EDITORIAL
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Editorial
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his first issue of 2009 is devoted entirely to the theme ‘Managing the efficiencyflexibility tension in innovation: strategic and organizational aspects’, and includes five papers, all previously presented at the 2007 CINet annual conference brought together by Mats Magnusson, Paolo Boccardelli and Sofia Börjesson from Calmers University of Technology, the hosts of this Conference which took place in Göteborg, Sweden. In a separate introduction to this theme, each of these papers is introduced to you in further detail by the guest editors. You may also find in this issue the Call for Papers for the 2009 CINet Conference to be held in Brisbane, Australia (4–8 September 2009). In this editorial we would like to draw your attention to the nominees for the 2008 Tudor Rickards Award for the Best Paper published in CIM. You may find the shortlist of candidates below. By the time that you read this editorial, the votes from the editorial board will have been counted and our winners will be announced on our website (www.wiley. com/bw/journal.asp?ref=0963-1690). It is our intention to present the award to the winners during the 16th International Product Development Management Conference, which will be hosted by your CIM editors in Twente on 5–7 June 2009. We look forward to seeing many of you there. Please visit www.eiasm.org for more information on this event and for the next European Doctoral SummerSchool in Management of Technology (31 August–4 September) which is also supported by CIM (the Call for Papers is also included in this issue). Shortlist of nominees for the Tudor Rickards Award for the Best Paper in CIM in 2008:
A Theoretical Exploration, Illustrated by a Case of a Popular Music Festival, 3–13. • Ulrich Lichtenthaler and Holger Ernst, Innovation Intermediaries: Why Internet Marketplaces for Technology Have Not Yet Met the Expectations, 14–25. • Jan Kratzer and Christopher Lettl, A Social Network Perspective of Lead Users and Creativity: An Empirical Study among Children, 26–36. • Alexander Styhre and Michael Eriksson, Bring in the Arts and Get the Creativity for Free: A Study of the Artists in Residence Project, 47–57. Issue 17.3: • Jay J. Caughron and Michael D. Mumford, Project Planning: The Effects of Using Formal Planning Techniques on Creative ProblemSolving, 204–15. Issue 17.4: • Wim Vanhaverbeke, Vareska Van de Vrande and Henry Chesbrough, Understanding the Advantages of Open Innovation Practices in Corporate Venturing in Terms of Real Options, 251–8 We wish you an enjoyable reading of the current issue! Our June issue will include a TRIZ special and more! Enschede, December 2008 Petra de Weerd-Nederhof Klaasjan Visscher Olaf Fisscher
Issue 17.1: • Iván Orosa Paleo and Nachoem M. Wijnberg, Organizational Output Innovativeness:
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Managing the Efficiency-Flexibility Tension in Innovation: Strategic and Organizational Aspects Mats Magnusson, Paolo Boccardelli and Sofia Börjesson Introduction
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his special issue is based on papers presented at the 8th International CINet conference in Gothenburg, Sweden, 7–11 September 2007. The Continuous Innovation Network (CINet) is an international network constituting a platform for research and knowledge sharing in the field of continuous innovation. The articles in this special issue were selected among the 69 papers presented at the conference. A total of 13 papers were selected and invited to this special issue, which after the review process were reduced to the five articles that follow this editorial introduction.
The Efficiency-Flexibility Tension in Innovation The overall theme of this special issue is a central challenge posed to many of today’s firms, namely how to simultaneously handle flexibility and efficiency in innovation. This is a relevant question for research on continuous innovation, where topics related to exploration and exploitation of knowledge (March, 1991) have a central position. When focusing on how firms can manage their innovation activities in a way that combines operational excellence with long-term innovation and renewal, conflicting demands regarding strategy and organizing stemming from arguably incommensurable objectives rise to the surface. Much of the literature addressing new product development activities of a ‘steady-state’ innovation type deals primarily with efficiency in terms of cost and lead time reduction in development projects, e.g., through the use of stagegate models and lean principles (Cooper &
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Edgett, 2008). At the same time, it is also argued that radical, discontinuous or breakthrough innovations in many cases are fundamental for long-term survival and success. These types of innovations include more substantial components of newness, uncertainty and ambiguity, and require radically different prerequisites compared with traditional new product development projects of a more incremental nature. In fact, the tools and methods used to search for, select and implement steady-state innovations may act as obstacles to radical and discontinuous innovations. While the need to balance these different innovation types is not new, the competitive landscape of today forces firms to reach new levels of performance for both categories of innovation. The result is a delicate situation that many firms find themselves in, having to deal with long-term demands on renewal, change and flexibility in parallel with short-term needs for efficiency and profitability. Researchers as well as practitioners have had to deal with this problem for a long time, even to the point that it has become recognized as an unavoidable managerial trade-off or dilemma. However, as firms face increased pressure for cost reduction and at the same time need to radically change and improve products and processes, this trade-off is becoming increasingly difficult to handle, to the extent that there is a need to reconsider earlier suggested solutions and embrace new management ideas that can shift performance beyond the perceived trade-offs (Magnusson & Martini, 2008). That companies face problems when trying to attend to both flexibility and efficiency is, as mentioned earlier, definitely not new, and was noted already by Thompson (1967), who labelled it the ‘paradox of administration’. Several other authors have subsequently © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
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treated this specific trade-off (e.g., Adler, Goldoftas & Levine, 1999), sometimes using the terms dynamic and static efficiency (Ghemawat & Ricart I Costa, 1993). Surprisingly enough, there is little evidence for the established trade-off postulate (Adler, Goldoftas & Levine, 1999), and a number of companies over substantial periods of time have managed to defy the trade-off and remain both flexible and efficient. A question that arises from this observation is how companies that move beyond the trade-off actually manage to do so, and also what perspectives, frameworks and models can be applied in order to understand and contribute to this practice. The articles in this special issue address a number of aspects that are central to this question. Before turning to their specific contents, we will, however, outline the challenges involved in more detail through an exposition of some developments in the fields of strategic management and organization studies that can help us delineate some of the managerial challenges. The idea that a central part of strategic management is to choose between different incompatible alternatives, or to make tradeoffs between them, has a long tradition. In the strategy field, Porter (1980) points out the risk of getting stuck in the middle that firms run if they do not focus exclusively on a single basic strategy, such as, e.g., differentiation, cost leadership, or a focus strategy. Similar ideas have also been presented in the resource-based view of strategic management, in which the distinctiveness of resources has been advanced as a key source of competitive advantage. Also in this stream of strategic management theory, the trade-off between flexibility and efficiency is highlighted. As Grant (1991, p. 123) puts it: ‘there may be a trade-off between efficiency and flexibility. A limited repertoire of routines can be performed highly efficiently with nearperfect coordination – all in the absence of significant intervention by top management. The same organization may find it extremely difficult to respond to novel situations.’ Over time, this has been questioned and a more dynamic and processual view of strategic management has started to gain ground. In the more recent writings on dynamic capabilities (Teece, Pisano & Shuen, 1997; Eisenhardt & Martin, 2000; Teece, 2007), the emphasis on change in order to continuously match firm capabilities with a changing business environment has led to a need to value the adaptation and transformation of resources and capabilities over time. In the light of this development, the flexibility of resources also holds a potential value for firms, as underscored by Sanchez (1993, 1995) and Boccardelli and Magnusson (2006). The resulting need for a split strategic © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
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focus, taking into account both flexibility and efficiency is in line with the suggestion of Brown and Eisenhardt (1997) that firms competing in relentlessly shifting business environments need to develop semi-coherent directions, and follow and realize seemingly incompatible goals. One way of complementing established strategic management models would be to combine them with ideas from the field of entrepreneurship, where potentially useful models are emerging. Turning earlystage companies into established and successful firms requires a sequence of different changes to the bundles of resources and capabilities, which in many cases are driven by, or at least co-aligned with the evolution of business models, strategies and competitive dynamics (Teece, Pisano & Shuen, 1997; Boccardelli & Magnusson, 2006). With regard to organizing for flexibility and efficiency, we can first of all note that most established organizing principles are based upon an explicit focus on efficiency, and that these principles in many cases constitute an obstacle to innovation (Lester, Piore & Malek, 1998). On the other hand, the organizing solutions suitable for innovation may not attend sufficiently to efficiency. A common suggestion is therefore that these different types of activities should be organizationally separated in order to allow for the existence of differentiated sub-units applying different organizing principles within firms (see e.g., Christensen, 1997). Surprisingly, few attempts have been made to come up with principles and guidelines that can help managers create organizations that make it possible to combine flexibility and efficiency. One well-known exception is the work of Tushman and O’Reilly (1996), who use the notion of the ambidextrous organization, initially introduced by Duncan (1976). To remain successful over a long period, organizations must handle both radical and incremental change. The difficulty is that success tends to cause structural and cultural inertia, which often leads to failure when the environment changes. Therefore managers must periodically destroy the organizations that they have created in order to be able to reconstruct them in a way that better suits the changed situation (Tushman & O’Reilly, 1996). Ambidextrous organizations build in contradictions by taking the future as well as the present into consideration. Hence, the management of continuous streams of innovation is about the management of contradictions, a central one being that between flexibility and efficiency. Tushman and O’Reilly (1997) argue that management needs to accept and embrace these contradictions, or paradoxes, and they propose the concept of
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juggling as a metaphor for the necessary simultaneous handling of several inconsistent organizational architectures and cultures. While this analysis indicates the need to deal with both innovation and efficiency, it is slightly surprising to find that the authors propose a rather traditional way for how this should practically be done. During periods of incremental change, organizations require an efficiency-oriented focus. The resulting knowledge systems, however, tend to become ingrained and taken for granted. There is thus also a need for entrepreneurial parts in an organization, which result in new experience bases and knowledge systems. The coexistence of these traits requires that ‘the management team must not only protect and legitimize the entrepreneurial units, but also keep them physically, culturally, and structurally separate from the rest of the organization’ (Tushman & O’Reilly, 1997, p. 171). The conclusion that isolation of new innovation initiatives is a fruitful way to overcome large size and conservative culture is a suggestion that is far from new and has not always shown good results (Dougherty & Hardy, 1996). Hence, even though the analysis made by Tushman and O’Reilly (1997) is insightful and their suggested approach appears to be promising, it leaves both researchers and practitioners wanting as it does not try to move beyond the perceived trade-off, something that becomes fundamental if we instead attend to the flexibilityefficiency issue as a tension, duality or a paradox (Magnusson & Martini, 2008). In terms of innovation management practice, it can also be noted that there is a need for more explicit solutions not only at an overall firm level, but also at departmental and project levels. The articles in this special issue contribute to this need by addressing the flexibilityefficiency tension at different levels, ranging from business and technology strategies to project management and innovation audits. With the presented setting in mind, we will now turn to a brief outline of the individual articles and their contributions.
