentice-Hall International, Englewood Cliffs, NJ. Berggren, E. and Nacher, T. (2001), `Ìntroducing new products can be hazardous to your company: use

109




the right new-solutions delivery tools'', Academy of Management Executive, Vol. 15 No. 3, pp. 92-101. Bessant, J. and Rush, H. (1995), ``Building bridges for innovation: the role of consultants in technology transfer'', Research Policy, Vol. 24 No. 1, pp. 97-114. Bonacorsi, A., Pammolli, F., Paoxli, M. and Tani, S. (1999), ``Nature of innovation and technology management in system companies'', R&D Management, Vol. 29 No. 1, pp. 57-69. Brown, M., Corley, K. and Gioia, D. (2001), ``Managing dual organizational identities in a loosely-coupled system: a qualitative study of a bricks and clicks organization'', Paper presented at the annual meeting for the Academy of Management in Washington, Washington, DC. Cornet, E., Katz, R., Molloy, R., SchaÈdler, J., Sharma, D. and Tipping, A. (2000), Customer Solutions: From Pilots to Profits, Booz Allen & Hamilton, New York, NY. Davies, A. and Brady, T. (2000), `Òrganisational capabilities and learning in complex product systems: towards repeatable solutions'', Research Policy, Vol. 29 No. 7, pp. 931-53. Davies, A., Tang, P., Brady, T., Hobday, M., Rush, H. and Gann, D. (2001), `Ìntegrated solutions: the new economy between manufacturing and services'', Report, SPRU, University of Sussex, Sussex. Dougherty, D. (1992), `Ìnterpretive barriers to successful product innovation in large firms'', Organization Science, Vol. 3 No. 2, pp. 179-202. Foote, N., Galbraith, J., Hope, Q. and Miller, D. (2001), ``Making solutions the answer'', The McKinsey Quarterly, September, pp. 84-97. Good, R.F. (1985), ``Pros and cons of corporate consulting'', Journal of Management Consulting, Vol. 2 No. 3, pp. 29-34. Gregoire, M. (2001), ``How PeopleSoft created a successful in-house consulting division'', Consulting to Management, Vol. 12 No. 2, pp. 6-11. Hargadon, A. (1998), ``Firms as knowledge brokers: Lessons in pursuing continuous innovation'', California Management Review, Vol. 40 No. 3, pp. 209-27. Hax, A.C. and Wilde, D.L. (1999), ``The Delta Model: adaptive management for a changing world'', Sloan Management Review, Vol. 40 No. 2, pp. 11-28.

Hobday, M. (1998), ``Product complexity, innovation and industrial organisation'', Research Policy, Vol. 26, pp. 698-710. Nambisan, S. (2001), ``Why service businesses are not product businesses'', Sloan Management Review, Vol. 42 No. 4, pp. 72-80. Normann, R. (1977), Management for Growth, Wiley, New York, NY. Normann, R. (2001), Reframing Business: When the Map Changes the Landscape, John Wiley & Sons, Chichester. Orton, D. and Weick, K. (1990), ``Loosely coupled systems: a reconceptualization'', Academy of Management Review, Vol. 15 No. 2, pp. 203-23. Prahalad, C.K. and Bettis, R.A. (1986), ``The dominant logic: a new linkage between diversity and performance'', Strategic Management Journal, Vol. 7 No. 6, pp. 485-502. Sawhney, M. and Parikh, D. (2001), ``Where value lives in a networked world'', Harvard Business Review, Vol. 79 No. 1, pp. 79-86. Sharma, D. and Molloy, R. (1999), The Truth About Customer Solutions, Booz Allen & Hamilton, New York, NY. Shepherd, C. and Ahmed, P. (2000), ``From product innovation to solutions innovation: a new paradigm for competitive advantage'', European Journal of Innovation Management, Vol. 3 No. 2, pp. 100-06. Starbuck, W.H. (1992), ``Learning by knowledge-intensive firms'', Journal of Management Studies, Vol. 26 No. 6, pp. 713-40. Vandermerwe, S. (2000), ``How increasing value to customers improves business results'', Sloan Management Review, Vol. 42 No. 1, pp. 27-37. Von Hippel, E. (1986), ``Lead users: a source of novel product concepts'', Management Science, Vol. 32 No. 7, pp. 791-805. Weick, K. (1976), `Èducational organizations as loosely coupled systems'', Administrative Science Quarterly, Vol. 21, March, pp. 1-19. Zhang, Q. and Doll, J.W. (2001), ``The fuzzy front end and success of new product development: a causal model'', European Journal of Innovation Management, Vol. 4 No. 2, pp. 95-112.

110

Introduction

Memetics and innovation: profit through balanced meme management Richard J. Pech

The author Richard J. Pech is a Senior Lecturer at La Trobe University's Graduate School of Management in Melbourne, Melbourne, Australia. Keywords Information management, Information technology, Creativity, Innovation Abstract One of the major driving forces behind a firm's success can be attributed to its meme management. Memes, analogous to the biological gene, are self-replicating. They represent the knowledge, views, perceptions, and beliefs communicated from person to person. In a business context, memes can be used to manage market perceptions as well as managing the views a firm has of itself. If a firm focuses too persistently on replicating a specific product meme, and by its singularly unyielding focus fails to innovate, a competitor may obliterate it with a disruptive leap in product development. The former firm has failed because of its lack of flexibility and its inability to adapt to a product or market's ongoing evolutionary process. Discusses the example of Rip Curl, the Australian surf-wear giant, and how it has developed and managed three memes that are central to Rip Curl's product success as well as the company's innovative operations. Electronic access The Emerald Research Register for this journal is available at http://www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/1460-1060.htm European Journal of Innovation Management Volume 6 . Number 2 . 2003 . pp. 111-117 # MCB UP Limited . ISSN 1460-1060 DOI 10.1108/14601060310475264

Many could argue that the terms ``creativity'' and `ìnnovation'' are synonymous. They are not. Innovation must add value either through a new product, a new purpose for a product, a new process, a new market for an existing product, and so on. Creativity may result in something new and unique in a symbolic manner but it does not, for the purposes of this discussion, mean that it adds value to the firm. An employee can paint a picture and hang it on the office wall and this could be construed as an act of creativity, but it does not necessarily mean that value has been added to the firm. Similarly, an employee could develop a new product for which there is no market and indeed no practical application. The employee is demonstrating creativity by meeting the criterion for making something that is unique or new, but because the product adds no value to the firm and has in fact incurred costs in lost labour and resources, the resulting action of that employee cannot be classified as being innovative. Some managers are confused on this issue. Believing they are doing the right thing, they employ a number of strategies designed to improve the level of creative input from their employees. Such strategies could include a percentage allocation of creative thinking and experimentation and research time, an easing of rules and policies, recruitment of consultants with expertise in creative thinking techniques, attendance at specialised creative thinking seminars, and so on. They become obsessed with creativity rather than differentiating between the creative act or process and innovation. In the early 1980s Apple Computer were regarded as being on the cutting edge of computer technology, developing immensely successful and profitable product innovations. Yet their single-minded drive to be seen to be independent and unique lost them their rising star status. Apple had the potential to dominate the desktop computing market but their obsession with creativity began to negatively impact on their ability to deliver ongoing innovations in a rapidly changing market. Innovation is something many firms strive for, and yet so often the desire for innovation is limited to their cleverly designed words of wishful thinking, such as a well-articulated

111

Memetics and innovation


Richard J. Pech

mission statement that looks good on the financial statements but does little to inspire or motivate change. Some firms employ extravagant but futile efforts in an almost haphazard manner as they attempt to inject innovation into their services or product development processes. Any subsequent value-adding innovations occur more often by accident than design. Conversely, those firms that manage their innovative processes and as a result produce real examples of innovation are thrust into positions of immense disruptive capability and potential profitability.

Examples In the mid-1980s decision makers at Epson, the king of dot-matrix printers were informed that low-budget PC users were seeking highquality printers, but this information was ignored. Epson's engineers, steeped in a long history of dot-matrix technology, continued to hone and refine their existing products. Epson's management looked at the size of their market share and the size of their profits, and could only marvel at how well they were doing. According to Yoder (1994), HewlettPackard (HP) introduced the Deskjet in 1988, along with a ``blizzard of patents'' to protect their design, and, almost without any rivals, captured and held the inkjet market, quickly making dot-matrix printers redundant. HP were successful adopters of an emerging and disruptive technology. This innovation was facilitated by their deliberate strategy of managing experimentation and the fact that they had little to lose by ``rebelling'' against the old technology rules that constrained other manufacturers to the exploitation of the powerful dot-matrix printer paradigm. In this instance, HP's success rested on their ability to break the existing rules of printer technology and develop and adopt a new and innovative printer technology paradigm. Slywotzky et al. (1999) describe an example of a firm that has continued to escape from growth-inhibiting paradigms. The European company, Rentokil, began with pest control and, over a period of several decades, expanded into hygiene services, health care services, office and retail cleaning, officemachine maintenance, facilities maintenance, security services, temporary personnel

services, parcel delivery, catering, education, and training. This progression of growth and expansion has generated revenue and profit growth of 20 percent annually for the past 15 years. With each expansion Rentokil's competitive boundaries have disintegrated, opening new possibilities and considerations for growth. Each expansion, although not delivering anything particularly novel, has become an innovation for the former pest control company. While Rentokil represents an example of growth through flexibility, there are also examples of business decision makers who have a tendency to follow the path of least resistance and that agrees with their own limited abilities and needs. While often arguing that their firm represents something unique and special, these decision makers' actions are all too often locked into wellestablished and predictable behavioural patterns. Such easily recognisable patterns undermine their firm's competitive capability. Rigid adherence to well-learned routines and an inability to escape from the limitations imposed by a single-minded pursuit of moreof-the-same inhibits innovative behaviour. The sense of smugness provided by historical market dominance obstructs the sense of adventure needed in the pursuit of innovation. RCA present a depressing and often-quoted example. In 1955 they were the leaders in the then state-of-the-science manufacture of vacuum tubes and they were the world's seventh-largest manufacturers of transistors. According to Tushman and O'Reilly (2001) there were bitter disputes within RCA, with one faction wanting to push more aggressively into the transistor market, and a second faction viewing this as an attempt to cannibalise their profitable tube business. RCA seemed unable to defend its old technology (tubes) and at the same time put energy into aggressive attacks with a new technology (transistors) and by 1982 they were no longer listed as players in the semiconductor industry. RCA's survival was dependent upon its ability to maintain a leadership position. The knowledge that its success was based on vacuum tubes made it blind to activities that it considered were outside of its core business. As the above example demonstrates, business success is not reliant so much on staying on the ``right route'', as on being able to change routes rapidly as and when