Articles in the Special Issue Christian Sandström and Mats Magnusson at Chalmers University of Technology have, together with Jan Jörnmark at the University of Gothenburg, investigated mechanisms at work when incumbents try to react to disruptive innovations. In the article ‘Exploring Factors Influencing Incumbents’ Response to Disruptive Innovation’, the authors focus their attention on the role of heterogeneity of incumbents as a factor to consider when trying
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to understand the effects of radical technological changes. In particular, they explore how the ability of incumbent firms to respond to disruptive innovations is influenced by their size and strategy. The ability to benefit from disruptive innovations has traditionally been assigned to entrepreneurial firms, which appear more capable of embracing discontinuities without locking their innovation options within the realm of the existing domains. Established firms, on the other hand, tend to lose out when faced with technological discontinuities. By conducting an in-depth case study of Hasselblad, a Swedish manufacturer of high-end professional cameras, this article explores some particular challenges that a firm with resource constraints and limited size encounters when its market is subject to radical discontinuities. Moreover, it indicates the usefulness of collaborations with external parties as a means to overcome the problems faced by incumbents when responding to a technological disruption. The observations from the study underline some earlier recommendations to management regarding how to deal with discontinuous innovations, but the article also highlights the need to carefully consider the heterogeneity of incumbents when elaborating upon suitable responses. The article ‘Re-orienting the Corporate Entrepreneurial Journey: Exploring the Role of Middle Management’ by Astrid Heidemann Lassen, Brian Vejrum Waehrens and Harry Boer at Aalborg University explicitly addresses the balancing act between exploration and exploitation in terms of the perceived difficulties for technology-based firms to catch up with market changes. From a theoretical point of view, the two notions are well known; however, there is relatively little known about how this sense of balance is actually achieved. The article points to the role of middle managers, who hold a central position in the firm and also simultaneously have influence. As argued in the article, middle managers are crucial for the negotiation between planned and emerging activities and their subsequent decisions – a social act and very often beyond their formal assignments and responsibilities, yet urgent. Furthermore, middle managers have key roles in reconciling market and technological knowledge, as well as negotiating and sanctioning ideas, and thus hold a central role in creating dual organizations. Nevertheless, this important role for middle managers is not given, but must be achieved through continuous development and implementation activities. Eric Brun from the University of Stavanger and Alf Steinar Sætre from the Norwegian University of Science and Technology in © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
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Trondheim address the management of ambiguity in innovation activities. In their article ‘Managing Ambiguity in New Product Development Projects’ they investigate how ambiguity, the existence of different interpretations of one and the same cue, can be handled in the early stages of development projects. Drawing on four case studies of product development projects in medical device companies, they illustrate a number of aspects that are not dealt with when focusing on the reduction of uncertainty. While the differences in dealing with ambiguity and uncertainty, respectively, have been outlined in earlier works, the contribution of Brun and Sætre lies in proposing a structured model that facilitates the understanding of what gives rise to ambiguity in innovation and how it is manifested. Even more importantly, they also outline how ambiguity can be managed to strike a balance between the needs for flexibility and operational efficiency in new product development projects. A key to doing so is to focus not only on the reduction of ambiguity, but its deliberate management, something that can imply that ambiguity at times is sustained or even increased. The proposed ideas are important for project management as they constitute a complement to the more established approaches, and open up for a more nuanced balancing of flexibility and efficiency at the level of the single innovation project. Lars Bengtsson and Robin von Haartman from the University of Gävle have, together with Mandar Dabhilkar at the Royal Institute of Technology in Stockholm, written the article ‘Low-Cost vs. Innovation: Contrasting Outsourcing and Integration Strategies in Manufacturing’. This article offers an investigation of the influence different outsourcing strategies have on the innovative performance of firms. A distinction is made between, on the one hand, low-cost-oriented outsourcing and, on the other, innovation-oriented outsourcing. Using data from a survey of a large number of Swedish manufacturing companies, the authors find that firms are faced with a trade-off between innovation and cost when it comes to outsourcing. A first important implication for management is therefore to strike the right balance between these two performance dimensions when considering outsourcing. Furthermore, the effect of integration when outsourcing, both between product development and manufacturing and between companies, is investigated. It is seen that integration plays an important role when complexity is high, but is less relevant when outsourcing is focused primarily on lowering costs. Altogether, the findings in the article shed new light on the need to © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
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manage firm boundaries in a way that takes into consideration both efficiency and flexibility. Among other things, this calls for a more nuanced view of redundancy in terms of activities and knowledge, as well as considerations of benefits and costs in both a shortterm and a long-term perspective. In the article ‘How to Use an Innovation Audit as a Learning Tool: A Case Study of Enhancing High-Involvement Innovation’, Erik Hallgren from the Technical University of Denmark deals with auditing innovation and innovative activities in firms. Innovation auditing is getting more diffused, but what is really known about how and what and why to measure? Many types of innovation auditing exist, although there are few descriptions of them being tested. Hitherto, quite little research effort has been put into examining their use and effect on companies, and even less into investigating if and how these audits could be used more efficiently. Also, when discussing innovation auditing and measurement, one must be clear about what kind of innovativeness or innovation capability that is being addressed: discontinuous radical new thinking or the need to be innovative in exploiting already known offers and technologies. In the article, Hallgren discusses some of the reasons for doing an innovation audit and examines a new, facilitated, interactive way of using an innovation audit to achieve or improve highinvolvement innovation. With a focus on small- and medium-sized enterprises, the article proposes a new perspective on innovation audits, building on a criticism of traditional ways of doing them, and suggests that a learning and participation perspective needs to be included in the audit in order to facilitate real change. Of particular value are the practical implications of this article, as most other works on innovation audits focus primarily on what to measure and put less emphasis on how the audit should be used. Based on the short descriptions above, it is easily seen that the scope of the articles taken together is wide, covering both strategic and organizational aspects at different levels of analysis. However, this broad approach to the overall question of flexibility and efficiency in innovation can be seen as a strength rather than a weakness as it should open up new opportunities for managing this complex issue. As mentioned initially, the flexibilityefficiency tension is a key issue for managers in many companies, and several established perspectives, frameworks and models used in strategy and organization studies no longer seem to be well suited for today’s more challenging competitive environment, in which the simultaneous handling of flexibility and
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efficiency often is a necessity and the need to shift beyond the perceived trade-offs or dilemmas become imperative. To take on this challenge is an ambitious task and a special issue can of course only present a few fragments to the solution of the overall puzzle facing researchers and practitioners. Nevertheless, we hope that the subsequent articles will constitute a few steps in a potentially fruitful direction, and trigger new investigations in this central field of continuous innovation.
Acknowledgements The guest editors would like to thank all reviewers for their great efforts to improve the manuscripts, and the editors of Creativity and Innovation Management for their most appreciated support in the finalization of the special issue.
References Adler, P.S., Goldoftas, B. and Levine, D.I. (1999) Flexibility Versus Efficiency? A Case Study of Model Changeovers in the Toyota Production System. Organization Science, 10, 43–68. Boccardelli, P. and Magnusson, M.G. (2006) Dynamic Capabilities in Early-Phase Entrepreneurship – Observations from Mobile Internet Start-Ups. Knowledge and Process Management, 13, 162–74. 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, 42, 1–34. Christensen, C.M. (1997) The Innovator’s Dilemma: When New Technologies Cause Great Firms to Fail. Harvard Business School Press, Boston, MA. Cooper, R.G. and Edgett, S.J. (2008) Maximizing Productivity in Product Innovation. Research Technology Management, March–April, 47–58. Dougherty, D. and Hardy, C. (1996) Sustained Product Innovation in Large, Mature Organizations: Overcoming Innovation-to-Organization Problems. Academy of Management Journal, 39, 1120–53.
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Duncan, R.B. (1976) The Ambidextrous Organization: Designing Dual Structures for Innovation. In Kilman, R.H., Pondy, L.R. and Slevin, D.P. (eds.), The Management of Organization Design. North Holland, New York, pp. 167–88. Eisenhardt, K.M. and Martin, J.A. (2000) Dynamic Capabilities: What Are They? Strategic Management Journal, 21, 1105–21. Ghemawat, P. and Ricart I Costa, J.E. (1993) The Organizational Tension between Static and Dynamic Efficiency. Strategic Management Journal, 14, 59–73. Grant, R.M. (1991) A Resource-Based Theory of Competitive Advantage: Implications for Strategy Formulation. California Management Review, 33, 114–35. Lester, R.K., Piore, M.J. and Malek, K.M. (1998) Interpretive Management: What General Managers Can Learn from Design. Harvard Business Review, March–April, 86–96. Magnusson, M. and Martini, A. (2008) Dual Organizational Capabilities: From Theory to Practice – The Next Challenge for Continuous Innovation. International Journal of Technology Management, 42, 1–19. March, J. (1991) Exploration and Exploitation in Organizational Learning. Organization Science, 2, 71–87. Porter, M. (1980) Competitive Strategy. Free Press, New York. Sanchez, R. (1993) Strategic Flexibility, Firm Organization, and Managerial Work in Dynamic Markets: A Strategic Options Perspective. Advances in Strategic Management, 9, 251–91. Sanchez, R. (1995) Strategic Flexibility in Product Competition. Strategic Management Journal, 16, 135–59. Teece, D.J. (2007) Explicating Dynamic Capabilities: The Nature and Microfoundations of (Sustainable) Enterprise Performance. Strategic Management Journal, 13, 1319–50. Teece, D.J., Pisano, G. and Shuen, A. (1997) Dynamic Capabilities and Strategic Management. Strategic Management Journal, 18, 285–305. Thompson, J.D. (1967) Organizations in Action. McGraw-Hill, New York. Tushman, M.L. and O’Reilly, C.A. (1996) Ambidextrous Organizations: Managing Evolutionary and Revolutionary Change. California Management Review, 38, 8–30. Tushman, M.L. and O’Reilly, C.A. (1997) Winning Through Innovation: A Practical Guide to Leading Organizational Change and Renewal. Harvard Business School Press, Boston, MA.
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Mats Magnusson (mats.magnusson@ chalmers.se) is associate professor at Chalmers University of Technology and director of the Institute for Management of Innovation and Technology. In 2008, he was also visiting professor at Aalborg University and at the University of Bologna. In addition, he is program director at Chalmers Advanced Management Programs, vice president of UNITECH International, and chairman of the Continuous Innovation Network. His main research interests are innovation management, resource-based strategy, management of knowledge and learning, innovation networks, and continuous improvement. Paolo Boccardelli is associate professor of strategy at the Department of Economics and Business at Luiss Guido Carli University, in Rome, Italy. He holds a PhD degree in Strategic Management of Innovation from Luiss University. His research interests include resource- and competence-based views of the firm, dynamic capabilities, entrepreneurship, and strategic management of innovation. He has published on these topics in books and international journals. Sofia Börjesson is associate professor in technology management at Chalmers University of Technology and is research director for the Center for Business Innovation. Her academic research field revolves around questions of how organizations change and develop with a focus on the management of R&D and innovation work. Current research includes green innovation management, innovative capabilities, and innovation as change.
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Exploring Factors Influencing Incumbents’ Response to Disruptive Innovation Christian Sandström, Mats Magnusson and Jan Jörnmark This paper explores how certain incumbent characteristics influence an established firm’s response to disruptive innovation. More specifically, it looks at the challenges a middle size, top segment company faced and how this affected its reaction to the disruptive threat. This is done by conducting an in-depth case study of Hasselblad, a manufacturer of professional cameras. It can be seen in this case study that Hasselblad’s limited resources and its niche strategy affected how it managed the transition from analogue to digital camera technology. These characteristics made it difficult to allow experimentation with digital imaging in the main business since the available resources were severely limited and this initially inferior technology could harm the brand image. Instead, Hasselblad pursued collaborations and eventually launched a hybrid camera, which was compatible both with film and digital backs but did not become the expected success. Being close to bankruptcy, the digital resources needed were acquired and the company eventually survived the disruption. In conclusion, this paper argues that the managerial challenges and solutions to the innovator’s dilemma depend upon the particular characteristics of incumbents and that this heterogeneity has not been sufficiently captured by previous literature. It also suggests that medium size, top segment firms can survive disruptive innovation through collaboration and acquisitions.
Introduction
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he concept of disruptive innovation (Christensen, 1997) has received much attention from both academics and practitioners. Nevertheless, there are several areas that have not so far received sufficient attention. One such aspect is the heterogeneity of incumbents. While the literature on disruptive innovation has proved that incumbents frequently fail in the transition from a sustaining to a disruptive technology, it has so far shown limited interest in the differences between established firms. In the discourse regarding disruptive innovation, incumbents are often treated as one population vis-à-vis entrants rather than as many populations with different resources, market positions and strategies. Contrary to this, it appears reasonable that the capacity to respond to disruptive innovations depends largely on the characteristics of the incumbent
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and consequently that the managerial solutions proposed need to take these differences into consideration. This paper investigates how certain incumbent characteristics influence the response to disruptive innovation. In particular, using an in-depth case study approach, it explores the challenges and managerial solutions for a medium size established firm in the high-end segment of its industry. The firm in question is Hasselblad, a manufacturer of professional cameras. Based on the observations made, it is argued that the managerial challenges and solutions to the innovator’s dilemma depend upon the particular characteristics of an incumbent and that this term needs to be nuanced further. Moreover, the article suggests that a medium size company in a high market segment can survive disruptive innovation through collaboration and acquisitions. This paper is organized as follows. The next section reviews the literature on disruptive © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
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innovation and entrant-incumbent dynamics. The subsequent section contains a description of the methods used in this paper. Then the case study about Hasselblad is presented in order to illustrate how a particular incumbent firm encountered severe problems, but eventually survived the disruption. The firm provides a particularly compelling example in that, despite early investment and recognition of the disruptiveness of digital imaging, it encountered problems in the transition to the new technology. The final section contains an analysis of the case study and a discussion about its theoretical and managerial implications.
Theoretical Exposition It is well documented that many established firms find it hard to adapt to changes in the technologies they employ. Frequently, incumbent firms do not manage the shift to the new technology, they lose market share and the successful firms are found among the new entrants (Cooper & Schendel, 1976; Tushman & Anderson, 1986; Utterback, 1994). Christensen (1997) brought a new perspective to this issue by drawing upon resource dependency theory (Pfeffer & Salancik, 1978). This theory suggests that a firm’s freedom of action is in fact controlled by actors outside the boundaries of the company, e.g., customers and investors. Hence, resource dependency theory posits that a firm’s freedom of action is in fact limited to satisfying the demands of those actors that provide the resources it needs in order to survive. By making a distinction between sustaining and disruptive technologies, Christensen explained the recurrent pattern of incumbent failure in technological shifts. Sustaining technologies have in common that they improve the performance of established products along the dimensions that mainstream customers demand. Disruptive technologies, on the other hand, initially underperform along these dimensions. The lower traditional performance and the ancillary performance attributes create a large market uncertainty around the disruptive innovation. At the same time established firms find it irrational to abandon their current, profitable customers in order to aim for a new, initially small market and an inferior technology. As the performance of the disruptive innovation increases it begins to attract customers from the sustaining technology and eventually displaces the old technology. Through his studies of the disk drive industry, Christensen showed that incumbents usually win sustaining battles © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
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whereas entrants succeed in disruptive battles. Hence, a key determinant of the probability of success for an innovation is the extent to which it addresses the needs of actors in an incumbent’s current value network. Christensen also derives a number of managerial solutions which have been further developed (Christensen & Raynor, 2003). It is argued that managers in incumbent firms basically have three options, they can change the processes and values of the current organization, create an independent organization, or acquire a different organization. Firms that try to change the current organization in order to adapt to the disruptive innovation have a weak track record (Christensen, 1997). The main reasons for this are related to the resource dependence that the innovator’s dilemma originates from. An independent organization can be regarded as a structure in which an organization develops new resources that are different and separate from the rest of the firm. It has objectives that are largely independent from and outside the current operations of the firm. As the new technology evolves within the organization, the required processes and values are also developed (Macher & Richman, 2004). This is one of Christensen’s most influential recommendations for how to manage disruptive innovations. When firms are not able to develop disruptive innovations, they can adapt by acquiring companies that possess the resources that are needed for developing the new technology. By doing so, the competencies needed for developing disruptive innovations can be incorporated into the organization rather than developed. Though the problems and solutions described above are well elaborated, they suffer from some drawbacks mainly due to a lack of clarity in the terminology used. In the discourse regarding disruptive innovation, incumbents are treated as one population vis-à-vis entrants, rather than as many populations with different resources, market positions and strategies. However, the forces of resource dependency should arguably vary depending upon the specific characteristics of an incumbent firm. For instance, firms operating in a high-end segment are likely to face different challenges from those faced by a company in the low-end of the market. This implies that there could also be a substantial amount of heterogeneity among the solutions to the innovator’s dilemma or that the most suitable means of action actually depend upon the characteristics of the incumbent. Consequently, the managerial solutions can potentially be improved further by exploring how
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the properties of an incumbent affect its response to a disruptive threat. Moreover, given that disruption is a process and not a discrete event (Christensen & Raynor, 2003), it should strike at different points for different firms depending on the segment in which the firm is operating. Adner (2002) pointed out that the structure of demand needs to be addressed in order to clarify the nature and effect of disruptive innovations. Using the notion of thresholds, Adner also defined critical performance levels that must be met. The functional threshold of a product is the minimum performance that the customer can accept whereas the net utility threshold also takes price into consideration. The point in time when the net utility threshold is met by the disruptive technology should arguably depend upon which customer segment the incumbent operates in. Furthermore, Danneels (2004) suggested that future research should investigate alternative routes for incumbents to access disruptive technologies, looking into the possibilities for using alliances, acquisitions and internal development in more detail. This paper will address some of these issues by exploring how certain incumbent characteristics influence its response to disruptive innovation. More specifically, it will look at the particular challenges encountered by a medium size established firm operating in the high-end of the camera market.
Methods Used The case study below illustrates how Hasselblad failed to develop capabilities in digital imaging on its own and then survived through collaborations and an acquisition. This firm was targeted since it does not possess the characteristics of most incumbents that are studied in the field of disruptive innovation. The firm is operating in the high-end segment of the camera market, targeting professional photographers with a high demand on performance. An additional reason for studying Hasselblad is that it was possible to conduct interviews with current and former high-level managers of the company. Though the authors have no past experience of working with Hasselblad, extensive amounts of information have been accessed. Since this paper focuses on corporate strategy and the implementation challenges that confront managers, senior managers who played a substantial role in forming the strategy were primarily interviewed. Managers of R&D have also been accessed in order to understand the specific challenges they
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faced when shifting from analogue to digital imaging. In total, more than 50 hours of interviews were performed and recorded with 11 people. Follow-up interviews were also conducted in order to ensure an accurate interpretation of the information. All field research interviews began with general open-ended questions, asking managers how they perceived the challenges posed by the disruptive technology and how they tried to deal with them. The same questions were asked to at least two senior managers from one era. In order to ensure the accuracy of this information, it was compared with a large amount of secondary data such as annual reports, media articles, old mail conversations between managers and book chapters written by former managers. In addition to this, all minutes from the board meetings during the period 1989–94 were accessed. The description of this case emerged when all these sources of data had been analysed. In those cases when the written material that was accessed diverged from the interview data, follow-up interviews were performed. The gathered data has thus been triangulated by looking at several independent sources and making sure that these sources were mutually consistent. Moreover, the most important material has been read, accessed or discussed by several researchers in order to ensure an accurate interpretation.
Case Description Hasselblad is a small niche player in the camera industry. The firm had for a long time about 500 employees in total and annual revenues of around SEK600 million. It has for decades been one of the leading camera manufacturers and has sometimes been referred to as the ‘Rolls Royce’ of the camera industry. The company received global recognition in 1969 when the first photos of Neil Armstrong on the moon were taken with a Hasselblad camera. During the following decades, a series of highperforming cameras for professional photographers were developed. This case study will focus on the late 1980s to 2005, which is the era when Hasselblad’s analogue cameras were disrupted by digital imaging. In 1981, the camera industry was shaken when Sony introduced the first camera that was not using film, the Sony Mavica. Given the poor picture quality of the Mavica, the CEO of Hasselblad at that time, Jerry Öster, concluded that the firm should wait and instead learn more about digital imaging by developing other applications. Öster thought that Hasselblad was too small to make the investments in © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
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R&D required in order to overcome the weaknesses of the new technology and that it would take time before the technology would disrupt Hasselblad.
Attempts to Develop a New Camera System During the late 1980s, Hasselblad became increasingly aware of the drawbacks of its analogue camera system. Cameras are not only about electronics or precise mechanics. There are many features which are related to optics and Hasselblad lagged behind in those areas. Therefore some R&D managers thought that the company needed to develop a completely new camera system with modern functions such as autofocus. Some proposals were made to the board but the project, which was called Nova, was never launched on a full scale. The main reason for this was that management thought Hasselblad was too small to afford such a project.
The Development of a Digital Studio Camera The firm instead moved further into digital imaging in the early 1990s. A new CEO was recruited who had a background in electrical engineering and believed in the potential of digital imaging. In 1994, the company started the development of a digital camera. During this time digital and analogue photography were competing for the same resources. One member of the product board recalls that ‘we had one budget in the product board and money had to go to either the digital camera system or the mechanical camera system’. It was eventually decided to move further into digital imaging. When the development of a digital camera had started, it soon became apparent that this technology had some properties that made it fundamentally different from an analogue camera. The photo quality was lower at this point than with an analogue Hasselblad camera. Along other performance dimensions, digital photography had many attributes that made it attractive. Photos could be replicated, manipulated and sent at a much lower cost and much more conveniently than with analogue imaging. Thus, the business utility of digital technology was in fact very large at this point, yet different from what Hasselblad had offered previously. With these properties in mind, the manager in charge of digital development, Lennart Stålfors, thought that the best thing to do was to develop a camera for studio photography. This customer segment would hopefully be willing to trade off some photo quality for the oppor© 2009 The Authors Journal compilation © 2009 Blackwell Publishing
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tunity to take many photos, make copies and sending the photos in an easier way. The development of the digital camera took place both in-house and in various collaborations. One of the largest projects was undertaken together with Philips. Among other things, this resulted in a sensor for digital cameras. ‘Many large companies were willing to co-operate with us despite the fact that we were so small, our strong brand helped us a lot’, Lennart Stålfors recalls.
A Change in Strategy Partly as a consequence of having focused on digital imaging, Hasselblad lagged behind with its mainstream products. This was one of the reasons why the new owner, the Union Bank of Switzerland (UBS), in 1996 decided to cut off digital development. Moreover, UBS had a short-term scope of ownership and did not want to make investments that would be beneficial in the more distant future. An additional reason was that some managers, primarily in the marketing department, thought that the inferior quality of digital imaging would damage Hasselblad’s brand. Others argued that the firm was too small to develop a digital camera on its own. Stefan Arvidsson, member of the board, says: ‘In the long run we would not have been able to keep up with the others. Compare us to what the huge Japanese companies spend on development. I still think stopping the project was the right thing to do.’ However, many people thought that this decision was a disaster. For instance, the Chief Finance Officer (CFO) at that time, Bengt Ahlgren said: ‘Hasselblad did not have to develop everything on its own. Throughout the years our reputation had made us an attractive partner for collaborations.’ Instead of continuing with digital imaging, the new owner decided to develop a completely new camera system. As was mentioned before, this project had been considered in the late 1980s but had never been realized since it would have been very expensive for a small firm like Hasselblad. The new strategy was to pursue some collaboration and thereby follow the digital development, while focusing Hasselblad’s own resources on analogue technology. The development of Hasselblad’s new camera system, the H1, was initiated in 1998. The camera was developed in collaboration with Fuji, who actually funded almost 50 per cent of the camera. The idea was to create a camera which was analogue but also compatible with digital backs, thereby facilitating the transition from analogue to digital imaging.
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However, this project was heavily delayed and the product was not launched until late 2002, many years after what had been planned originally. Moreover, it had run SEK150 million over budget and did not have all the features that were originally intended. This delay turned out to be critical since the technological shift started to affect the company during those years. One member of the development team notes that: ‘if the H1 would have been launched in 1998, we would have had four good years of revenue from it. When the H1 was finally launched it was a fantastic product, but that did not matter since most cameras were completely digital then.’ The H1 system was a hybrid, which could use both digital backs and conventional film. The digital backs were initially delivered by Kodak and PhaseOne. Since Hasselblad did not manufacture their own digital backs this meant that they could not deliver a complete digital camera themselves. At the same time, the performance of digital cameras had increased to the extent that Hasselblad’s position was threatened by actors that had not even been their competitors before. One of Hasselblad’s most profitable segments, wedding photography, had for decades been a market that was protected from competition. But within a few years, Hasselblad lost this market to Canon due to the shift from analogue to digital technology. Digital backs are very expensive and thus, a fully digital Hasselblad camera cost SEK100,000 more than Canon’s similar products. The firm now experienced a severe drop in revenues. As the market for digital cameras expanded rapidly, Hasselblad encountered further problems being caught with a technology that was essentially analogue. In early 2003, the company was bought by the Shriro Group, a Chinese firm which had been Hasselblad’s distributor for more than 40 years. The new owner sold off all subsidiaries of Hasselblad, downsized the firm and had to bring more money into the company several times in order to avoid bankruptcy. Hasselblad now had to develop a complete digital camera system, which included digital backs. Given that the firm was close to bankruptcy, had suffered severe layoffs and had cut off all digital capabilities in the mid 1990s, the situation was desperate. Shriro thought that it would be impossible under these conditions to develop a digital back and therefore started to look for potential acquisitions. Given that the new Hasselblad camera was compatible with digital backs, the synergies from buying a manufacturer of those backs seemed obvious. In order to avoid bankruptcy, Shriro had to invest extensively in the
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acquisition of Imacon, a Danish firm manufacturing digital backs. Imacon and Hasselblad were merged together and Hasselblad could now sell a complete digital camera system. After having been close to bankruptcy in 2003–4, the company recovered financially and since then it has been profitable in manufacturing digital cameras for professional photographers. However, Hasselblad is still paying back a lot of debt to the owner for whom the acquisition of Hasselblad turned out to be far more expensive than anticipated. A long and dramatic journey for Hasselblad had been made, or as the CEO Lars Papilla expressed it in May 2004, ‘the shift to digital technology was much more dramatic than we had expected.’
Analysis and Discussion The case study of Hasselblad can indeed be regarded as an illustrative example of the innovator’s dilemma. It clearly shows that the digital cameras were disruptive. While initially having a lower performance along traditional measures such as photo quality, it had other attributes such as the possibility to store, replicate, send and manipulate photos more easily and at a lower cost. Despite recognizing the future importance of digital technology at an early point, Hasselblad encountered great difficulties in this technological shift. Resource dependency theory seems to provide one explanation for why this happened, as suggested by Christensen (1997). The continuous demand from investors to focus on profitability and therefore downsizing disruptive initiatives can be regarded as one example of this. Moreover, the particular characteristics of Hasselblad affected how the firm handled the disruptive threat from digital imaging. The company was relatively small and had a limited and demanding customer base. These properties imposed constraints on how Hasselblad could handle the innovator’s dilemma.
Focus on the High-End Segment – An Obstacle for Experimentation? It can be seen in the case study above that Hasselblad’s niche strategy affected how the firm managed the transition to digital imaging. Digital cameras could not initially provide the superior performance that was demanded in the high-end segment where Hasselblad had established a unique position. The net utility threshold (Adner, 2002) was much higher for a firm like Hasselblad than for a company © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
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operating in the amateur segment. In addition to this, Hasselblad’s customers associated the brand with quality and superior performance and this image could have been damaged by experimenting with an initially inferior technology. The strong brand was one of Hasselblad’s greatest assets and this seems to have created a large hostility against digital technology, particularly in the marketing department. The protected market position and the brand were probably two of the main reasons why the new owner decided in 1996 to cut off digital development and focus more on analogue imaging. In this respect, companies in the lower segments had better possibilities for early experimentation and learning since they could sell digital cameras to amateurs with low demands on photo quality. The values associated with the Hasselblad brand implied that a transition to a lower performing technology was deemed to be very risky and, thus, the forces of resource dependency seem to have worked strongly in favour of the sustaining technology. Based upon a history of landmark events such as the photos taken on the moon, a dominant logic (Prahalad & Bettis, 1986) emphasizing extreme performance had emerged within the firm and this further implied that moving into digital technology was difficult. Clearly, the firm’s core capabilities in the mechanical technology in this sense turned into core rigidities when facing the disruptive technology (Leonard-Barton, 1992).