112



Richard J. Pech

required, and an ability to shed the mental ``detritus'' gathered while travelling welltrodden but dead-end paths. Success relies upon finding a balance between the competing values of maintaining a semblance of productive tradition, ensuring efficiency, and developing a culture and expertise where the exploitation of every reasonable (and perhaps unreasonable) possibility is encouraged and facilitated. This requires a well-managed organisation where the imagination is free to roam. Finding a balance between the total anarchy inherent in dreams without performance and a tightly controlled bureaucracy that crushes experimentation is one of the keys to the successful management of innovation.

Meme theory and innovation In 1976, zoologist Richard Dawkins, in his book The Selfish Gene, coined the term ``meme''. Memes are described as selfreplicating ideas or thoughts, evolving and adapting to meet the demands of evolutionary forces and Darwinian pressures for selection. Unlike its biological cousin, the gene, a meme can include behaviours, beliefs, tunes, fashions, or even a new theory about innovation! Psychologist, Susan Blackmore (1999), further advanced the theory of memetics as it has come to be known. Blackmore argues that memes compete to be replicated. For example, certain cults and religious beliefs exclude and sometimes demonise other religions and the nonreligious in order to advance their own cause and further tighten their hold and influence on believers. The beliefs underpinning these religions are self-replicating memes. Communism was an extremely powerful socio-political meme that provided a ``legitimate'' vehicle for some of the most psychotic and despotic personalities ever to strut across our planet's surface. Memes can drive fashions, such as the fashion for tattoos or piercing, or memes may influence an opposing group who prefer to flaunt the trappings of fashion-consciousness by rebelling against all popular fashion trends. Memes can be extremely powerful, plunging a nation into a frenzy of ethnic ``cleansing'' based simply on a clash of religious memes. Memes can also be helpful and operate more subtly by, for example, encouraging highly

responsible and ethical behaviour in a chemical research facility. Entrepreneurs and managers have the power to conceive and shape appropriate memes for their markets, their products, and their work milieu. Memes can have the power to turn an industry upside down. Discussions about memes and their implications are now commonly found in a range of scientific literature including psychology, sociology, zoology, and anthropology. By comparison, the business literature has only scratched the surface of memetic theory's potential as a means for managing growth and profits. Ignoring the power and influence of memes can lead to the failure of even the most stable and seemingly prosperous of firms. If influential memes are mismanaged or simply left to follow their own evolutionary paths, the firm risks losing control of a primary tool for managing its future, leaving it at the mercy of its competitors and the capricious forces of a volatile and turbulent business landscape. RCA once again provides a poignant example with its decline from a respected electrical components manufacturer into a company with a $2.9 billion debt. RCA slavishly attached itself to one predominant meme. This meme controlled the vacuum tube industry; it blindly pursued its own replication, ignoring the possible impact of such disruptive innovations as the transistor. Through poor meme management, RCA, a firm that was once a leader in innovative practices, derailed itself. Christensen (1997) points out that disruptive technologies can be particularly easy to overlook and can be particularly dangerous. Perhaps it is not the disruptive technology that is the real threat. Maybe the greatest hazard for managers to be wary of is their blind loyalty to a selfreplicating but obsolete meme. Through such singularly devoted attention to a successful meme, they fail to see the possible repercussions of ignoring the diversity and power of ongoing evolutionary forces shaping products, markets, and methods of production. According to De Kluyver (2000), between 1917 and 1977 the list of the world's top 50 corporations remained largely unchanged. In 1977, the USA dominated the list with 22 out of 50 entries. By 1997, as measured by revenues, Japan and the USA each had 18 entries on the list. Newcomers included

113



Richard J. Pech

companies from Korea and Italy. The increasing pace of the changes in ranking suggests that formerly successful management memes are no longer valid. Strategic competitive behaviour, flexibility, and the facility for continual innovation are the new memes of business success and survival. Burgelman et al. (2001) emphasise that, eventually, firms will have exploited every avenue of their mainstream business and that, for survival as well as growth reasons, they must develop new capabilities, which are often radical rather than incremental. The cultural acceptance and faithful reproduction of a managerial meme anchored in riskavoidance will often clash violently with attempts at autonomous innovation processes seeking radical shifts in products and markets, as occurred at RCA and Epson. Continued product leadership therefore requires a new and different management meme. Rather than sliding toward oblivion by choosing to maintain the current but obsolete management meme, a complete meme change is required, and this has been skilfully demonstrated by Rentokil with its ability to find the synergies between a variety of disparate industries and unite them under one corporate umbrella. In the example of RCA, the ``need'' for the vacuum tube meme to replicate, combined with RCA's inability to support innovative thinking ultimately caused that firm's destruction. Some may argue that this occurred because of unforeseeable and uncontrollable changes in the business landscape, but the blame for the firm's demise should rest with the decision makers who failed to make the appropriate strategic shifts to secure RCA's longevity. The obsolete meme's continued (but short-lived) success at self-replication resulted in complete rejection and exclusion of any other potentially more successful memes. Through their actions, managers whose careers were tied to the success of the vacuum tube industry acted as unwitting cogs in the self-replicating machinery of the vacuum tube meme.

Managing memes for profit When viewed in this manner, memes can appear to be destructive forces bent on maintaining the status quo. Far from it. Memes can be used to create new industries and new wealth. Take the surf-wear industry

as an example. Growing out of almost total obscurity in the 1960s, the surf-wear industry has rocketed from an image of rebellion and anti-authoritarian escapism to an image of health, wealth, and elitism. Names such as Quicksilver, O'Neill, Billabong, and Rip Curl are globally recognised and respected brands. People wear these and other such brands with pride. Owning such distinctive brands fulfils their needs for recognition and acceptance. Whether the proud owner is a surfer or not is irrelevant, the surf scene is deemed to be cool, one that everyone who is anyone should be seen to be a part of. In memetic terms, over a few short years surf-wear made the successful leap from a meme that assumed minority rebellion to a meme that now suggests affluence, health, and majority recognition and approval. This industry has grown out of a kernel of sand to encompass the oceans. How was this done? Rip Curl is estimated to be the secondlargest surfing equipment manufacturer in the world after Billabong. The company's founders, Doug Warbrick and Brian Singer, were and still are keen surfers themselves, living every day to improve the comfort and safety of the users of their products. These two entrepreneurs are passionate about their business; they and their employees are the test pilots for their products. They mingle with their customers and listen to what they say and want. They do everything that they can to meet their customers' expectations while at the same time producing a constant wave of innovations designed to captivate and thrill existing as well as new customers. Pech (2002) relates a conversation with Singer and Warbrick concerning O'Neill's innovation of a zip-free wetsuit. Warbrick expressed deep disappointment that a competitor should beat them to an innovation that they should have recognised and developed themselves. Even a company such as Rip Curl, with a reputation for innovation, found it difficult to change its design and machine specifications in time to meet their competitor's new threat. Rip Curl still managed to respond within one month with what they claimed was a similar but better wetsuit, thereby blunting their competitor's advantage. Some years later, despite once again being recognised as the producer of a better surfing wetsuit with their subsequent Ultimo Elasto and Elastomax wetsuits, and most recently with their SlickSkin