Firm Size Limiting the Possibilities to Keep Options Open The case study also illustrates how being a medium size company affected Hasselblad’s response to the disruptive technology. When management decided not to develop a new camera system in the late 1980s it was largely a consequence of the limited resources of the firm. Moreover, the fact that much of the digital development in the early 1990s occurred in various collaborations such as the one with Philips illustrates how firm size affected the way Hasselblad handled the disruptive threat. During the mid 1990s the firm continuously moved away from digital imaging and instead embraced the sustaining technology that had proven to be successful for so many decades. When the new owner decided to focus solely upon conventional camera technology and pursue only minor collaborations in the digital technology area, another step in this direction was taken. It appears that this decision was also affected by the firm’s size and its available resources. It can be argued that the limited size © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
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of Hasselblad accentuated the difficulties involved in meeting the disruptive innovation as the company ended up in an either-or situation, due to its financial constraints. Hence, the forces of resource dependency were very strong for a firm like Hasselblad. It would have been expensive for the company to pursue development in both the new and the established technology fields simultaneously. Hasselblad tried to keep the option of developing a digital camera open through collaborations and instead focus on a hybrid camera, but lost valuable time and resources in doing so. The fact that the new camera system launched in 2002 was to a large extent financed by Fuji also illustrates how the size of the firm affected its way of managing the technological shift. During this long and costly project, Hasselblad never had the resources or strategic focus needed to develop digital backs. When Shriro acquired Hasselblad and the firm was close to bankruptcy, it could eventually survive through an acquisition of Imacon, thereby providing a fully digital camera system. Whether the outcome of this strategy should be regarded as a success or not is a subject that is open to interpretation. If the new owner hadn’t brought additional funding to the company it would most likely not have survived, and it is still paying off debts to Shriro. On the other hand, empirical evidence from both other industries and the camera industry (e.g., Christensen, 1997; Tripsas & Gavetti, 2000) suggest that few companies survive disruptive innovation and therefore survival may here be regarded as some form of modest success. An additional factor that seems to have affected how Hasselblad handled the disruptive threat seems to be ownership and the willingness to make long-term investments. An owner such as UBS who had a short-term scope of ownership was hostile towards investing in digital imaging and instead developed a hybrid camera. The takeover by Shriro seems to have enabled the kind of investment that was needed. Therefore, it appears that the various ownership changes created a strategic inconsistency over time that augmented the problems Hasselblad encountered, but the accessed data does not enable us to draw further conclusions about this. Summarizing the above, it is seen that Hasselblad’s size and strategy affected its response to the disruptive technology. For a firm like Hasselblad, the relative cost of pursuing digital technology was higher than for a larger incumbent and, hence, the inertia seems to be very strong in this setting. It can be seen in the case study how this forced Hasselblad to
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handle the disruptive innovation through various collaborations and through an acquisition of digital capabilities. Moreover, digital cameras could initially not satisfy the demands that Hasselblad’s high-end segment required. In contrast to this, larger camera manufacturers such as Canon and Nikon could develop capabilities in digital photography while they were still producing conventional cameras. These firms had the sizeable resources that were needed in order to undertake these kinds of ventures. Furthermore, they were operating in the amateur segment for cameras, which could tolerate the lower performance that the disruptive technology initially provided. However, it should be emphasized here that there are several examples of large incumbents in the low-end segment of the camera industry that encountered problems despite having larger R&D budgets. One such example is Polaroid (Tripsas & Gavetti, 2000) which initially sought to develop digital cameras and complementary assets but failed and after that focused on conventional cameras. Since this pattern is to some extent similar to what happened to Hasselblad, incumbent size and strategy can clearly not be the only factors that affect how established firms handle disruptive threats. This paper does not argue that these are the only, nor the most important determinants; rather, it claims that the particular characteristics of an incumbent affect the challenges in a disruptive shift and that they consequently also need to be considered when looking for managerial solutions to the innovator’s dilemma.
Conclusions and Managerial Implications This paper has explored how certain incumbent characteristics influence the way an established firm responds to disruptive innovation. In particular, it has looked at the challenges a medium size, top segment company faces, and possible ways of handling them. It can be seen in this case study that Hasselblad’s limited size and its niche strategy made the firm highly vulnerable to the innovator’s dilemma despite the fact that the disruptive effects of digital imaging were recognized and dealt with at an early point. Having a small and demanding customer base implied that Hasselblad became highly dependent on these customers and also
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lacked the resources to pursue extensive internal development projects. Moreover, the case illustrates how the managerial solutions to the innovator’s dilemma are affected by the particular characteristics of an incumbent. A relatively small niche player like Hasselblad could eventually survive the disruption through collaborations and an acquisition. This finding suggests that the heterogeneity of incumbents has been downplayed by the previous literature and it calls for further investigations to allow for the development of a more nuanced view of how established firms can respond to disruptive innovations.
References Adner, R. (2002) When Are Technologies Disruptive? A Demand-Based View of the Emergence of Competition. Strategic Management Journal, 23, 667–88. Christensen, C.M. (1997) The Innovator’s Dilemma. Harvard Business School Press, Cambridge, MA. Christensen, C.M. and Raynor, M.E. (2003) The Innovator’s Solution: Creating and Sustaining Successful Growth. Harvard Business School Press, Cambridge, MA. Cooper, A. and Schendel, D. (1976) Strategic Responses to Technological Threats. Business Horizon, 19, 61–9. Danneels, E. (2004) Disruptive Technology Reconsidered: A Critique and Research Agenda. Journal of Product and Innovation Management, 21, 246–58. Leonard-Barton, D. (1992) Core Capabilities and Core Rigidities: A Paradox in Managing New Product Development. Strategic Management Journal, 13, 111–26. Macher, J.T. and Richman, B.D. (2004) Organisational Responses to Discontinuous Innovation: A Case Study Approach. International Journal of Innovation, 8, 87–114. Pfeffer, J. and Salancik, G.R. (1978) The External Control of Organizations: A Resource Dependence Perspective. Harper & Row, New York. Prahalad, C.K. and Bettis, R.A. (1986) The Dominant Logic: A New Linkage between Diversity and Performance. Strategic Management Journal, 7, 485–501. Tripsas, M. and Gavetti, G. (2000) Capabilities, Cognition, and Inertia: Evidence from Digital Imaging. Strategic Management Journal, 21, 1147– 61. Tushman, M.L. and Anderson, P. (1986) Technological Discontinuities and Organizational Environments. Administrative Science Quarterly, 31, 439–65. Utterback, J.M. (1994) Mastering the Dynamics of Innovation. How Companies can Seize Opportunities in the Face of Technological Change. Harvard Business School Press, Boston, MA.
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Christian Sandström is a PhD student at Chalmers University of Technology. His main research interests are disruptive innovation and innovation in supply networks. Christian holds an MSc in Industrial Engineering and an MSc in Economics. Mats Magnusson is associate professor at Chalmers University of Technology and director of the Institute for Management of Innovation and Technology. In 2008, he was also visiting professor at Aalborg University and at the University of Bologna. In addition, he is program director at Chalmers Advanced Management Programs, vice president of UNITECH International, and chairman of the international research network CINet. His main research interests are innovation management, resourcebased strategy, management of knowledge and learning, innovation networks, and continuous improvement. Jan Jörnmark is associate professor in economic history at Göteborg University. He is author of several books and a photographer.
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Re-orienting the Corporate Entrepreneurial Journey: Exploring the Role of Middle Management Astrid Heidemann Lassen, Brian Vejrum Waehrens and Harry Boer In this article we report research on the implementation of an increased exploitative market orientation in explorative technology-driven firms, and how the interaction between middle management and the internal context shapes this process. It appears that middle managers play an important role in balancing planned and emergent activities, reconciling market and technological understandings, and negotiating and sanctioning ideas. These roles do not happen automatically. Dominant logics, mindsets and meanings, developed and successful in the past, ‘talk back’. Managerial systems and processes supporting the transition to more and more successful market exploitation are not automatically accepted. Rather, all these and similar changes need to be socially negotiated. In that process, the opportunities and incentives for middle managers to reach beyond their formal job and to engage in the organizational sense-making process play a key role.
Introduction and Conceptual Background
D
uring the past decades corporate entrepreneurial (CE) behaviour in established organizations has been increasingly recognized as an important means to create continuous innovation and achieve competitive advantages in dynamic markets (Miller & Friesen, 1983; Covin & Slevin, 1991, 2002; Lumpkin & Dess, 1996; Antoncic & Hisrich, 2003). The starting point for the development of CE theory was an interest in how mature organizations identify and/or develop innovative opportunities and implement them efficiently in the market. In the course of time, the body of literature has gradually developed into two streams, one focusing on innovative behaviour of organizations and the other on efficient market implementation through corporate venturing. The question how to achieve and sustain an effective balance between market exploitation and technological exploration, of crucial importance to ever more companies, has been largely left unexplored in the CE literature. Our objective is to address this gap. In so doing, we will specifically address
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the role of middle management as a key mediator in this entrepreneurial journey. The CE activity thrives on motivated people who are able to spot opportunities and translate these to their organizational context. However, opportunities are not objectively given facts; they have not been enacted yet. The entrepreneurial journey gives them form, content and context. During this journey, existing capabilities are combined in new ways, new capabilities absorbed and combined with existing capabilities, and existing ways and mindsets challenged. In this sense, CE activity both is shaped by and shapes the organizational setting of which it is part. Middle managers are part of that setting. The dominant view is that the primary responsibility of middle management is to monitor on behalf of, and report to/from, top management. In a control-oriented organization this understanding has its merits, but as organizations adopt more innovationsupportive forms of organizing, the role of the middle management becomes more important in dealing with the need for more creative, responsive and learning-oriented organizations (Pettigrew et al., 2003). Indeed, it is © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
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widely acknowledged that middle management may, or rather should, play an important role in creating environments that encourage innovation and entrepreneurship (Kanter, 1982; Kuratko et al., 1993; Stopford & BadenFuller, 1994). While the role of the middle management has been discussed mainly in terms of what should be done, less systematic attention has been paid to what they actually do and how they engage with the organizational setting as drivers of change. From adjacent literature, we find certain insights on the dual role of middle management as change recipients and agents, and their importance for sanctioning skunk works and development of peripheral vision (Kanter, 1982). This illuminates how middle managers work on the interface between the thinking about organizational activity and the actual doing, and how they exercise their influence through lateral as well as hierarchical points of contact (Nonaka, 1994). Balogun and Johnson (2004) have further shed some light on the interpretative role of middle managers in translating abstract ideas into concrete results. However, it still remains unclear how this agency shapes and is shaped by the organizational setting and strategic intent in the CE process. Most studies on combining exploitation and exploration excellence take their starting point in exploitation-oriented organizations, and then propose ways to improve the innovativeness of such organizations. Indeed, various solutions have been proposed, including binary and dual forms of organization (Volberda, 1998; Sutcliffe, Sitkin & Browning, 2000), ambidexterity (Duncan, 1976; Tushman & O’Reilly, 1996), punctuated equilibrium (Romanelli & Tushman, 1994), oscillating organizations (Volberda, 1998) and ambidextrous management (Vey, Stergios & Thomas, 2005). Essentially, all these proposals provide attempts to solve the problem that ‘[a] system that specializes in exploitation will discover itself becoming better and better at an increasingly obsolescent technology’ while ‘[a] system that specializes in exploration will never realize the advantages of its discoveries’ (March, 1995). Although they depart from the opposite position, exploration-intensive organizations struggle with the same problem. Perhaps the most common example concerns companies that start based on a new, innovative idea or product, and reach the stage at which they need to start grasping the benefits of all their innovation efforts. In other words, sooner or later, start-ups perish or (need to) move from, what has been called, the entrepreneurial stage to the collectivity stage (Greiner, 1972; Quinn & Cameron, 1983). The question we address in © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
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this paper concerns the role of the middle management in that transition: What is the role of middle management during implementation of an increased exploitative market orientation in explorative technology-driven firms – and how does the interaction between middle management and the internal context shape this process?
Research Design We conducted longitudinal interpretive case studies (Eisenhardt, 1989) of two Danish SMEs to collect the empirical data underpinning our analyses and contribution to theory development. Both companies went through a process of introducing exploitation-oriented ways of organizing their development activities within existing exploration-oriented structures of meaning and activity. We followed the companies over a period of 11/2 years; one firm in 2001–02, the other in 2005–06. In addition to on-site observations, we conducted a total of 30 semi-structured interviews with senior managers, middle managers and R&D professionals. The interviews and observations focused on the interaction between the accomplishment of R&D work and the changing structural context, and the emerging roles and agency of the middle management around key strategic episodes in the companies (oriented towards the creation of new strategic objectives for R&D and new ways of organizing these activities).
Empirical Findings The Alpha Case This case concerns a medium-sized software company. Company Alpha produced software products for manoeuvring in complex information systems and focused primarily on the development of a strong technology platform intended to set the standard in the marketplace. However, there was much confusion as to how the company should appropriate this technology and position it in the marketplace – market demands were not quite clear. Increasingly this became a problem as the company approached a stage in its development, where it had to shift from technology development to product completion and delivery, maintenance, after sales service and making profits. At this stage, the key belief that the company should and could produce the world’s best products became a challenge. Top management had nurtured this belief and continued
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to confirm it by telling success stories produced in interaction with trial customers, investors and by small benchmarking exercises against potential competitors. On the one hand, this served as a strong motivator to staff; on the other hand, it seemed to be a trap as the unexplored space seemed endless. One manager noted: ‘This whole company is development-oriented. Even Sales are more occupied with what will come next than with selling what they have to offer now’. The management group discussed these issues, and came to the conclusion that tighter co-ordination and communication were needed in order to make the organization more aware of the mutual dependencies between streams of activity and to push technology development towards the needs of actual customers as well. It was decided to restructure the company and to divide Alpha into two major departments, development and operations, each with a functional manager and a number of middle management roles (see Table 1). In addition it was decided to initiate a reorganization process aimed at creating clear lines of authority and task responsibilities. This included the construction of three competence groups based on three interdependent modules in the software development process; the server layer, the middle layer and the user interface layer respectively. The groups were very different. The server layer group was a small and integrated group, which consisted mainly of established and highly skilled staff who worked with a high degree of autonomy. The middle layer group, on the other hand, consisted mainly of rela-
tively new members of staff, with short- to medium-length educational backgrounds. This group was led by two established members of staff, who had recently been appointed project managers. The user interface group was a support function to the other groups. Overall the new middle management group was highly respected for their professional work, which helped to legitimize their management positions. The groups faced a number of problems in relating to each other. Although they depended on one another, each group built the work around their own ideas about what did and did not matter. As a result, weekly project review meetings between members of the middle management group were initiated to balance needs between groups and ensure an ongoing discussion of project progress and interdependency issues. While the review meetings focused on the daily activities, another unit, a development group, was set up to deal with prioritizing and sanctioning new ideas. Staff members, however, still experienced a chaotic working day. They continuously looked for meaning to guide them through their work, but all too often they found that priorities had changed and that their work had been wasted effort, or that it did not fit to modules produced by other project groups. This search for meaning and lacking sense of accomplishment led middle management to initiate an organizational development plan. The plan aimed to deal with the problem of the interface between the three layers in the development process and in particular sought to create some level of certainty and order in the
Table 1. New Management Structure at Alpha Top management 3 people Strategic planning, in co-operation with the board and advisory board. Requests deliverables – but does not always know about the content details.
Focus on setting the direction of the organization.
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Competence management 3 people
Project management 6 people
Human resource management (hiring, competence development, job appraisals, etc.). Priorities, new ideas and ongoing projects set the boundaries for project management, work as technical advisors.
Daily management, delegation of work and follow-up on projects.
Focus on setting the boundaries of work and development.
Responsibility for the work and its quality. Project management presents their results to competence management every three months. Focus on the job.
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development department. These formal channels were, however, bypassed as they clashed with old meanings, and priorities continued to shift as people continued to meet informally. This made it difficult for the middle management to accomplish their plan, but also opened up an avenue for them to engage in situated interpretations of how and what should be done. This proved to be the real arena for accomplishing the job of co-ordination, but also put demands on the middle managers’ negotiation and translation skills at and between various levels of the organization.
The Beta Case This case concerns a medium-sized Danish high-tech company founded in 1976 by two brothers. The brothers’ drive was a strong personal interest in optimizing the quality of guitar pedal effects based on a new technological approach. In 1985 the company was one of the first in the world to develop the change from analogue to digital signal processing. In the following years, the development of new technological possibilities and their implementation in high-quality products generated leadership and growth in several markets. However, in spite of this, company Beta was not able to generate a solid profit. At the beginning of the 1990s, after several nearbankruptcies, the board of directors decided that a different type of management was necessary. A new Chief Executive Officer was brought in who was strongly focused on the exploitation of existing products and the strategic development of the firm, rather than solely exploring technological possibilities. This started a process of fundamental change in the firm, intended to replace the entrepreneurial culture with a more efficient and market-oriented spirit. As part of this change, it was decided that the firm would focus on one segment only – the mission was to become the world leader in digital signal and effect processing equipment for professional sound studios. Beta took a bank loan to develop one new core product, which should be the platform for most product development in the years to come. In 1996 this product was introduced to the market, and generated up to 40 per cent annual growth as well as high increases in the number of employees. In the following years, 10 different variants of the core product were developed. Increasing effort was also put into the management of the product/technology development process. Top management wanted the R&D professionals to be able to carry out market-oriented exploitation independently. However, a significant impediment to this was © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
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the fact that the R&D professionals were culturally very set in their focus on exploration, and they struggled with recognizing that what seemed new and interesting for them was often far ahead of the market. Five Programme Managers were put in charge of generating new ideas and developing the concepts behind them, with market demands being the starting point. These middle managers were selected based on their market knowledge, profound technical knowledge, and knowledge of the overall strategic direction of the company. Additionally, it proved very beneficial that the Programme Managers were familiar with the entrepreneurial past of the firm, as this meant they could relate to cultural patterns build on the idea of being exploratory and trend setting. This gave them an understanding of how to communicate the new path of company Beta to the R&D professionals. In addition to spotting opportunities and taking responsibility for product portfolio considerations, the Programme Managers also developed a comprehensive overview of the development journey as a whole, which was used for internal discussions of the process, the tasks and their interdependencies. After conceptualizing and framing the ideas for a new product, the project was typically handed over to a number of project managers, who would then specify the product and bring it through the development phase to market implementation. This meant that a competence group was created around the projects, which in addition to technological knowledge also held market insight and knowledge on how to compose the most suitable projects teams for each project. Different middle managers were put in charge of different phases of the projects, yet the knowledge of the wider competence group was continuously utilized in order to create a balance between the technological possibilities and the market demands. Although a phase model was used to guide the development process, projects were often not held tightly to a specific plan based on the existing strategy, but rather expanded and created the strategy as the possibilities of the innovation became clear. The Chief Technical Officer stressed that the market potential and technological possibilities of new ideas could not be evaluated continuously and adjusted for. Hence, dividing the development process into isolated phases would hinder the company reaching the right level of innovation. Rather, the company practised an approach that reflected the capabilities and responsibilities of knowledgeable middle managers with the opportunities and the incentives to reach beyond their formal job and to engage in the organizational sense-making process. Thus,
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the middle managers were highly important as mediators between divergence and convergence, let go and keep on track. One of the employees described a programme manager as follows: he can switch very quickly between being very visionary and explorative in his frame of mind and being structured and narrowing down the potential of an idea . . . it’s sometimes confusing for other people to understand, but I think that’s why he is so good at being innovative . . . in the right way (Software Developer, Beta).
Analysis and Discussion The two case studies reveal several roles played by the middle management during implementation of an increased exploitative market orientation in highly explorative, technologyoriented firms. However, re-orienting the CE behaviour of an organization does not occur in a vacuum; rather, it takes place within the context of the organization’s full array of actions (Dess, Lumpkin & Covin, 1997). In the following, we will discuss how the middle management’s roles unfolded and how the interaction between middle management and the internal organizational context influenced and shaped the transformation of the two companies.
Balancing Planned and Emergent Activities The first pattern concerns the role middle managers play in creating structure and direction and nurturing emerging ideas while market potential was still unclear. Alpha built up a managerial system to deal with the emerging need to link market demands and technological opportunities into coherent and successful product designs. The system was designed primarily to establish a systematic flow and to facilitate transfers between specialized business units. Through that system, the managers actually tried to impose a new dominant logic (Prahalad & Bettis, 1986) on the organization, which they supported with various organizational arrangements and tools. This new logic was expected to exercise a formative pressure on the organization and the interpretations of the employees and to act as an information filter between market-based opportunities and the organization. In Alpha, however, the new logic emerged only slowly and the space for local interpretations of the ambiguous market demands and many possible applications of technology remained vast. Consequently, the
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role of the middle management changed to become instrumental in communicating the overall planning from the top to the organization and emergent ideas from the organization to the top level. In Beta something similar happened. That company practised a flexible approach to an otherwise formal phase model. However, the approach was only successful if and when the middle managers achieved a balance between the overall needs for planning and the iterative and explorative characteristics of the work of the R&D professionals. Based on their study of schemata transformation by middle management in the context of strategic change, Balogun and Johnson (2005) concluded that one of the challenges for middle managers is to grasp changes they did not design and to negotiate the details with others equally removed from the locus of strategic decision making. This points to a dilemma also observed in the two cases, that middle management as a group is partly detached from the decision-making processes for which they have the main operational responsibility – the planning aspect, in an environment that is dominated by a historically developed and hitherto quite successful logic that promotes innovation – the emergence aspect.
Reconciling Market and Technology Understandings A second pattern concerns the gatekeeping role middle managers play in communicating market needs to technological projects, and vice versa communicating how technological possibilities could be turned into market possibilities. In more general terms, gatekeeping involves identifying and understanding emerging patterns (Reid & De Brentani, 2004), for example through applying opposing perspectives. Alpha never fully developed and implemented a sales and service system, because of the lack of vested professionally interest in this work. There were forces inside the company trying to get focus shift to sales, but even in the management team there was no real support for making this shift. The original leadership and functioning of Alpha had resulted in a shared understanding of the company’s context – the world the company was in and the way the company related to that world – as the foundation of entrepreneurial activity. A shift in entrepreneurial activity needs to rest on a common, if implicit, understanding of the context the actors share just as well. In this perspective, the failure of the new management layer lay not so much in their inability to enact strategic intent. Rather, it was in the lack of © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
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attention to developing a shared understanding of the changes in the organization’s context – changes that required new responses. In Beta, the difficulties experienced also illustrate oppositions between organizational and professional meanings. The company had always been technology-driven, and had established deep-rooted cultural meanings around this, positioning the R&D professionals as ‘heroes’. While the strategy of the firm was changed towards a more market-oriented approach, the existing culture continued to influence the organizational sense-making process. The solution was found in programme managers with extensive market understanding leading technology projects developed by R&D professionals with extensive understanding of the technological capabilities. Whenever the middle management failed in their role of translating market needs into technological requirements and relating technological possibilities to market realities, development projects tended to become either very exploitative in nature, causing frustration in the R&D department, or highly explorative, leading to dissatisfaction at top management level. A key role for the middle management, in other words, is therefore to act as a pivot of sense-making in the structured chaos of CE activities and to mediate between the counteracting foci of technology exploration and market exploitation.
Ongoing Negotiation and Sanctioning of Ideas Shared meaning is a powerful source of concerted action. The third role of middle management is related to this. In both cases neither the organizational development initiatives nor the R&D activities these were meant to organize were fully defined from the outset. They were incomplete and moved through a number of iterations, where they interacted with different forces coming from, for example, the organizational context, the wider portfolio of projects, scheduled project gate deliverables, and problems encountered, before they reached an initial outcome. It was during these iterative processes that the middle management left a particular mark as they came to represent the governing ideas in various decision forums. In both companies, activities were organized in projects, which served as the primary work form and as a basis for sense-making at the operational level of the companies. Through reflective participation in these projects, the managers set the stage for in-process learning opportunities and mutual sense-making, both within the project and in relation to the wider © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
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project portfolio. The middle management developed their roles on the back of these ongoing activities, where they had a chance to negotiate, sanction and translate abstract ideas into concrete operationalization.
Conclusion In the course of time, the development of corporate entrepreneurship (CE) theory has taken two separate directions: one, in the terminology employed in this article, focusing on technological exploration; the other, on market exploitation. At the same time, this has left a gap related to the question how to combine technological exploration and market exploitation effectively. Research in adjacent areas has focused mainly on the question how exploitation-effective organization can be made more exploration-effective (Duncan, 1976; Romanelli & Tushman, 1994; March, 1995; Tushman & O’Reilly, 1996; Volberda, 1998; Sutcliffe, Sitkin & Browning, 2000; Vey, Stergios & Thomas, 2005). This article takes its departure in exploration-intensive organizations, and focuses on the role of middle managers in the implementation of an increased exploitative market-orientation in such firms. There is a lot of literature telling managers about the roles they ought to play in their company. Typically, those who have described middle managers’ involvement in CE behaviour have done so through identifying lists of verbs, which define the essential roles or processes reflected in such behaviour. For example, Floyd and Lane (2000) argued that middle managers’ entrepreneurial behaviour involves championing, synthesizing, facilitating and implementing. In a similar fashion, Kuratko et al. (2005, p. 702) argue that ‘middlelevel managers endorse, refine, and shepherd entrepreneurial opportunities and identify, acquire, and deploy resources needed to pursue those opportunities’. However, these findings and suggestions concern day-to-day, ‘operational’ CE behaviour and management. This article addresses the implementation of a better balance between the two core activities of CE, technology exploration and market exploitation. Based on two case studies of Danish firms, we identified the importance of middle managers in: • balancing planned and emergent activities, • reconciling market and technological understandings, and • negotiating and sanctioning ideas. These findings challenge the image of the middle management as an extension of top
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management, whose main role it is to monitor, control and report. In fact, the first two roles represent what can be called dual management, and they are supported by the third role. The first role involves the duality of the intended reorganization, on the one hand, and ongoing development and marketing activities, on the other. In those ongoing activities, issues emerge that had not been intended. The second role is perhaps at the core of the transition aimed at increasing the success of technologies developed in the marketplace and, thus, involves dealing with the duality of exploitation and exploration. In both processes, negotiating and sanctioning ideas play a central role. The cases suggest that developing these roles requires middle managers to participate actively in ongoing implementation and development activities. Even then, the roles do not develop easily. Dominant logics (Prahalad & Bettis, 1986) developed in the past and proven relatively successful do not change overnight. Managerial systems and processes supporting the transition to more and, particularly, more successful market exploitation are not automatically accepted. Rather, all these and similar changes need to be socially negotiated. In that process, the opportunities and incentives for middle managers to reach beyond their formal job and to engage in the organizational sensemaking process play a key role. Thus, the barriers to changing the nature of CE activity require socio-cultural solutions, not only structural ones. Organizations do indeed need to actively manage the social structure – in the form of institutions, social values, competitive rules and established ways of doing things. However, in this process they also need to recognize that these are changed when people start to ignore them, replace them or reproduce them differently.