114



Richard J. Pech

Technology, Warbrick still berates himself for not being first. Rip Curl wanted and expected nothing less than the leadership position in innovation. The Rip Curl example suggests the careful and deliberate development of three memes (see Figure 1). One meme is aimed at the niche surf market and encapsulates how Warbrick and Singer want their products to be perceived. This meme expresses images of uniqueness, quality, reliability, and functionspecific design specifications. A second meme articulates the larger surf-wear market's emotional desires, fulfilling needs for acceptance by projecting images that encapsulate desirable states such as being cool and belonging to a group ± even if the strands that hold this group together are only tenuously attached through wearing similar brand-name clothing. The third meme, although leaving a large impression on the market, is not aimed at the purchaser but at the team that designs and produces the Rip Curl products. This meme constantly reminds the team that they are market leaders, product innovators, aggressive competitors, risk takers, and above all, that they are passionate about what they do. A symbiotic relationship exists between these three memes as each meme supports the others, helping to maintain their collective integrity. Innovative products develop a loyal market, growing and profitable markets spawn increased competition which in turn demands more innovative products, and so on. By evolving, developing, and reinforcing these three memes and managing their Figure 1 Examples of three memes driving the success of Rip Curl

dynamic interrelationships, Rip Curl has demonstrated how it rides the booming surfwear wave. All three memes shown in Figure 1 are critical to the success of the company. By focusing on these three memes, Rip Curl has been able to find the balance that is so often lacking in failing firms that become obsessed with only one meme. RCA demonstrated a singular focus on vacuum tubes, and was subsequently unable to decide between the newly evolving transistor technology and the older tube technology. Epson dogmatically pursued a better dot-matrix printer. Memes are self-replicating and will therefore ``compete'' for survival. When a particular meme gains ascendancy, it becomes the prime focus for the firm as it carries success in its wake. Other memes are ignored or marginalised. Such self-replication is a mindless and unplanned process, similar in evolutionary terms to the replication of genes. When the early ancestors of our modern genes replicated, they did not have an ultimate plan or purpose beyond surviving and reproducing. As long as circumstances and conditions did not change, there was little need for flexibility or adjustment. When conditions altered, survival depended upon the ability for rapid adaptation. According to McFadden (2000), the modern human is the product of a shaping and moulding process brought about by a range of evolutionary pressures. Similarly, a meme is often shaped by a variety of evolutionary pressures. Memes cannot ``know'' or ``plan'' the future, or even have an `ìntention'' in the way we would refer to human intentions. But regardless of such mindlessness, memes fight to replicate. The determined pursuit of an aging meme, no matter how successful it was in the past, will destroy the inflexible firm as it risks blindness to more powerful memes or new evolutionary adaptations. Apple became so obsessed with maintaining its sense of uniqueness and individualism in the 1980s that when IBM opened its own architecture to the clones, Apple's strength became its greatest weakness by isolating itself from its rapidly expanding competitors as well as its own market. Apple's image of individualism and rebelliousness became its dominant meme. Although this meme may have inspired Apple's initial success, its level of importance to the firm should have been reduced, to be replaced with a meme that was

115



Richard J. Pech

more responsive to the dynamics of the rapidly changing computer business landscape. The death-embrace of the old meme was so great, however, that little could be done to loosen its stranglehold on the company's successive decision makers. It was not until the late 1990s with Jobs back at the helm of Apple that the individualism meme was finally toppled with the surprising move to join forces with Microsoft.

Auditing for redundant memes The following four questions form the basis for a meme audit. These questions will ``dig'' around the firm's foundations in the search for weaknesses, false assumptions, or operating rules that have exceeded their use-by date. These questions are also designed as catalysts to inspire renewal and directional shifts. Such questions should be asked with complete honesty and with an expectation for change. Firms should continually undertake complete and exhaustive reviews of their decision-making processes, their operations, and the fit between their strategic intent, their capabilities, market dynamics, and the actions or intent of existing as well as potential competitors. These questions only pose the preliminary thrust of a more indepth audit probe. Each question must be expanded upon and customised to correspond with the idiosyncrasies of the firm and be delivered with enough determination to expose all of the firm's underlying power plays and other survivalrelated machinations. Such an audit could be justified in resembling a Spanish Inquisition in its intensity and predetermined certainty of guilt, as nearly every firm will be responsible for allowing memes, whether productive or injurious, to control some aspects of their existence: . Do we cling to old ways and traditions, regardless of their potentially limiting or possibly detrimental impact? . Are we blinded by our prior knowledge, large investments, or by the collective ``wisdom'' from recognising or exploiting new opportunities? . Do we plan according to the assumption of a predictable future or do we construct ``what-if'' scenarios and prepare accordingly?

.

How do we treat information or arguments that conflict with what we ``know'' and what we do?

Innovations occur with the discovery and application of new knowledge, and with the replacement of old rules with more appropriate conventions. In this respect, change is nearly always painful, and therefore often easier for newcomers who have little or no investment in maintaining the ways of the past. If a firm wishes to survive it must be prepared to suffer the pain associated with change. While some managers make their careers out of avoiding change, the peace and predictability they seek may often only be found in the resulting untimely death of their firms.

Conclusion Genes transmit biological and behavioural characteristics from one generation to the next. Memes communicate ideas from person to person. They blindly and mindlessly exert influence over what we believe, want, and do. The most powerful and successful memes are replicated either consciously or unconsciously, whether desirable or undesirable. These could include managerial fashions, operating procedures, product and marketing ``knowledge'', etc. A meme or a combination of memes can have enormous influence on your firm and its future. Are you able to map the memes driving your business? What influences your meme selection and meme adoption process? Are you really in control or do memes control you? As the Rip Curl example has demonstrated, business success is not simply about producing a marketable product; it demands a balanced management of several influential memes. Its management of three major memes can explain a large part of Rip Curl's success: (1) Delivering constant product innovation through continual refinements as well as adding a growing variety of new products, and always searching for innovation in their production processes. This innovation meme is constantly articulated and reinforced by the firm's leadership.

116



Richard J. Pech

Rip Curl's innovative culture is the direct result of managing this innovation meme. (2) Identifying and fulfilling the needs of Rip Curl's niche markets by offering uniqueness, quality, exclusivity, and distinctiveness. This meme is developed through expertise, passion, an understanding of the market, and an aggressive hunger for product leadership. (3) Satisfying the needs and wants of the wider surf-wear market. Rip Curl, through its products and promotions, influences the wider market and its perceptions of desirability in surf-wear. This is a two-way relationship as Rip Curl also benefits from the market's needs and expectations and what it is willing to pay to have those needs satisfied. Changes in market perceptions are quickly assimilated into the product range and services provided to ensure that the company does not fall into the trap of becoming obsessed with one dominant meme.

References Blackmore, S. (1999), The Meme Machine, Oxford University Press, New York, NY. Burgelman, R.A., Maidique, M.A. and Wheelwright, S.C. (2001), Strategic Management of Technology and Innovation, 3rd ed., McGraw-Hill, New York, NY. Christensen, C.M. (1997), The Innovator's Dilemma, Harvard Business School Press, Boston, MA. Dawkins, R. (1976), The Selfish Gene, Oxford University Press, Oxford. De Kluyver, C.A. (2000), Strategic Thinking: An Executive Perspective, Prentice-Hall, Upper Saddle River, NJ. McFadden, J. (2000), Quantum Evolution: Life in the Multiverse, Harper Collins, London. Pech, R. (2002), Making Waves: Innovation in Business, Prentice-Hall, Auckland. Slywotzky, A.J., Morrison, D.J., Moser, T., Mundt, K.A. and Quella, J.A. (1999), Profit Patterns, J. Wiley & Sons, London. Tushman, M.L. and O'Reilly, C.A. III (2001), `Àmbidextrous organizations: managing evolutionary and revolutionary change'', in Burgelman, R.A., Maidique, M.A. and Wheelwright, S.C. (2001), Strategic Management of Technology and Innovation, 3rd ed., McGraw-Hill, New York, NY. Yoder, S.K. (1994), ``How H-P used tactics of the Japanese to beat them at their game'', Wall Street Journal, September 8, p. A1.

117

Introduction

Creating a project climate for successful product innovation Paul Harborne and Axel Johne

The authors Paul Harborne is a Senior Member of the Innovation Research Unit, a Visiting Fellow and Visiting Lecturer and Axel Johne is Professor of Marketing and Director of the Innovation Research Unit, both at the City University Business School, London, UK. Keywords Leadership, Product innovation, Working conditions, Management styles Abstract This paper reports the results of a study into leadership of new service development projects in consumer banking. A sample of UK businesses embracing both new entrants and mature incumbent players was studied. The results highlight considerable similarity in the project ``microclimate'' for successful projects. It is argued that a microclimate is created by appropriate leadership practices and styles. The paper highlights lessons in the organisation of innovation and the contributions of different types of leaders. Electronic access The Emerald Research Register for this journal is available at http://www.emeraldinsight.com/researchregister The current issue and full text archive of this journal is available at http://www.emeraldinsight.com/1460-1060.htm


Financial services businesses are currently experiencing varied and intense challenges in their competitive environments. These affect profitability and potentially even survival. Competitive challenge has been fostered by major changes in technology, regulation and customer knowledge, and innovative offers to customers from non-traditional rivals such as multiple retailers, building societies and entertainment companies. As a consequence, financial service businesses are being forced to reappraise strategies, portfolios and processes, including particularly their product development practices (Brown and Eisenhardt, 1995; McDonough, 2000). The way in which new product development is conducted has changed significantly over the last decade. There is increasing use of cross-functional teams that deliver development projects more efficiently (Hershock et al., 1994; Drew and CoulsonThomas, 1996). Hobday (2000) has identified the emergence of project-based organisations where teams form to deliver development projects and then disband to form new teams for new projects. A number of recent studies (Donnellon, 1993; Hitt et al., 1996; Sethi, 2000; McDonough, 2000) have identified common success factors for crossfunctional development projects. These studies have also highlighted the potential importance of leadership. However, research undertaken by McDonough (2000) and Brown and Eisenhardt (1995) has stressed the lack of empirical data on leadership of NPD projects. It is this gap in knowledge that is addressed in this paper. Our paper reports the results of a qualitative study of 19 complex consumer banking projects. It focuses on leadership in product development projects by exploring which leaders are involved; how, and in what capacities. The paper reports the results using seven case cameos (see Appendix) to illustrate findings and to highlight those leadership practices that differentiate the more successful new product development (NPD) projects from the less successful. The implications of the results are discussed, particularly the way in which leadership practices engendered a distinctly microclimate in the more successful projects regardless of the overall business climate of the parent organisation.

118

Creating a project climate for successful product innovation


Paul Harborne and Axel Johne

Theoretical background McDonough (2000) and Brown and Eisenhardt (1995) among others have highlighted the importance of leadership in project team success. A careful distinction needs to be made between leadership and management. Bryman (1992) summarises leadership as an emphasis on motivation, empowerment and change; management as an emphasis on control, compliance and routine. For the purposes of this paper, we define leadership as the choice of the direction of activity and the establishment of a working environment that positively encourages and supports that activity. Ahmed (1998) has described the key leadership task in business as ``scene-setting'' ± creating the goals and the business climate to deliver results. Management, on the other hand, is focused on effective delivery; that is to say, ``doing things right'' (Bennis and Nanus, 1985). Indeed, an effective leader may not be a good manager; but will need good managers, if the business vision is to be made reality. Both Brown and Eisenhardt (1995) and McDonough (2000) have reflected on the paucity of understanding of leadership practices in product development projects. They highlight a need for empirical research not only into leadership practices within development project teams, but also into how leadership style, that is the leader's approach to dealing with people and tasks affects product development project success. Our review of the literature for this purpose embraced three main strands ± product development, team-working and leadership. The importance of the last two strands is highlighted in the first. There is an extensive literature into success factors for new product development (NPD), including some specifically addressing new service development (Johne and Storey, 1998; Cooper et al., 1994; Hart, 1993; Iwamura and Jog, 1991; Cooper and de Brentani, 1991; de Brentani, 1989). This literature has identified a wide range of product, process and system factors affecting the effective and efficient management of development projects. The wide range of factors is unsurprising when product development projects can deliver outcomes ranging from simple product improvement to launching a completely new business.

Many of the success factors for NPD rely on interpersonal and interdepartmental co-operation ± on people working together successfully in teams. However, Hitt et al. (1996) argue that little is known about how cross-functional teams affect project success. The team-working literature (Griffin and Hauser, 1996; Quinn et al., 1996; Hershock et al., 1994; Drucker, 1994; Donnellon, 1993; House and Price, 1991; Johne and Snelson, 1990) deals mainly with essential factors involved in setting up effective teams. Some analysts, notably McDonough and Barczak (1991), Clark and Wheelwright (1992) and McDonough (1993), have examined how team autonomy, i.e. freedom to self-manage activities, affects NPD project success. McDonough and Barczak (1991) found that in development projects, empowerment of a team by the project leader could improve timely completion. These results foreshadow Avery's (1999) recommendations on collaborative leadership and the use of `ìntegrative power'', namely the ability to energize and focus, rather than authority or position power. He argues that effective leaders create more power by sharing power. In this way they gain commitment as well as control. Sharing power means reducing centralisation but not necessarily formalisation. Sividas and Dwyer (2000) warn that senior management support in NPD projects can hinder opportunistic behaviour if it is accompanied by an increase in centralisation. Conversely, they argue that formalisation can be helpful to innovation, by setting a common direction and specific project goals. Chandy and Tellis (2000) argue that incumbent businesses in an industry are subject to constraints that do not apply to new entrants. Partly this is due to size and bureaucracy but also to the legacy of organisational routines built over time around existing products and markets. Radical innovation means major change to organisational routines and carries personal risk for participants, so it is in the incumbents' interests to avoid radical innovation (Kanter, 2001). Radical innovation can considerably increase the personal risk of leaders in incumbent businesses ± to their current jobs, to their authority and to their future ± due to the potential impact of innovation on their knowledge base and competences.

119




Chandy and Tellis (2000) found support for previous studies, such as Utterback and Abernathy (1975), that have suggested new entrants enter a market through radical innovation because for them the risk of not innovating is higher than it is for incumbent businesses. If new entrants do not innovate, then target market entry and revenues will not be achieved. Hence, young firms focus on product innovation, while incumbent businesses concentrate on cutting costs, that is to say, process innovation (Cohen and Klepper, 1996; Scherer, 1991: Pavitt et al., 1987; Davies, 1979; Utterback and Abernathy, 1975). This suggests that one can expect to find different attitudes to product innovation between leaders of incumbent businesses and leaders of new businesses, arising out of their different legacies and goals. This does not mean that mature businesses cannot be innovative. Zien and Buckler (1997) have identified a number of key principles for how incumbent businesses can stay innovative; they recommend that these businesses should: . treasure an identity as an innovative business; . be truly experiential in all functions; . structure strong, direct relationships between technical and marketing specialists; . generate customer intimacy; . engage the whole organisation; . never forget the individual; and . tell and embody powerful, purposeful stories which embrace both founding and ongoing activities. Zien and Buckler (1997) found that in successful innovative incumbent businesses, senior leadership consciously feeds a context that fortifies these principles and also stimulates links and loops between them. Of the many factors contributing to new product project success, leadership has been highlighted as having considerable importance. McDonough (2000) in a survey of cross-functional teams and what managers perceive as present in successful projects, found that three factors were mentioned most often ± clear goals, team leadership, and cooperation. Team leadership was particularly prominent in the replies. Analysis of the extensive general leadership literature reveals a progression from the assumption that

leaders have intrinsic qualities (traits) ± the ``born'' leader ± to an assumption that leadership comprises a number of competences that can be learned through training and experience (Tannenbaum et al., 1961). Current leadership literature takes an eclectic view of personal traits and competences based on the assumptions that: leadership competences can be taught; leadership style needs to be varied to suit the circumstances (contingency theory); certain physical traits such as eyes, voice and looks help in persuasive communications, and mental traits such as courage are necessary for business as well as military leadership.

Tasks of the leader The literature on the key leadership tasks (McGill and Slocum, 1998; de Vries, 1996; Heifetz and Laurie, 1997; Kotter, 1996; Dougherty and Hardy, 1996; Brown and Eisenhardt, 1995; Bryman, 1992; Bennis and Nanus, 1985; Burgelman, 1983; Tannenbaum et al., 1961) demonstrates a surprising degree of convergence on the following key tasks: . setting vision and direction; . directing desired behaviour; . creating an environment and climate to free abilities; . deploying self to maximum effect; and . being seen to take responsibility. The tasks represent a mixture of outward and inward directed tasks. The task ``deploying self'' reflects the different competences that leaders may have, and how, despite the many demands on their time, they need to focus their particular strengths. In small businesses this may even include delivering professional services such as marketing for important projects. The last task (being seen to take responsibility), may appear to be self-evident, but in an environment where teams are assuming ever increasing responsibilities, Kotter (1996) exhorts leaders to take responsibility explicitly for overall performance. This can give a highly visible message of support for others in a business. Discharging leadership tasks successfully in the current challenging business environment requires more than simply following a process (Goleman, 2000). Indeed, study of leaders such as Iacocca, Welch, Branson and Gates

120




has concentrated on their leadership style. Analysis of leadership style ± the way in which an individual leader approaches tasks ± has particularly explored the leader's balance between task-focus and people-focus (Likert and Likert, 1976; Fiedler and House, 1994). A focus on task is described as autocratic; a focus on people as participative. However, past studies of leadership have concentrated on general business practices. There is, therefore, a lack of knowledge concerning leadership styles for development projects (Brown and Eisenhardt, 1995). This gap in knowledge is accentuated by an undue focus of leadership research on the ``hero'' leader ± usually the head of a business (Bryman, 1992). Hero leadership literature is based on the assumption that the transformation of businesses is due to a single charismatic leader. However, Bower (1997), amongst others, has commented that in his experience, a single leader cannot do it all and businesses are for this reason resorting to multiple leaders and leadership teams. Bartlett and Ghoshal (1995), de Vries (1996), Avery (1999) and Goleman (2000) in studying the changing responsibilities of top management have argued for a need for personal contact between a leader and his/her colleagues in order to share understanding and commitment. This is often easier in new entrant businesses. However, those analysts arguing for closer personal contact between a leader and his/her colleagues claim that this can be achieved in larger businesses by replacing traditional hierarchical structures, ruled by `èmperor'' leaders (Kotter, 1996) with collaborative, team-based structures in which power is shared through personal relationships. Moreover, a non-hierarchical, team-based structure suggests the existence of leaders below the CEO, hence a consideration of leadership styles needs to include more than the head of a business (Avery, 1999; Goleman, 2000).

roles, whilst Burgelman (1983) suggested that leadership is a strategically important business development task which can benefit from being addressed by more than one leader. Burgelman (1983) identified three different leaders in major development projects: (1) A senior leader (typically the CEO) responsible for overall strategic direction and resource budgets. This is the ``project sponsor''. (2) A business leader (typically a business unit head) responsible for selection of projects. This is the ``business champion'' for a project. (3) A project leader responsible for delivering project objectives and accountable for success. This is the ``project champion''.