References Antoncic, B. and Hisrich, R.D. (2003) Clarifying the Intrapreneurship Concept. Journal of Small Business and Enterprise Development, 10, 18–25. Balogun, J. and Johnson, G. (2004) Organizational Restructuring and Middle Manager Sensemaking. Academy of Management Journal, 47, 523–49. Balogun, J. and Johnson, G. (2005) From Intended Strategies to Unintended Outcomes: The Impact of Change Recipient Sensemaking. Organization Studies, 26, 1573–601. Covin, J.G. and Slevin, D.P. (1991) A Conceptual Model of Entrepreneurship as Firm Behaviour. Entrepreneurship: Theory and Practice, 16, 7–24. Covin, J.G. and Slevin, D.P. (2002) The Entrepreneurial Imperatives of Strategic Leadership. In Hitt, M.A., Ireland, R.D., Camp, S.M. and Sexton,
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D.L. (eds.), Strategic Entrepreneurship. Creating a New Mind-set. Blackwell Publishing, Oxford, pp. 309–23. Dess, G.G., Lumpkin, G.T. and Covin, J.G. (1997) Entrepreneurial Strategy Making and Firm Performance: Test of Contingency and Configurational Models. Strategic Management Journal, 18, 677–95. Duncan, R.B. (1976) The Ambidextrous Organization: Designing Dual Structures for Innovation. In Kilmann, R.H., Pondy, L.R. and Slevin, D. (eds.), The Management of Organization, Vol. 1. NorthHolland, New York, pp. 167–88. Eisenhardt, K.M. (1989) Building Theories from Case Study Research. Academy of Management Review, 14, 532–50. Floyd, S.W. and Lane, P.J. (2000) Strategizing Throughout the Organization: Managing Role Conflict in Strategic Renewal. Academy of Management Review, 25, 154–77. Greiner, L. (1972) Evolution and Revolution as Organizations Grow. Harvard Business Review, 50, 37–46. Kanter, R.M. (1982) The Middle Manager as Innovator. Harvard Business Review, 60, 95–106. Kuratko, D.F., Hornsby, J.S., Naffziger, D.W. and Montagno, R.V. (1993) Implement Entrepreneurial Thinking in Established Organizations. SAM Advanced Management Journal, 58, 28–39. Kuratko, D.F., Ireland, R.D, Covin, J.G. and Hornsby, J.S. (2005) A Model of Middle Level Managers’ Entrepreneurial Behavior. Entrepreneurship: Theory and Practice, 29, 699–716. Lumpkin, G.T. and Dess, G.G. (1996) Clarifying the Entrepreneurial Orientation Construct and Linking It to Performance. Academy of Management Review, 21, 135–72. March, J.G. (1995) The Future, Disposable Organizations and the Rigidities of Imagination. Organization, 2, 427–40. Miller, D. and Friesen, P.H. (1983) Strategy-Making and Environment. Strategic Management Journal, 4, 221–31. Nonaka, I. (1994) Dynamic Theory of Organizational Knowledge Creation. Organization Science, 5, 14–37. Pettigrew, A.M., Whittington, R., Melin, L., Sanches-Runde, C., Van den Bosch, F., Ruigrok, W. and Numagami, T. (2003) Innovative Forms of Organizing. Sage, London. Prahalad, C.K. and Bettis, R.A. (1986) The Dominant Logic: A New Linkage between Diversity and Performance. Strategic Management Journal, 7, 485–501. Quinn, E. and Cameron, K. (1983) Organization Life Cycles and Shifting Criteria of Effectiveness: Some Preliminary Evidence. Management Science, 29, 33–51. Reid, S.R. and De Brentani, U. (2004) The Fuzzy Front End of New Product Development for Discontinuous Innovations: A Theoretical Model. Journal of Product Innovation Management, 21, 170– 84. Romanelli, E. and Tushman, M.I. (1994) Organizational Transformation as Punctuated Equilibrium: An Empirical Test. Academy of Management Journal, 37, 1141–66. © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
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Stopford, J.M. and Baden-Fuller, C.W.F. (1994) Creating Corporate Entrepreneurship. Strategic Management Journal, 15, 521–36. Sutcliffe, K.M., Sitkin, S.B. and Browning, L.D. (2000) Tailoring Process Management to Situational Requirements. In Cole, R.E. and Scott, W.R. (eds.), The Quality Movement and Organization Theory. Sage Publications, Thousand Oaks, CA. Tushman, M.L. and O’Reilly, C.A. (1996) Ambidextrous Organizations: Managing Evolutionary and Revolutionary Change. California Management Review, 38, 8–30. Vey, M.A., Stergios, M.G. and Thomas, R.J. (2005) The Ambidextrous Senior Leadership Team. Research Report. Accenture, Institute for High Performance Business. Volberda, H.W. (1998) Building the Flexible Firm. How to Remain Competitive. Oxford University Press, Oxford.
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Dr Astrid Heidemann Lassen, PhD (ahl@ production.aau.dk), is Assistant Professor in Innovation Management at the Center for Industrial Production, Aalborg University, Denmark. She holds a PhD in Corporate Entrepreneurship and has written various international journal articles, conference papers and book chapters on this topic. Her current research interests are in the area of corporate entrepreneurship with a strong emphasis on the intersection with and of radical innovation, knowledge and strategic management. Dr. Brian Vejrum Wæhrens, PhD, is Associate Professor of Strategic Operations Development at the Center for Industrial Production at Aalborg University. His current research interests concern the development and configuration of global operations networks. He has (co-)authored numerous articles and chapters in books in the field of Organizational Development, Operations Strategy and Learning. Dr.ir. Harry Boer is Professor of Strategy and Organization at the Center for Industrial Production at Aalborg University. He holds a BSc in Applied Mathematics and an MSc and PhD both in Management Engineering. He has (co-)authored numerous articles and several books on subjects such as Organization Theory, Flexible Automation, Manufacturing Strategy and Continuous Improvement. His current research interests are in continuous innovation, the effective interaction between day-to-day operations, incremental change and radical innovation.
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Managing Ambiguity in New Product Development Projects Eric Brun and Alf Steinar Sætre Ambiguity, defined in this study as the existence of two or more interpretations of the same cue, is an essential component of ‘fuzziness’ in new product development (NPD) projects. In this paper, we present a model by which ambiguity in NPD projects can be classified and managed. The model has been developed grounded in case data from four NPD projects in companies making medical devices. Ambiguity is classified according to two axes: subjects of ambiguity and sources of ambiguity. Subjects of ambiguity include product, market, process and organizational resources. Sources of ambiguity include multiplicity, novelty, validity and reliability. Ambiguity can be managed by two means: reducing or sustaining it. If clarity is a main priority in the NPD project, reducing ambiguity is necessary and can be effectively achieved by applying the hypothetical-deductive method. If novelty and flexibility are high project priorities, sustaining certain ambiguities can be useful. Managing ambiguity requires a constant harmonizing of the need for clarity and the need for novelty and flexibility.
Introduction
C
urrent methods for managing new product development (NPD) processes are being challenged, and many aspects of such processes are still poorly understood. Stage-gate models for managing NPD (Myrup Andreasen & Hein, 1987; Cooper, 1990) assume a sequential process emphasizing up-front data gathering, planning and subsequent execution and have been found to work well in industries where target markets and technologies to be employed are well understood (MacCormack, Verganti & Iansiti, 2001). However, the early stages of NPD are characterized by a high degree of uncertainty and ambiguity, especially in more dynamic industry environments, a characteristic that does not fit well with the requirement for accurate up-front information typical of the stage-gate approach. This phenomenon is commonly recognized in the literature as the fuzzy front end (FFE) of NPD (Khurana & Rosenthal, 1997; Koen et al., 2001; Kim & Wilemon, 2002; Reid & de Brentani, 2004). The front end is the starting point that sets the initial direction of the NPD process, and its importance has been emphasized by many researchers (Cooper, 1988, 1990; Brown & Eisenhardt, 1995; Moenaert et al., 1995; Khurana & Rosenthal,
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1997, 1998; Verganti, 1997; Koen et al., 2001; Reid & de Brentani, 2004; Verworn, Herstatt & Nagahira, 2006). A common argument for the importance of early phase activities is that the cost and time of corrective actions and engineering changes are lower in the early stages of the NPD project when fuzziness is high and higher later in the project when fuzziness is low (Khurana & Rosenthal, 1997; Verganti, 1997; Reid & de Brentani, 2004). Fuzziness at the front end that is not reduced or resolved may therefore lead to excessive project costs in the form of corrective actions and time overruns later in the project. Empirical studies have confirmed the importance of early phase NPD activities for the successful launch of new products (Cooper, 1990; Urban & Hauser, 1993; Cooper & Kleinschmidt, 1995). Reid and de Brentani (2004) have therefore argued that research should be directed towards achieving a better understanding of the FFE and processes that support it to help firms achieve better outcomes of their NPD efforts. Several researchers have already addressed the issue of fuzziness. They do not really explicate what fuzziness is, although they all seem to view it as a kind of uncertainty in a generic sense of the term or as a problem in processing the available information. Kim and Wilemon (2002), however, have specifically © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
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emphasized the importance of ‘understanding the sources of FFE ambiguity’ (p. 276) to diminish fuzziness in early phase NPD. We agree with Kim and Wilemon that ambiguity contributes to fuzziness and contend that a better understanding of the ambiguity that occurs in NPD and of how to manage it will improve our ability to understand and manage the early phases of NPD. There are several theoretical contributions on the important distinction between uncertainty and ambiguity in organization literature (Daft & Lengel, 1984, 1986; March, 1994; Weick, 1995). Common to most of these contributions is the view that uncertainty can be understood as lack of information; hence uncertainty can be reduced by provision of more information. In contrast, ambiguity can be understood as different interpretations of the same piece of information; hence ambiguity is not reduced by the provision of more information. We believe that the notion of ambiguity captures much of the essence of ‘fuzziness’ at the front end of NPD. We also assert that ambiguity is not limited to the front end but may be present throughout the NPD process. Seminal theoretical contributions have addressed ambiguity and reduction of ambiguity in organizations (Weick, 1979, 1995; Daft & Lengel, 1986; March, 1994). A common unstated assumption in these contributions and in management literature is that ambiguity is undesirable and should be reduced to provide clarity. Ambiguity in an NPD project must eventually be reduced before launching a specific product to a specific market, but the reduction may not always occur in a continuous manner. Eisenberg (1984) has argued that sustaining or even increasing ambiguity can be useful in organizational communication. In research literature taking an evolutionary approach to innovation, Aldrich (1999) and Burgelman (2002) have argued that innovations develop through processes of variation and selection, which implies that the innovation process may not always be steadily moving towards lower ambiguity. Their research focus is, however, organizational and strategic business innovation processes and not NPD processes at the project level. Spender (1996) has promoted the term interpretive flexibility as a useful heuristic in knowledge-based organizations. Interpretive flexibility entails flexibility about how a cue can be interpreted and is a central term also in the theory of social construction of technology (Bijker, Hughes & Pinch, 1987), as it is the key to achieving agreement among stakeholders in a technological innovation process. More recent NPD research has focused on NPD processes emphasizing iterations and flexibil© 2009 The Authors Journal compilation © 2009 Blackwell Publishing
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ity rather than the sequential process of the stage-gate models, suggesting that such a contingent approach to NPD is more suitable in uncertain and dynamic environments (Eisenhardt & Tabrizi, 1995; Verganti, 1999; MacCormack, Verganti & Iansiti, 2001; MacCormack & Verganti, 2003). These contributions, however, address uncertainty in NPD without making a distinction between uncertainty and ambiguity. There is a lack of theory, then, specifically addressing the nature and management of ambiguity – as distinct from uncertainty – in NPD projects. Over the last 5 years, we have conducted research to help fill this gap in theory. So far we have developed three contributions to this end: (1) a model to classify ambiguity in NPD (Brun, Saetre & Gjelsvik, 2009), (2) a model by which the process of ambiguity reduction in NPD can be understood (Brun & Saetre, 2008), and (3) a model showing the benefits of temporarily sustaining ambiguity during the NPD process (Brun, Saetre & Gjelsvik, 2008). However, these contributions have focused on bounded and separate aspects of managing ambiguity in NPD. The contribution of the present paper is to incorporate our previous findings into a common framework and to provide an integrated model by which the nature and management of ambiguity in NPD projects can be understood.
Method Research Design Our methodological approach is to build theory through qualitative analysis of data from case studies (Eisenhardt, 1989). We have conducted a holistic, multiple case study (Yin, 1994) with data from four NPD projects in their early phases in established medicaldevice companies. Our unit of analysis is the NPD project. To preserve confidentiality, the companies have been given fictitious names in our study.
Data Collection Data were collected from March 2004 to August 2007 through 46 semi-structured interviews, 7 hours of meeting observations, 913 pages of document data and 17 video files. Project participants in a variety of roles were interviewed, and each interview lasted 1 hour on average. To build internal validity, often referred to as authenticity in qualitative studies (Miles & Huberman, 1994; Bryman & Bell, 2003), a number of tactics were used. Interviewer bias on the site was limited by explaining to each
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interviewee prior to the interview what the intention of our study was and how anonymity would be ensured. Elite bias was limited by interviewing participants at multiple organizational levels. Data were triangulated from multiple sources, and case descriptions were returned to the key informants and confirmed for factual correctness (events, sequences, dependencies, persons involved, etc.).
Data Analysis Our data analysis has largely followed the roadmap provided by Eisenhardt (1989) to build theory from case studies. Elements of her roadmap include the application of Grounded Theory (GT) building (Glaser & Strauss, 1967) and qualitative analysis techniques recommended by Miles and Huberman (1984). A variety of approaches to GT method are available today (e.g., Glaser & Strauss, 1967; Orton, 1997; Strauss & Corbin, 1998; Charmaz, 2006). We chose an approach close to that of Strauss and Corbin (1998). Analytic tools they recommend include comparisons, questions and conceptualizations. Comparisons are of two types: comparison of data to other data to develop categories (constant comparison) and comparison of categories to theory (theoretical comparison). Strauss and Corbin (1998) prescribe a stepwise approach that includes open coding (in which the categories are discovered and developed), axial coding (where the categories are arranged in a conceptual structure) and selective coding (which includes the final integration of concepts, refinement and validation of theory). The three sub-models we have presented earlier (Brun & Saetre, 2008; Brun, Saetre & Gjelsvik, 2008, 2009) were results from analysis of our case data through all three steps of coding, with most emphasis on open and axial coding. The analysis we now conducted for the purpose of this paper, i.e., to integrate the sub-models into an overall model, was done solely through the process of selective coding (Strauss & Corbin, 1998). The techniques we used to this end included the use of displays and matrices (Miles & Huberman, 1994), which Strauss and Corbin (1998) also refer to as diagramming. We also made extensive use of conceptual discussions and draft paper writing (Strauss & Corbin, 1998). As a final step, we gathered feedback from key informants to validate our model (Miles & Huberman, 1994, p. 275). Building reliability can be problematic in qualitative studies. Miles and Huberman (1994) and Bryman and Bell (2003) suggest using the alternative term dependability in qualitative research to address the underlying
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issue: whether the process of the study is consistent across researchers. To this end we have explicated the research process so that other researchers can follow the steps we have taken (Miles & Huberman, 1994). Also, we were multiple researchers doing the analysis and writing process, and our results have been subject to colleague review, including conference and workshop presentations and discussions. All raw data, memos and other documentation of the coding process are maintained in an NVivo-7 database.