Multiple leaders

It is argued that the process promotor affects success levels in manufacturing firms through conflict management and improving information flow. Hauschildt and Kirchmann (2001) highlight the fact that one of the key roles of the process promotor is to improve co-operation between the other promotors. All of these studies were of large, multidivisional businesses. We have found no

To date there has been little exploration of the impact of leadership style below the CEO of a business. This is a surprising omission given the realisation since the 1980s that successful businesses depend on more than one leader. For example, Maidique (1980) referred to the use of ``champions'' performing leadership

More recently analysts, such as Bower (1997), Heifetz and Laurie (1997), GemuÈnden and HoÈgl (1998), McGill and Slocum (1998) and Hauschildt and Kirchmann (2001) have also stressed that there is an emerging use of multiple leaders to deliver key business tasks. Long ago, Witte (1973) suggested that specific leaders, whom he describes as ``promotors'', are necessary to overcome each of two major barriers to innovation: first, organisational resistance to change; and second, technical ignorance. Recently, Hauschildt and Kirchmann (2001) have identified a third promotor responsible for breaking down a further barrier in complex innovation. They identify three promoters: (1) a power promotor to overcome organisational unwillingness to change; (2) a process promotor for complex innovation ± to overcome barriers from changed responsibility and also from indifference. A process promotor uses personal influence to show how the innovation fits the business; (3) a technical promotor to overcome organisational ignorance by educating people about the innovation and the underpinning technology.

121




evidence of studies of multiple leadership in new entrant businesses.

Leadership and climate The focus of recent research has been on leaders creating a climate or culture that promotes innovation and business success. The terms ``climate'' and ``culture'' are often used interchangeably but organisational climate is what creates organisational culture (Ahmed, 1998). Culture relates to internally held beliefs and so cannot be directly observed. Climate is formed by processes, reward systems and company ``storytelling''. It sets the cultural norms and behaviours. Recently a number of analysts have advocated an approach to leadership that creates an organisational climate involving less leadership and more empowerment of ``followers'' (Heifetz and Laurie, 1997; McGill and Slocum, 1998). McGrath and Macmillan (2000) support this change of focus for innovation. They suggest that one of the main practices of entrepreneurial leaders, such as would be expected in innovative new businesses or by `ìntrepreneurs'' in dynamic older businesses, is climate setting, to free talent and resources. Ahmed (1998) has focused on the impact of climate on innovation. He summarised previous definitional work on climate and culture particularly Schneider et al. (1996) and Denison and Mishra's (1995). Schneider et al.'s (1996) dimensions of climate: the nature of interpersonal relationships; the nature of hierarchy; the nature of work; and the focus of support and rewards, can all be set by the actions of business leaders. Empirical research carried out by Pascale et al. (1997) and by Bower (1997) in organisations ranging from the military to commercial companies indicates that the traditional control and command style of leadership is fading in favour of `èmpowered'' teams, governed by a common direction and common values. Ahmed (1998) has stressed that empowerment is only effective when there is a climate based on strong values, clear structure and boundaries, an action orientation, clear risk boundaries and clear accountability. McDonough (2000) suggests that the key role in innovation project leadership lies in enabling a team through setting task boundaries, sharing information,

obtaining resources, instilling a positive attitude and a leadership style which keeps the team challenged and focused. Norrgren and Schaller (1999) go further. They argue that project leader studies have erroneously focused on the formal position when the impact of leadership is on coworkers. They recommend leaders to encourage a positive climate for team working. McDonough (2000) in his survey of cross-functional development teams found senior managers, champions and project leaders mentioned as being involved in projects and highlighted their importance in engendering an appropriate project climate for influencing the behaviour of the project team. Accordingly, McDonough (2000) urges further research ± preferably case oriented ± to understand how each separate leader contributes to project success. This challenge was taken up in the study reported in the present paper.

Method Our study addresses both what leaders do in development projects and how they do it; that is to say, their leadership style. We deliberately focused on project rather than on continuing business success, following preliminary fieldwork when we were persuaded by the argument of industry experts that it is difficult to nominate consistently successful product developer businesses; hence it is more useful to focus on individual project success. Accordingly, a post hoc case study approach was chosen in order to develop an understanding of what individual leaders contribute to successful development projects and to identify best practices. The sample was a purposive sample of consumer financial service projects, initiated between 1997 and 1999. The projects were identified by managers in the businesses participating in the study. A total of ten businesses participated in the study, including major incumbent banks and new entrants from the building society, insurance and other industries. The CEOs initially approached to participate in the research were concerned about possible delays to projects through participation in the research. This meant that, in practice, access had to be restricted to only one leader in addition to the project leader.

122




We discovered that CEOs do involve themselves in product development projects and so, unsurprisingly, were very interested in the subject of the research. Their willingness to participate gave an excellent opportunity to understand ``high level'' business drivers and rationales. Project leaders, on the other hand, were well placed to understand and report on the specific activities taking place in complex development projects. Interviewing two members of the project leadership team ± a membership conforming to Burgelman's (1983) definition of senior, business and project leader ± provided insights at both the strategic and operational levels. The activities of the ``missing'' leader ± either the senior or the business leader was captured ``top down'' and ``bottom up'', in his way compensating for our inability to interview the third member of the leadership team. A total of 19 important projects are analysed of which ten were self-selected as having been executed significantly more efficiently than the other nine. We will refer to these as ``more'' successful. They met all important project success criteria. The other nine did not meet all the success criteria and were for this reason described as ``less'' successful though not necessarily failures. Each project studied represented a potentially important new business opportunity and it is of interest that in all but one of the participating businesses both project success and project failure had been experienced. We found that success in the case of important projects is commonly appraised against the following three criteria of performance: specification; cost; and time. These three criteria were adopted as measures of the dependent variable. Interviews were semi-structured with respondents being encouraged to talk, moderated only by a set of prompts which were unseen by the respondents. In almost all cases, the hour-long interviews were conducted by telephone, a medium which interviewees favoured strongly. The content of the interviews was analysed using a preprepared content analysis tool using scales derived from the literature (Johne and Snelson, 1990; Crawford, 1980; Brown and Eisenhardt, 1997; Kotter, 1996; Scott and Bruce, 1994; Mowday, 1979; Handy, 1995; Brenneman et al., 1998; Bartlett and Ghoshal, 1995) to enable a single coder to

produce consistent results across the 19 case studies.

Results In the Appendix, seven project cameos are provided to illustrate the findings. In all the projects studied it was possible to ascribe to certain key individuals one of the three types of leader responsibility suggested by Burgelman (1983), viz: senior leader; business leader; or project leader. This is a noteworthy though not necessarily surprising finding. As all the projects studied were of strategic importance, it is not surprising that more than one person assumed a leadership role. However, we found a clear difference between the more and the less successful projects in terms of interaction between leaders. In less successful projects, interaction between the three leaders was hierarchical, with interaction between senior leader and project leader being concentrated at the commencement when authorisation was required and only renewed at review milestones. It was not continuous throughout the project. We found that in the more successful projects there was easier interaction between all leaders throughout the project, regardless of hierarchical levels. Senior leaders encouraged relationships that `ènabled'' project success rather than relationships that demonstrated positional power. More than one respondent reported a senior leader being actively involved in a sub-group in which ``rank was left outside the door''. In successful projects the three leaders operated as a leadership team. Respondents commented that ``the CEO allowed people to deliver''; ``the involvement of Executive Directors showed the importance''; ``the project manager is pivotal ± backed by the sponsor''. Another commented that ``X (the project leader) did the briefing of the senior leader at each stage. Normally, the process is more formal''. The enabling style of the project leader was also highlighted: ``the project manager is the facilitator'', ``the project manager leads ± and in that sense the project team is self-managed''; ``we use a virtual team approach ± the project manager pulls the team together''. We found that development work was always subject to a formal process. However,

123




while all projects were subject to basically similar processes, the way the process was used by senior leaders could vary. This marked a fundamental difference between a leader using the process to maintain authority i.e. to control, and a leader using the process to serve project objectives, that is to say, to enable project delivery. The latter is an example of Brenneman et al.'s (1998) ``servant leadership'' concept. In our study we found that in the more successful projects, process was used to enable, whereas in the less successful projects it was used to control. Where it was used to enable, it built expectations and perceptions of the development team. For example, in one project the senior leader ``bent'' the process to recognise the need to build market learning. Conversely, where process was used to control, the project leader felt `òrphaned''. In one case, the project leader was compelled to take extreme steps to force the senior leader to become involved in a project that was ``stalling'' between review stages. The more successful projects were marked by interactive leadership. This we found is particularly important in respect of energising the whole development project team. Researchers such as Barnes and Kriger (1986) and Heifetz and Laurie (1997) have commented on the need to consider both formal and informal leadership communication styles. While formal communication is controlled and defined by formal business process, informal communication is set by business culture and the style of the leaders involved. We found communication within successful projects, both verbal and written, to be not only extensive but also a mixture of formal and informal. A number of respondents remarked on the unusually high level of informality experienced in more successful projects: ``there was lots of informal contact with the project leader and with the sponsor''; ``the senior executive was very interested ± his door was always open''; ``the key thing was communication ± to the top team and to the rest of the bank''; ``the project leader encouraged informal meetings''; ``the common theme was full business focus ± top, down and across''; ``the general informality was helped by co-location of the team away from main HQ''; ``there were lots of informal meetings between the package, project and programme managers''. Formal interaction

hardly varied between the more and the less successful projects; but, importantly, there was a marked variation in informal interaction. We also found differences in what we describe as hands-on leadership; namely, the extent of participation by leaders in the project. This was particularly important in respect of envisioning ± leading people through a common vision of the product concept. Project leaders of the more successful projects stressed the helpfulness of the senior leader and the way in which he/she demonstrated support by their hands-on involvement. This involvement ranged from leading sub-projects to being an active participant in pre-launch trials and then becoming an early adopter customer. More successful projects experienced significantly higher levels and longer duration of hands-on involvement by the senior leader. Respondents expressly commented on this: ``the CEO maintained informal contact throughout''; ``X was a frequent visitor to the project team''; ``the hierarchy has been collapsed, allowing the MD to get more involved''; ``the project sponsor ensured the direction was clear''. In a number of successful projects it was stressed how the senior leader had personally ensured a market focus, either through use of external expertise or in building the product concept.

Discussion and managerial implications The review of the literature identified a need to investigate not only what leaders do but also how they do it ± both leadership practices and leadership style. Our findings show clearly that greater success in complex development projects is differentiated not simply by leadership process. In all of the businesses studied there was evidence of multiple leadership of projects, involving the three major roles of ``senior'', ``business'' and ``project'' leadership. The difference between successful projects and less successful projects lies in the leadership style exhibited by the project leadership team. This is exemplified by the senior leader in respect of three aspects: ``servant'' leadership; ``hands-on'' leadership, and `ìnteractive'' leadership. Successful projects demonstrated participation by the senior leader over and above the senior leader role contained in

124




process manuals. Leadership style was found to moderate the impact of formal processes. A key component of Bartlett and Ghoshal's (1995) new style businesses is the empowering of employees to deliver business objectives. Empowerment is a modern version of the older term ``delegation'' ± giving junior employees both the responsibility and the authority to perform specific tasks. Doing this well requires high levels of support for the junior staff who are being empowered. Forrester (2000) has highlighted key principles for effective empowerment, embracing definition of objectives sought from empowerment, a focus on results, changing systems and supporting power sharers. We have found the leadership style in the more successful projects not only espoused empowerment but also fulfilled all of the key principles for both leaders and team members. However, a fundamental implication is that the senior leader must be willing to share power and to initiate a power sharing leadership style which may be at odds with his career experience where power normally comes with hierarchical level. This ``leap of faith'' will also apply to the business leader who is giving up position power. The new style establishes a new system for leading project work. It also establishes a very distinct project climate, which differentiates between more and less successful projects. As discussed above, business climate creates a specific culture of beliefs, attitudes and behaviours. It is determined by specific elements or dimensions of a business structure and systems. Ahmed (1998) has highlighted four dimensions of climate. The leadership style promoted by the leadership teams in the more successful projects was found to have paid particular attention to all of the following dimensions: . Dimension 1. The nature of interpersonal relationships was changed by the use of informal communications to supplement formality. All leaders were known to and visited the project teams to promote a more open interpersonal style of communication. . Dimension 2. The nature of hierarchy was changed. It existed for formal process purposes but for project activity it was subsumed into a team approach, particularly at project leadership level. This was highly visible to the project team. For example, in the project where

.

.

the senior leader led a sub-project and reported to the project leader on progress. Dimension 3. The nature of work was made clear by the project vision, communicated and re-inforced by the leadership team. Empowerment and increased informality focused on delivery rather than on process. Leaders showed by word and deed that team members were to use their professional and teamworking skills to share knowledge and deliver objectives. Dimension 4. The focus of support and rewards was on project outcome. Project objectives and the tasks to deliver these were specified in advance and the leadership team acted to enable these activities to proceed smoothly.

The seven project cameos provided in the Appendix illustrate that the business climates for incumbents and for new entrants were very different. As suggested in studies described in the literature review, climates were formalised, hierarchical and risk averse in incumbents. Conversely, they were informal, team-based and entrepreneurial in new entrants. Additionally, project microclimates within businesses were distinctly different for the more successful projects. In large, mature businesses they were also quite different from the prevailing business climate. The more successful projects in all businesses exhibited a micro-climate similar to the climate of new entrants throughout the project's duration. Micro-climates for less successful projects in the incumbents mirrored the climate of the parent organisation, suggesting that it is possible to create a ``micro-climate'' for a project which can improve success levels. The microclimates for less successful projects in the new entrants also mirrored the business climate of incumbents but not throughout the project. Initially, the project micro-climate mirrored that of the parent new entrant. It was only during the development process when senior management inaction `òrphaned'' the project that the project micro-climate changed to one that was more formalised, risk averse and hierarchical. Ancona and Caldwell (1992) have warned that teams over time become introspective, failing in their ``task co-ordinator'' role through an emerging belief that only they know what is required for success. Our study

125




suggests that similar results occur when a team is isolated or `òrphaned''. One of the new entrants claimed never to have had a less than successful project and it was noticeable that the small size of this business had permitted an `ìnvolving everyone'' approach for all projects, that is to say a consistent project micro-climate. However, pressure of work was beginning to threaten the effectiveness of even this innovative organisation. Subsequent study of it may reveal examples of a different project microclimate and lesser success. The concept of project micro-climates that even vary during a development is supported by Zien and Buckler (1997) who found that different micro-climates may exist at three major stages of an innovation project. Our study suggests that senior management action and inaction can contribute to the forming of such micro-climates. Furthermore, that an informal, open, and entrepreneurial climate requires continuous attention from senior management if it is not to revert to a formalised, hierarchical and risk-averse one.

Conclusions Our study has explored the way major new product development projects are currently led in a part of the highly competitive UK consumer financial services market. Included were both incumbents and new entrants. We found that both employed very similar leadership practices for successful development projects. The clear implication is that a particular leadership style is most effective for complex new service development projects regardless of the parent business. Additionally, a key outcome of the project leadership team is the creation and maintenance of a specific project microclimate. Hence senior leaders should only consider adoption of this leadership style ± and project micro-climate ± but not before first having considered the implications of this for both themselves and their business. Particular attention needs to be given to the following: . Personal ``comfort'' with sharing power and effectively empowering junior leaders. . Acceptance of more informal work relationships and of informal processes.

.

.

Impact on personal workload of becoming involved in innovation projects and whether adjustment to organisational structure or reduction in the number of innovation projects is required. The requirement of either establishing a new business climate or accepting that innovation projects may have different micro-climates.

McDonough (2000) has commented that rapid change, diffusion of technology and global competition have `ìntensified the need for complex and highly novel product innovation''. Our study found that top management of UK financial service businesses to be in agreement with this assertion. CEOs recognise that product development is critical to business success in turbulent financial service markets and that achieving development project success is a key top management task. Our qualitative study has explored the way development projects are currently organised in the competitive UK financial services market and has found important differences in the way successful development projects are being led. Unsurprisingly, we found that all businesses in our sample had documented product development processes. It is our findings on leadership teamwork and the link between a particular leadership style and project success that is quite new. We have found that it was the leadership team's style superimposed on formal operating procedures that is the key difference between more and lesser success. We found that the leadership team of successful projects typically involves three leaders from different hierarchical levels who share aspirations, information and responsibilities and who work together with a common vision and style. This is clearly illustrated in the cameo cases. Further, our investigation suggests that the leadership team's style is set and exemplified by the senior leader. It is, however, important to stress that senior leaders in successful projects do not attempt to micro-manage, despite their high level of involvement. This would be just another form of ``command and control'' leadership. Co-leadership neither leads to abnegation of responsibility by any of the three leaders, nor to the automatic assumption of authority by the senior leader. Successful projects were distinguished by the project micro-climate that was

126




engendered by the leadership team. We found this spanned different businesses regardless of size, maturity and the overall corporate business climate. Our findings suggest that it is possible to create a micro-climate in a project that increases success levels through actions of a project leadership team. In successful projects empowerment was practiced and supported by all leaders through processes and systems. The focus was on results and achieving common objectives and project goals. This marked a clear change of leadership focus from command and control to enabling projects. It was a change from authoritarian leadership to servant leadership.

References Ahmed, P.K. (1998), ``Culture and climate for innovation'', European Journal of Innovation Management, Vol. 1 No. 1, pp. 30-43. Ancona, D.G. and Caldwell, D.E. (1992), ``Bridging the boundary: external activity and performance on organisational teams'', Administrative Science Quarterly, Vol. 37, pp. 634-65. Avery, C.M. (1999), `Àll power to you: collaborative leadership works'', The Journal for Quality and Participation, Vol. 22 No. 2, pp. 36-40. Barnes, L.B. and Kriger, M.P. (1986), ``The hidden side of organizational leadership'', Sloan Management Review, Fall, pp. 15-25. Bartlett, C.A. and Ghoshal, S. (1995), ``Changing the role of top management'', Harvard Business Review, May-June, pp. 132-42. Bennis, W. and Nanus, B. (1985), Leaders ± The Strategies for Taking Charge, Harper & Row, London. Bower, M. (1997), The Will to Lead: Running a Business Network of Leaders, Harvard Business School Press, Boston, MA. Brenneman, W.B., Keys, J.B. and Fulmer, R.M. (1998), ``Learning across a living company: the Shell companies experience'', Organizational Dynamics, Vol. 27 No. 2, pp. 61-9. Brown, S.L. and Eisenhardt, K.M. (1995), ``Product development: past research, present findings and future directions'', Academy of Management Review, Vol. 20 No. 2, pp. 343-78. Brown, S.L. and Eisenhardt, K.M. (1997), ``The art of continuous change: linking complexity theory and time paced evolution in relentlessly shifting organizations'', Administrative Science Quarterly, Vol. 42 No. 1, pp. 1-34. Bryman, A. (1992), Charisma and Leadership, Sage, London. Burgelman, R.A. (1983), `À process model of internal corporate venturing in the diversified major firm'', Administrative Science Quarterly, Vol. 28, pp. 223-44.