Case Descriptions Before presenting the model resulting from our analysis, we will present a brief description of each case. Our purpose in doing so is to illustrate the main issues that had to be managed within each project and thus to provide a backdrop to facilitate the reader’s understanding of the model.
Alpha Alpha Medical is a globally operating company that develops, manufactures and markets products for emergency medical treatment and training. Alpha perceived two needs in the market. One was related to First Aid treatment. When giving First Aid to patients, rescuers often need to perform certain compression manoeuvres, but there was a growing concern in the market that the rescuers often did not perform these compressions with sufficient quality. To this end, Alpha initiated a project to pursue a product idea called the ‘Snapper’, a device that could be placed on a patient during the compression manoeuvre. Each time the rescuer had performed a compression correctly, the Snapper would provide audible feedback. The second need in the market was related to First Aid training. Organizations providing such training expressed a need to deliver their courses in a more cost-efficient manner. Alpha therefore initiated a second project to pursue the idea of a new complete training system that would radically reduce training time in First Aid courses. This system could potentially include the Snapper. There were diverging and shifting opinions among the project participants about the product concept, about the target market segment and about who the key users would be. The operating principle of the device became an issue of controversy, too. The US Food and Drug Administration (FDA) and Alpha’s project team had differing interpretations as to whether the Snapper’s operating © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
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principle met FDA’s criteria to allow access to the US therapy market. In the end, Alpha aborted development of the Snapper in both the training and the therapy applications. Two other products were launched instead – a totally different device for the therapy market and the new First Aid training system without the Snapper for the training market.
Beta Beta Medical is a globally operating company offering product solutions for drug delivery to ensure patient compliance (i.e., getting patients to adhere to a prescribed treatment scheme). Beta wanted to pursue a product idea to ensure patient compliance for treatments requiring pill medication. The NPD team developed a multitude of product ideas. One of them – called ‘Hi-tech’ – represented a technologically and functionally advanced product solution aimed at the specific market for clinical trials. Another idea – called ‘Lo-tech’ – represented a very user-friendly, low-cost solution: a small device that could be carried by the patient as a pill container equipped with a very simple yet effective reminder and reporting function. Hi-tech was Beta’s management top choice because they considered the clinical trial segment to be mature, facilitating a subsequent move into other market segments. The Lo-tech concept was not favoured by management, but the manager behind the idea was still unofficially allowed to pursue it as a separate development project. The main stakeholder groups in the market were the patients, the general practitioners, clinical research organizations and the pharmaceutical companies. The Lo-tech project team sought out a variety of more detailed concepts to address the expected needs of these stakeholders. Adding to the challenge, the Lo-tech concepts were developed through a novel process that had not previously been tried at Beta Medical. When prototypes of both the Hi-tech and the Lo-tech concepts were shown to the first major pharmaceutical customer, it turned out that Lo-tech was the preferred concept. Once this preference was clear, Beta urgently had to develop the Lo-tech concept further into a final product and start delivery to its customers. The Hi-tech concept, however, was not brought to launch.
Gamma Gamma Medical is a small company that specializes in ultrasound-based equipment for © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
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quality control in cardiac and vascular surgery. During cardiac bypass operations, surgeons are presumed to measure the blood flow at specific points in the coronary arteries to verify the quality of the new blood-flow pattern before closing up the patient. The method to perform this control is complex, so the extent to which it is performed varies. Gamma Medical had a new product idea, called the ‘Imager’, which would provide the cardiac surgeon an ultrasound 2D colour image for a direct and fast clinical assessment of the blood-flow quality. This product, however, would require Gamma’s NPD project team to develop a new graphic user interface for use by a group of people (cardiac surgeons) unaccustomed to interpreting images as part of their medical procedures. Traditionally, such interpretation is done by cardiologists and anaesthetists. Introducing the innovation would therefore include some shifting of roles and expertise among the physicians, a potential area of conflict. Also, although the technique would improve quality control over the operation (i.e., a clear benefit to the patient), it might well be interpreted as somewhat threatening to those surgeons who did not normally emphasize such quality control. There were multiple candidates as to who the operator of the device could be, but they were likely to have quite varying attitudes to the product. As Gamma was a small company, the project needed to develop the technology for the product in partnership with other companies, and as such it started with a heavy technology focus, at the cost of addressing the significant challenges it would be facing in the user environment. The NPD project team also had to identify external partners who could supply the development of new probe types. Delays occurred because the external probe suppliers lacked commitment to the delivery plan for reasons that were not clearly understood by the project participants.
Delta Delta Medical is a small company arising from a technological research environment. It came up with two promising product ideas. The first one, called the ‘LapDop’, was a product for ultrasound Doppler guidance during laparoscopic surgery. The other one, called the ‘BrainSound’, was a product for ultrasound guidance during brain surgery. The project developing the first invention became the subject of this case study. Laparoscopic surgery, commonly called ‘keyhole surgery’, is a technique that allows the surgeon to operate through very small
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incisions in the patient’s skin. Unfortunately, blood vessels residing under the tissue surface cannot be seen by the standard laparoscopic technique, so there is a risk of accidentally cutting them during the operating procedure. The LapDop concept represented Delta’s idea to solve this problem. It involved fitting an ultrasound probe at the end of the operating instrument so that the surgeon might detect hidden blood vessels through audible feedback during the operation. The NPD team developed the product concept in close co-operation with a leading laparoscopic surgeon and conducted several trials to document the LapDop’s clinical usefulness. Technically, the prototypes functioned very well. However, many laparoscopic surgeons testing the device did not consider the risk of cutting hidden blood vessels as great as the LapDop team and lead user had assumed. Also, many users thought the LapDop too costly. The LapDop project staff questioned whether these objections about price could be interpreted as something else: they suspected that much of the scepticism stemmed from older, experienced surgeons who believed their knowledge of anatomy was sufficient guarantee against
accidents and who were thus unwilling to admit the need for a device that provided improved quality control. During the clinical tests, the project manager also noticed that none of the surgeons actually used the device in the way it was designed to be used. In his opinion, a simplified and less costly version of the LapDop (i.e., an alternative interpretation of the product concept) could have met the needs of most users. However, the simplified version was never considered as an alternative to be developed. Being a small company with limited resources, Delta was not able to take two new products to market simultaneously. Delta’s investors were more interested in pursuing the BrainSound, so Delta’s board decided to give priority to that development project, and the LapDop project was shelved.
A Model of Ambiguity Management in NPD Figure 1 illustrates our model for classification and management of ambiguity in NPD
Managing ambiguity – harmonizing the needs for:
Reduce ambiguity
Novelty Flexibility
Sustain ambiguity
Assumptions about product, market, process, and organizational resources
Use hypothetical - deductive method to test and verify or reject: Multiplicity
Novelty
Ensure
Cost-saving Time-saving
Clarity
Product
Market
Process
Org. resources
Multiple hypotheses about product
Multiple hypotheses about market
Multiple hypotheses about process
Multiple hypotheses about organization resources
New hypotheses about product
New hypotheses about market
New hypotheses about process
Ambiguity
New hypotheses about organization resources
Validity and reliability of information about product, market, process, and organization
Figure 1. Classification and Management of Ambiguity in NPD
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projects. In the following sections we will explain each component of the model.
Classification of Ambiguity in NPD The matrix in the middle of Figure 1 illustrates how ambiguity can be classified in terms of key components according to our two analytic questions. Analysing our data in view of our first analytic question – what the ambiguity was about – led us to arrive at the following four categories of the subjects of ambiguity, represented in the columns of the matrix: • Product ambiguity: This is ambiguity arising from multiple interpretations of elements pertaining to the product being developed. Examples are interpretations of the product concept, the setting in which it is intended to be used, its functional requirements, its performance and the technologies involved. • Market ambiguity: This is ambiguity arising from multiple interpretations of elements in the external environment – e.g., who the stakeholders are, what their roles, needs and interests are and what market segments to target. • Process ambiguity: This is ambiguity arising from multiple interpretations of elements in the NPD project’s work process – e.g., tasks to perform, dependencies among them, sequences in which to perform them and their inputs and outputs. • Organizational resource ambiguity: This is ambiguity pertaining to the project organization’s resources – both financial (e.g., regarding availability of funding) and human resources (e.g., regarding responsibilities, roles and interests). Analysing our data in view of our second analytic question – what had caused the ambiguity – led us to arrive at the following four categories of sources of ambiguity, represented in the rows of the matrix: • Multiplicity of the subject: Alternative meanings of a single cue arise when participants from different reference points are involved, and each ascribes a different meaning to the cue depending on his or her reference point. Ambiguity can thus originate from multiple and conflicting interpretations of a cue at a given point in time in an NPD project. • Novelty of the subject: Novelty or newness implies a change in meaning. The meaning of a previously unambiguous cue can be given a new interpretation, and ambiguity will again arise. Ambiguity arising from novelty represents a dynamic, time-variance © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
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aspect of ambiguity: a cue can be ambiguous because it takes on a meaning different from what it previously meant. • Validity and reliability of information: We also found that the ambiguity observed in the studied cases can be related to the terms of validity and reliability. For example, if the project participants sample information about user needs from users who are not representative of the intended market for the product, then this results in ambiguity about user needs. If the participants sample information about user needs from a user who provides inconsistent answers, then this also results in ambiguity about user needs. Ambiguity can therefore arise because of interpretations based on unrepresentative information (low validity of information) and because of interpretations based on inconsistent information (low reliability of information).
Reducing Ambiguity by the Hypothetical-Deductive Method The oval on the left of Figure 1 illustrates a sub-model of reducing ambiguity in NPD projects. Each cell in the matrix in the middle of Figure 1 represents ambiguity in the form of different hypotheses held by the participants involved. Our model of ambiguity reduction is based on applying the hypothetical-deductive method (HDM) to test, strengthen or reject these hypotheses. The HDM can be applied to reduce ambiguity in two ways: testing the hypotheses and testing the underlying assumptions. (a) Testing Hypotheses – the Interpretations Ambiguity in an NPD project is reduced by testing interpretations as hypotheses according to the logic of the HDM. These can be hypotheses of what a successful new product would be, hypotheses of a profitable market segment or of the process to be followed. If the outcome of a test is positive, then the hypothesis is strengthened; if the outcome is negative, the hypothesis has to be rejected. A typical example of this was seen in the Beta case, where two alternative interpretations of the cue ‘a product to ensure patient compliance’ emerged: the Hi-tech and the Lo-tech product concepts. These concepts represented two hypotheses of what a final product could be. When working models of Hi-tech and Lo-tech were presented to the first potential pharmaceutical customer, this represented a test of the two hypotheses. The result of this test was that the hypothesis represented by Hi-tech, which
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was favoured by top management, was rejected and the hypothesis represented by Lo-tech, which had more the character of a skunk work, was strengthened. The Lo-tech concept was therefore pursued and eventually launched as a final product. (b) Testing Hypotheses – the Underlying Assumptions An interesting category of hypothesis testing that was found was one in which NPD projects do not directly test their participants’ interpretations of product, market, process or organizational resources but rather test the assumptions underlying these interpretations. The project proceeds with an interpretation if its underlying assumptions are tested and strengthened. If, however, one or more important assumptions are tested and rejected, then the interpretation based on these assumptions must also be rejected. Members of the Snapper project team in Alpha conducted a series of focus-group sessions with the purpose of testing their assumptions about user needs and attitudes, price sensitivity and product usage. These sessions resulted in the rejection of some of the assumptions held within the project, underlying one of the product concept interpretations. The project team therefore rejected this interpretation. In Beta, the Lo-tech project team performed targeted field visits in which they tested, rejected, revised and strengthened a number of their assumptions about user needs, habits and motivation underlying the Lo-tech product concept interpretation. Companies Alpha, Gamma and Delta performed a series of tests in their R&D lab where assumptions pertaining to technology reliability, cost and performance were tested, rejected, revised and strengthened. Further developments of product interpretations were based on these revised and strengthened assumptions. (c) Ensuring Validity and Reliability To reduce ambiguity by testing the alternative interpretations according to the HDM, the project team – while performing each test – must ensure validity and reliability in the same way a scientist does when conducting a scientific experiment. Product descriptions, models, prototypes or other representations of the product must be representative of those aspects of the product one wishes to test, in order to ensure validity. Information sources that are used to test hypotheses about the market must be representative of the market. As an example, the LapDop project team in Delta conducted several tests of both their
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product hypothesis and its underlying assumptions through clinical trials, but they did not achieve the desired reduction of ambiguity about the market’s acceptance of the product. They came to realize that feedback from surgeons, however positive, did not necessarily represent general market acceptance, because decisions about hospital equipment purchases are influenced by purchasing officers as much as by clinicians. Similarly, representative information sources must be used to test hypotheses about the NPD process and about the organizational resources to ensure validity. The same line of argument applies to ensuring reliability. Information about the product, market, process, and organizational resources must be collected from sources that provide consistent information.