Chandy, R.K. and Tellis, G.J. (2000), ``The incumbent's curse? Incumbency, size and radical product innovation'', Journal of Marketing, Vol. 64, pp. 1-17. Clark, K.B. and Wheelwright, S.C. (1992), `Òrganising and leading `Heavyweight' development teams'', California Management Review, Vol. 34 No. 3, pp. 9-28. Cohen, W. and Klepper, S. (1996), ``Firm size and the nature of innovation within industries: the case of product and process R&D'', Review of Economics and Statistics, Vol. 78 No. 2, pp. 232-43. Cooper, R. and de Brentani, U. (1991), ``New industrial financial services: what distinguishes the winners'', Journal of Product Innovation Management, Vol. 8 No. 1, pp. 75-90. Cooper, R., Easingwood, C., Edgett, S., Kleinschmidt, E. and Storey, C. (1994), ``What distinguishes the top performing new products in financial services?'', Journal of Product Innovation Management, Vol. 11 No. 4, pp. 281-99. Crawford, C.M. (1980), ``Defining the charter for product innovation'', Sloan Management Review, Fall, pp. 3-12. Davies, S. (1979), The Diffusion of Process Innovation, Cambridge University Press, Cambridge. de Brentani, U. (1989), ``Success and failure in new industrial services'', Journal of Product Innovation Management, Vol. 6, pp. 239-58. de Vries, M.K. (1996), ``Leaders who make a difference'', European Management Journal, Vol. 14 No. 5, pp. 486-93. Denison, D.R. and Mishra, A.K. (1995), ``Towards a theory of organisational culture and effectiveness'', Organisational Science, Vol. 6 No. 2, pp. 204-23. Donnellon, A. (1993), ``Cross-functional teams in product development ± accommodating the structure to the process'', Journal of Product Innovation Management, Vol. 10, pp. 377-92. Dougherty, D. and Hardy, C. (1996), ``Sustained product innovation in large mature organizations: overcoming innovation-to-organization problems'', Academy of Management Journal, Vol. 39 No. 5, pp. 1120-53. Drew, S. and Coulson-Thomas, C. (1996), ``Transformation through teamwork: the path to the new organization?'', Management Decision, Vol. 34 No. 1, pp. 7-17. Drucker, P. (1994), ``Theory of the business'', Harvard Business Review, September/October, pp. 95-105. Fiedler, F.E. and House, R.J. (1994), ``Leadership theory & research: a report of progress'', in Cooper, C.L. and Robertson, I.T. (Eds), Key Reviews in Managerial Psychology, chapter 3, John Wiley & Son, Chichester. Forrester, R. (2000), `Èmpowerment: rejuvenating a potent idea'', The Academy of Management Executive, Vol. 14 No. 3, pp. 67-80. GemuÈnden, H.G. and HoÈgl, M. (1998), ``Teamarbeit in innovativen Projekten: Eine kritische Bestandsaufnahme der empirischen Forschung'', Zeitschrift fuÈr Personalforschung, Vol. 12 No. 3, pp. 247-58. Goleman, D. (2000), ``Leadership that gets results'', Harvard Business Review, March/April, Vol. 78 No. 2, pp. 78-90.

127




Griffin, A. and Hauser, J. (1996), `Ìntegrating R&D and marketing: a review and analysis of the literature'', Journal of Product Innovation Management, Vol. 13 No. 3, pp. 191-215. Handy, C. (1995), ``Trust & the virtual organisation'', Harvard Business Review, May/June, pp. 40-50. Hart, S. (1993), ``Dimensions of success in new product development: an exploratory investigation'', Journal of Marketing Management, Vol. 9, pp. 23-41. Hauschildt, J. and Kirchmann (2001), ``Teamwork for innovation ± the troika of promoters'', R&D Management, Vol. 31 No. 1, pp. 41-9. Heifetz, R.A. and Laurie, D.L. (1997), ``The work of leadership'', Harvard Business Review, January/ February, pp. 124-34. Hershock, J., Cowman, C.D. and Peters, D. (1994), ``From experience: action teams that work'', Journal of Product Innovation Management, Vol. 11, pp. 95-104. Hitt, M.A., Nixon, R.D., Hoskisson, R.E. and Kochhar, R. (1996), ``The birth, life and death of a crossfunctional new product design team'', Marketing Science Institute Working Paper Report, pp. 96-111. Hobday, M. (2000), ``The project based organisation: an ideal form for managing complex products and systems?'', Research Policy, Vol. 29, pp. 871-93. House, C. and Price, R. (1991), ``The return map: tracking product teams'', Harvard Business Review, January/ February, pp. 92-100. Iwamura, A. and Jog, V. (1991), `Ìnnovators: organizational structures and management of the innovation process in the securities industry'', Journal of Product Innovation Management, Vol. 8 No. 2, pp. 104-16. Johne, F.A. and Snelson, P.A. (1990), Successful Product Development, Blackwell, Oxford. Johne, F.A. and Storey, C. (1998), ``New service development: a review of the literature and annotated bibliography'', European Journal of Marketing, Vol. 32 Nos 3/4, pp. 184-251. Kanter, R.M. (2001), Evolve!, Harvard Business School Press, Boston, MA. Kotter, J.P. (1996), Leading Change, Harvard Business School Press, Boston, MA. Likert, T.J. and Likert, J.G. (1976), New Ways of Managing Conflict, McGraw-Hill, London. McDonough, E.F. III (1993), ``Faster NPD: Investigating the effects of technology and the characteristics of the project leader and team'', Journal of Product Innovation Management, Vol. 10 No. 2, pp. 241-50. McDonough, E.F. III (2000), `Ìnvestigation of factors contributing to the success of cross-functional teams'', Journal of Product Innovation Management, Vol. 17, pp. 221-35. McDonough, E.F. III and Barczak, G. (1991), ``Speeding up NPD: the effects of leadership style & source of technology'', Journal of Product Innovation Management, Vol. 8 No. 3, pp. 203-11. McGill, M.E. and Slocum, J.W. (1998), `À little leadership please'', Organizational Dynamics, Winter, pp. 39-49. McGrath, R.G. and Macmillan, I.C. (2000), The Entrepreneurial Mindset, Harvard Business School Press, Boston, MA.

Maidique, M.O. (1980), `Èntrepreneurs, champions & technological innovation'', Sloan Management Review, Winter, pp. 59-76. Mowday, R.T. (1979), ``Leader characteristics, self confidence and methods of upwards influence in organisational decision situations'', Academy of Management Journal, Vol. 22 No. 4, pp. 709-25. Norrgren, F. and Schaller, J. (1999), ``Leadership style: its impact on cross-functional product development'', Journal of Product Innovation Management, Vol. 16, pp. 377-84. Pascale, R., Milleman, M. and Gioja, L. (1997), ``Changing the way we change'', Harvard Business Review, November/December, pp. 127-39. Pavitt, K., Robson, M. and Townsend, J. (1987), ``The size distribution of innovating firms in the UK 1945 1983'', Journal of Industrial Economics, Vol. 35 No. 1, pp. 291-316. Quinn, J., Anderson, P. and Finkelstein, S. (1996), ``Managing professional intellect: making the most of the best'', Harvard Business Review, March/April, pp. 71-80. Scherer, F.M. (1991), ``Changing perspectives on the firm size problem'', in Acs, Z. and Audretsch, S. (Eds), Innovation and Technology Change, Harvester Wheatsheaf, New York, NY. Schneider, B., Gunnarson, S.K. and Niles-Jolly, K. (1996), ``Creating the climate and culture of success'', Organisational Dynamics, Vol. 24, pp. 17-23. Scott, S.G. and Bruce, R.A. (1994), ``Determinants of innovative behaviour'', Academy of Management Journal, Vol. 37 No. 3, pp. 580-607. Sethi, R. (2000), ``New product quality and product development teams'', Journal of Marketing, Vol. 64, pp. 1-14. Sividas and Dwyer (2000), `Àn examination of organisational factors influencing new product success in internal and alliance-based processes'', Journal of Marketing, Vol. 64, pp. 31-49. Tannenbaum, R., Weschler, I. and Masserik, F. (1961), Leadership and Organization: A Behavioural Science Approach, McGraw-Hill, London. Utterback, J.M. and Abernathy, W.J. (1975), `À dynamic model of process and product innovation'', Omega, Vol. 3 No. 6, pp. 639-56. Witte, E. (1973) Das Promotoren-Modell, Organisation fuÈr Innovationsentscheidungen, GoÈttingen. Zien, K.A. and Buckler, S.A. (1997), ``Dreams to market: crafting a culture of innovation'', Journal of Product Innovation Management, Vol. 14, pp. 247-87.

Appendix. Case cameos Bank P The business is a large, multi-national bank, a multi-product incumbent in the UK consumer financial services market. Business processes are structured and formalized with hierarchically managed functional departments brought together in multidisciplinary project ``virtual'' teams which develop and launch products before handing over to product managers. Business culture is

128




changing but is still that of a large, long established organisation. Failure is starting to be accepted but reluctantly ± managers are still risk averse. However, the need for innovation is recognised and supported at Board level. Case 1 The more successful project involved augmentation of a basic financial product to offer a range of additional professional services. Its senior leader was a Board member who was active in communicating and notably said that his ``door was always open'' for the project team. Additionally, he acted as a high-level communications gateway ± both to other senior executives and with the business and project leader through both formal reviews and reports and also frequent informal communication. The three leaders had clear roles and responsibilities but cooperated to deliver the project objectives. Respective leaders and the development team were given freedom to manage their activities subject to the mandatory processes and expenditure authority levels. They promoted the same informal communication style for the project team and the result was heavy use of informal and ad hoc meetings to progress development. The project was divided into work packages and the owners encouraged to ``get deliverables done''. The senior leader influenced the membership of the project team with departmental heads made to understand the importance of the project to the business and hence allocating experienced personnel. The intent was to create a ``virtual team approach ± the project manager pulls the team together''. However, the project leader was a relatively inexperienced project leader, although established within the business. He was given what he described as a ``blank sheet of paper'' to develop the product, although guided towards an external NPD consultant to detail the product specification at an early stage, and to ``focus on customer needs''. Coaching and support came from both the senior and business leaders. Case 2 The less successful project was within the same business but involved developing a product with a large travel company. Systems and processes were identical to the more successful project but after the project business case had been authorized, the project

had failed to get senior management interest and support. This was surprising given the partnership with another large business and the fact that there was a need to get the product to market as quickly as possible. The lack of senior level involvement led to very formal processes and a slow development. Contact with senior management was confined to formal reports and progress review meetings. The senior leader did not contact the project leader informally; it was unclear whether there had been any informal contact with the business leader who in any case confined his contact with the project to formal reviews. He was the project leader's line manager and contact was mainly hierarchical and formal. The project team had been set up in the normal way with nominees from the different functions but the departmental heads were not influenced to assign particular people and so the project leader did not have any choice in project team members. Subsequently, as the project progressed slowly, it became difficult to get the necessary resources ± both quantity and quality ± to recover. The project leader was simply told to ``get on with it'' when he asked for help. Bank Q The business is a newcomer to the UK consumer financial services market but part of a large multi-national diversified business. Business processes are structured but the business is small and based on a concept of `ìnvolving everyone''. The focus is on the short term ± ``typically six months'' ± and the use of projects to deliver strategic objectives within that period. Formal business cases are required before any new project can be initiated but product concepts are presented to the Board at an early stage to gain authorisation to develop them sufficiently to build a business case. The business structure is that of hierarchically managed functional departments brought together in multidisciplinary project teams which develop and launch products before handing over to product managers. However, the small size of the business means that the hierarchy is flat and co-location of the project team is normal. The business culture is not that of a large established business, although business success is leading to an increase in business size, which is testing the current informal ``small business'' culture. Decision-making is

129




quick and `èntrepreneurial''. Failure is accepted as part of learning but discouraged due to impact that major failure could have on business finances and the brand. Nevertheless, the need for innovation is recognised and encouraged at Board level. Senior level sponsorship is well established, including involvement in important projects. Again this reflects the flat hierarchy and the `ìnvolving everyone'' culture. A business leader has responsibility for specific business areas and will be involved in the project development given its potential impact on his business area. There is little banking experience in the business but considerable levels of marketing and product management experience in other industries. This is regarded as a strength and an aid to differentiating the business from the incumbents. Project leaders are expected to lead projects to deliver project objectives, specified as part of the initial business case, and to fulfil the requirements of the mandatory processes ± ``the project manager leads and in this sense the project team is self managed''. Moreover, the project leader has freedom to choose the technology, team members and the development approach. The key driver is getting results and the involving-everyone culture is believed to deliver ``well developed'' products. It is the ``common theme of a full business focus ± top, down and across'' ± on every project that is the business strength. In fact the business was reported as never having had a project failure; all projects had been very successful. An example of these very successful projects was the development of a savings product accessible remotely 24 hours every day. Case 3 This project involved use of telecommunications technology to provide the distribution channel, but the product being developed was a savings product forming a component of a combined savings and investment account. It involved partnership with a large bank to provide the savings expertise required to specify and develop the product. The senior leader for this project was a Board member who was active in communicating and ensuring good working relationships with the partner company. He was actively involved in this throughout the development, providing the ``direction and driving force''. Additionally, he maintained contact with the

business and project leader through both formal reviews and reports and also frequent informal communication. This informality extended to contact between the business and project leader and between these two leaders and the development team. Informal contact between the senior leader and team members was also frequent but owed much to the small size of the business. The senior leader's involvement was particularly helpful in resolving a resource issue caused by priority conflicts within the business. The three leaders had clear roles and responsibilities but co-operated to deliver the project objectives. Respective leaders and the development team were given freedom by the senior leader to manage their activities subject to the mandatory processes and the product concept. The business leader was an experienced product manager and had worked with the project leader on other projects. Similarly the project leader was an experienced project leader with product management experience. In general the project team had considerable experience in developing products in short timescales. Bank R The business is a large bank, which although it has considerable experience in UK savings and loans is a newcomer to the multi-product UK consumer financial services market. Business processes are structured and formalized. There is a business vision, a strategic plan, a high-level development strategy (owned by the corporate planning department) and an annual planning and budgeting process. Project and product management processes are established but are described as ``preferred'' and not yet mandatory. Business culture is changing but is still that of a large long established organisation. However, the business approach is described as ``results rather than bureaucracy'', reflecting a desire to change. The business is risk averse, although the need for innovation is supported at Board level. Case 4 This more successful project involved the development of a credit card augmented to be perceived as a ``rich'' product rather than a ``me-too'' product competing on core features. It involved the use of consultants and partners to provide expertise in NPD, marketing and credit card processes.

130




The senior leader for this project was a Board member who was active in communicating and ensuring good working relationships with the partner company During the project the business merged with another business and the project came under heavy senior level pressure ± successfully resisted by the senior leader ± to adopt the card platform of the other company. Whilst maintaining formality, he also used extensive informality in frequent contact between the business and project leaders for briefing meetings and discussions on progress. This was explicitly raised by the project leader ± `Ì did the briefing of the sponsor at each stage ± normally the process is more formal''. There were also frequent informal meetings of the senior, business and project leaders. The business and project leaders mirrored this informality in their contact with the development team, encouraging the team to interact more frequently, including use of the business e-mail system as a method of quick and informal communication. Informal contact between the senior leader and team members was infrequent. The three leaders had clear roles and responsibilities but co-operated to deliver objectives. Respective leaders and the development team were given freedom to manage their activities subject to cost and timescale objectives, to meet a crucial market opportunity window. Case 5 This less successful project involved developing a tailored credit card for another business. Senior management was involved at the initial authorisation stage but did not develop into a strong sponsorship role. The senior manager stayed aloof and got involved only at reviews of progress and requests for further authorisation. As a result there was insufficient ``buy-in'' within the business and `ìnsufficient appetite'' to devote necessary resources and attention. Whilst the project leader had both clear ownership of the overall project and a ``personal belief in the project'', she was unable to mobilise the resources of the business to deliver a successful project. The business leader had also stayed aloof from the project and was unwilling to support the project leader in asking for more substantial buy-in from the business as a whole. The project leader had formed the project team in the normal way and used the

business processes to progress the development; however, without senior level sponsorship the roles and responsibilities within the project were continually questioned and unclear. Eventually, the project leader, supported by the project team, presented a paper to the senior leader, which was in effect an ultimatum. Either the business provided the necessary support or the project leader would close the project. The senior leader accepted closure. Bank S The business is a newcomer to the UK consumer financial services market. Business processes are formalized but not mandatory. There is a business vision and guiding principles rather than a formal strategy. Project and product management processes exist but are not mandatory. They are intended to guide and can be ignored where they ``stifle'' innovation. Formal authorisation is required before any new project can be initiated but this is achieved by presentation to the Board and then a senior management group that allocates resources. The business structure is flat with functional departments brought together in multi-disciplinary project teams, which develop and launch products before handing over to product managers. There is a concept of `ènablers'' (innovation champions), `àchievers'' (such as IT specialists) and ``sustainers'' (customer service departments such as the call centres), all of whom are involved in development. Development is led by a member of a marketing and innovation unit, who would be the `ènabler'' and responsible to the business area owner (business leader) and the board sponsor (senior leader) for the project success. Business culture is that of a small business with risk taking and idea generation encouraged. The need for innovation is recognised and actively supported at Board level. A concept evaluation budget is maintained in the marketing and innovation unit. Senior level sponsorship is well established, including involvement in important projects, high-level communication and building of support across departments. Case 6 This more successful project was intended to offer sophisticated information services for

131




existing customers, accessible 24 hours every day. The senior leader was the Board member sponsor who was active throughout the project communicating and ensuring good working relationships with the rest of the business. He was actively involved in this throughout the development. Additionally, he maintained contact with the business and project leader through both formal reviews and reports and also frequent informal communication. The three leaders had clear roles and responsibilities but co-operated to deliver the project objectives. Respective leaders and the development team were given freedom to manage their activities subject to meeting the stringent project objectives. Members were encouraged to solve issues through small groups, using frequent informal contact. A key skill for team members was the ability to take a ``blank sheet approach'' ± i.e. to innovate rather than depend on previous experience or other received wisdom. The project leader was frequently involved in these

small groups but the team was encouraged to manage itself. Meeting objectives was the key criteria and these were well specified. Case 7 This less successful project was a more conventional banking product although distributed in an innovative way. It relied on previous developments and on team member's experience for expertise on distribution. However, the project team was comprised solely of bank employees and lacked an external focus. It was also much more formal in conduct and lacked the extensive informal contact of most projects in the business. Conversely the more successful project, described above, was much more informal than most development projects. Senior management was involved in agreeing the concept and the business case but then took little action thereafter. There was little involvement from a senior leader and the project leader was given little support, being expected to resolve issues and ensure that the project delivered to its objectives.

132

No title

No title

No title

No title

No title

No title

No title

No title

No title

No title

No title

No title

No title

No title

No title

No title

No title

No title

No title

No title

No title

No title

No title

No title

No title

No title

Recommend Documents