Sustaining Ambiguity Our analysis showed that ambiguity is sometimes sustained or even increased in NPD projects, and that NPD projects can benefit strategically by temporarily sustaining ambiguity. The benefits fall into three categories: (a) retaining flexibility, (b) saving costs, and (c) saving time and ensuring progression of the project. (a) Retaining Flexibility of Options Faced with ambiguity, the participants in a situation discuss and test out alternative interpretations in order to arrive at a commonly agreed-upon interpretation and thus reduce ambiguity. As we have described, the selection process is based on assumptions held by the participants involved, assumptions that later may be confirmed or rejected. If the assumptions underlying the selected interpretation are rejected later in the process, then the project will have no options for further progress if all former alternative interpretations have been eliminated. By not fully reducing ambiguity, but leaving certain interpretations open, the project will retain these as fallback options, should the assumptions underlying the selected interpretation fail. A variety of this category is if an alternative is partially discarded and partially sustained. Although the overall alternative will be discarded, it may contain ideas that one wishes to retain and make use of when further developing new alternatives of the selected interpretation. In Alpha Medical, alternative interpretations of both product concepts and of market segments were upheld to retain fallback options throughout the process. In Beta Medical, alternative concepts of the patientcompliance product idea were pursued in © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
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parallel in order to retain fallback options, as well as to retain what were considered interesting innovative ideas and to make use of them throughout the NPD process. (b) Saving Costs Our analysis revealed a category of ambiguity sustention that was associated with cost savings. Developing two or more alternative concepts in parallel is typically more costly than developing only one, so consistent ambiguity reduction would seem a cost-effective strategy in an NPD project. But the measures taken to reduce ambiguity also incur costs. Such costs are, for example, those of performing external tests or of bringing people from different locations together for meetings. Full reduction of ambiguity may therefore often be cost-prohibitive, or at least not cost-effective. In Gamma Medical, there was ambiguity about what the relevant market segments were and about the potential users’ attitudes to the product concept. Being a small company, Gamma lacked the resources to perform sufficient actions to reduce this ambiguity until late in the project, so ambiguity was temporarily sustained for cost reasons during the early phases of the project. (c) Saving Time and Ensuring Progress Measures such as experiments, marketresearch tasks and internal discussions that are taken to reduce ambiguity not only incur costs but also take time to perform. Therefore, alternative interpretations may be left open not because they are considered useful fallback options or too costly but because eliminating them will be too time-consuming at a particular project phase and jeopardize the project’s progress. Our analysis revealed that saving time and maintaining project progression is a third category of benefit that can be obtained by temporarily sustaining ambiguity. In Alpha’s NPD project there was a considerable sense of urgency to reach a given launch date – and insufficient time to clarify all ambiguous issues in sequence if this launch date was to be reached.
Managing Ambiguity – Harmonizing Needs Figure 1 represents an overall model to understand and manage ambiguity in NPD projects. By considering each cell within the matrix in the middle of Figure 1, one can identify where and why ambiguity occurs in an NPD project. To reduce the ambiguity, our model suggests two tactics. The first is to reduce ambiguity at its source. One can reduce ambiguity by © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
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reducing the amount of multiplicity related to the product (e.g., reducing the amount of functional requirements), related to the market (e.g., reducing the amount of target-market segments), related to the NPD process (e.g., reducing the amount of parallel activities) or related to organizational resources (e.g., reducing the number of organizational members involved in the project). Another way to reduce ambiguity at its source is to reduce the novelty, or the degree of newness, related to the product, to the market, to the NPD process or to the organization. One may, for example, question whether one is aiming at a too radical product idea or an immature market. However, innovation and NPD without novelty would be a self-contradiction. As argued by Brun, Saetre & Gjelsvik (2009), ambiguity is a natural companion to innovation, as a certain amount of ambiguity arising from multiplicity is needed in NPD projects because it provides the variety of options and ideas – and therefore the flexibility (Brun, Saetre & Gjelsvik, 2008) – that is essential to innovation, and reducing novelty too much would jeopardize innovation. Our model also illustrates the importance of ensuring trustworthy information sources in any NPD project to avoid ambiguity caused by low validity or low reliability. The second tactic to reduce ambiguity is to identify the conflicting interpretations that create ambiguity as well as the assumptions underlying these interpretations. Each of these interpretations and their underlying assumptions should be explicated as hypotheses and then tested individually by the logic of the HDM. Ambiguity must eventually be reduced before launching a specific product to a specific market, so as a main rule the project will seek clarity (i.e., lack of ambiguity) and therefore reduce ambiguity. But in order to deliver an innovative product in spite of dynamic and uncertain conditions in the environment, maintaining novelty and flexibility, especially in the early phase of the NPD project, is also a key concern. The manager of an NPD project must therefore continually consider whether each particular occurrence of ambiguity – in the particular phase the project is in – contributes usefully to innovation by providing desirable novelty and flexibility of options. If so, it can be useful to temporarily sustain the ambiguity. If not, ambiguity should be reduced, but one should consider whether it is most time- and cost-efficient to reduce ambiguity immediately or to delay the reduction. As illustrated in the box at the top of Figure 1, managing ambiguity according to our model does not mean merely reducing it;
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rather, managing ambiguity means harmonizing the need for clarity to achieve operational efficiency in the NPD project (for this purpose ambiguity should be reduced) and the need for novelty and flexibility to achieve innovation (for this purpose ambiguity may be temporarily sustained). The needs to save costs and time are factors that can justify either reducing or sustaining ambiguity, depending on the specific situation and the particular project phase.
Discussion Our research provides a model by which ambiguity in NPD – as distinct from uncertainty in NPD – can be understood and managed. As such our research deviates from numerous previous approaches to how best to understand and manage uncertainty in NPD projects (Cooper, 1994; Griffin, 1997; Verganti, 1999; Koen et al., 2001; Zhang & Doll, 2001; Kim & Wilemon, 2002; MacCormack & Verganti, 2003). We base our analysis on a definition of ambiguity as equivalent to equivocality. Weick (1979) stated that reducing equivocality is the very reason for organizing and developed the theory of sensemaking as a main approach to reducing ambiguity (Weick, 1995). Other authors have argued for the utility of sensemaking in innovative activities (Hill & Levenhagen, 1995; Dougherty et al., 2000). According to Weick (2001, p. 116), however, sensemaking is based on ‘structural frameworks’ of roles, rules, procedures and authority relations. If these elements are ambiguous, then the basis for sensemaking is weakened. In extreme cases, such as disaster situations, a collapse of these elements leads to a ‘collapse of sensemaking’ (Weick, 1993). An NPD project, of course, does not occur under similar drastic conditions, and we agree with Dougherty and her colleagues (2000) that sensemaking is a valid approach in NPD. Nevertheless, we did see in each of the studied cases that at least one or more of the above elements were ambiguous; there was ambiguity concerning roles and authorities in Alpha’s project organization and concerning operating procedures in the Alpha, Beta and Gamma cases. We therefore contend that these basic elements are not generally unambiguous in NPD projects and that the basis for sensemaking as an instrument to reduce ambiguity can be weakened in NPD projects. We have proposed an alternative model for reducing ambiguity in NPD projects. This model, with its application of the HDM, has the benefit of being both simple and well understood both by theorists and practitioners.
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We have argued that ambiguity arising from multiplicity and novelty is a natural ingredient of NPD, and that a one-sided emphasis on reducing it in the NPD project may hamper innovation. Management of ambiguity thus becomes a concern of continually harmonizing the need for flexibility and novelty and the need for clarity. This accords with other authors’ arguments that managers of NPD must accept and deal with ambiguity (Ahmed, 1998) or even purposefully use ambiguity (Nonaka & Takeuchi, 1995) to achieve innovation. Sustaining ambiguity to retain flexibility according to our model is also consistent with Eisenberg’s (1984) argument that strategic ambiguity enables flexibility, creativity and adaptability to context and environmental change. Because our empirical material includes only four cases, we cannot conclude that it applies generally to NPD projects. But the analytical categories that were identified are not specific to the limiting characteristics of our sample, i.e., established companies in the medical-device industry. Ambiguities about the product, the market, the NPD process and the organizational resources must be expected to be found in NPD projects regardless of company size, age, industry segment and geographical location. We therefore believe that our model also has applicability outside the limitations of our study. Further research is, however, needed both to determine the model’s wider applicability and to develop the model further.
Conclusion A prerequisite to managing fuzziness is to understand what its components are. We contend that ambiguity is different from uncertainty and an integral component of fuzziness. In this paper we have presented a model explaining how ambiguity in NPD projects can be classified in terms of its sources and the subjects it relates to. Ambiguity must eventually be reduced in an NPD project in order to finally bring a product to market, but a certain amount of ambiguity is inevitable and even necessary, at least in the early phase of the NPD project, in order to stimulate innovation. The theoretical contribution from our research is a model for classification and management of ambiguity in NPD projects, and we have discussed this model in relation to other NPD and innovation research, sensemaking and hypothesis testing. Our research has practical implications in that our model can help practitioners manage © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
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ambiguity in their NPD projects. In situations that are experienced as fuzzy in NPD projects, managers can use the classification model we have developed to determine whether this experience is caused by a presence of differing interpretations, i.e., ambiguity. The model can help them to identify the types of ambiguities present in their projects and to manage the ambiguity by continually weighing the need for clarity (achieved by reducing ambiguity) against the need for novelty and flexibility (achieved by sustaining ambiguity).
References Ahmed, P. (1998) Culture and Climate for Innovation. European Journal of Innovation Management, 1, 30–43. Aldrich, H. (1999) Organizations Evolving. Sage Publications, Thousand Oaks, CA. Bijker, W.E., Hughes, T.P. and Pinch, T. (1987) The Social Construction of Technological Systems. The MIT Press, Cambridge, MA. Brown, S. and Eisenhardt, K. (1995) Product Development: Past Research, Present Findings, and Future Directions. Academy of Management Review, 20, 343–78. Brun, E. and Saetre, A.S. (2008) Ambiguity Reduction in New Product Development Projects. International Journal of Innovation Management, 12, 573–96. Brun, E., Saetre, A.S. and Gjelsvik, M. (2008) Benefits of Ambiguity in New Product Development. International Journal of Innovation and Technology Management, 5, 303–19. Brun, E., Saetre, A.S. and Gjelsvik, M. (2009) Classification of Ambiguity in New Product Development Projects. European Journal of Innovation Management, 12, 62–85. Bryman, A. and Bell, E. (2003) Business Research Methods. Oxford University Press, Oxford. Burgelman, R.A. (2002) Strategy Is Destiny: How Strategy-Making Shapes a Company’s Future. The Free Press, New York. Charmaz, K. (2006) Constructing Grounded Theory: A Practical Guide through Qualitative Analysis: Methods for the 21st Century. Sage Publications, London. Cooper, R.G. (1988) Predevelopment Activities Determine New Product Success. Industrial Marketing Management, 17, 237–47. Cooper, R.G. (1990) Stage-Gate Systems: A New Tool for Managing New Products. Business Horizons, 33, 44–53. Cooper, R.G. (1994) Third Generation New Product Processes. Journal of Product Innovation Management, 11, 3–14. Cooper, R.G. and Kleinschmidt, E.J. (1995) Benchmarking the Firm’s Critical Success Factors in New Product Development. Journal of Product Innovation Management, 12, 374–91. Daft, R.L. and Lengel, R.H. (1984) Information Richness: A New Approach to Managerial Behavior and Organizational Design. In Staw, B.M. and © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
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Cummings, L.L. (eds.), Research in Organizational Behavior, JAI Press, Greenwich, CT, pp. 191–233. Daft, R.L. and Lengel, R.H. (1986) Organizational Information Requirements, Media Richness and Structural Design. Management Science, 32, 554–71. Dougherty, D., Borrelli, L., Munir, K. and O’Sullivan, A. (2000) Systems of Organizational Sensemaking for Sustained Product Innovation. Journal of Engineering and Technology Management, 17, 321–55. Eisenberg, E. (1984) Ambiguity as Strategy in Organizational Communication. Communication Monographs, 51, 227–42. Eisenhardt, K.M. (1989) Building Theories from Case Study Research. Academy of Management Review, 14, 532–50. Eisenhardt, K.M. and Tabrizi, B. (1995) Accelerating Adaptive Processes: Product Innovation in the Global Computer Industry. Administrative Science Quarterly, 40, 84–110. Glaser, B. and Strauss, A. (1967) The Discovery of Grounded Theory: Strategies for Qualitative Research. Aldine de Gruyter, New York. Griffin, A. (1997) PDMA Research on New Product Development Practices: Updating Trends and Benchmarking Best Practices. Journal of Product Innovation Management, 14, 429–58. Hill, R.C. and Levenhagen, M. (1995) Metaphors and Mental Models: Sensemaking and Sensegiving in Innovative and Entrepreneurial Activities. Journal of Management, 21, 1057–74. Khurana, A. and Rosenthal, S.R. (1997) Integrating the Fuzzy Front End of New Product Development. Sloan Management Review, 38, 103–20. Khurana, A. and Rosenthal, S.R. (1998) Towards Holistic ‘Front Ends’ in New Product Development. Journal of Product Innovation Management, 15, 57–74. Kim, J. and Wilemon, D. (2002) Focusing the Fuzzy Front-End in New Product Development. R&D Management, 32, 269–79. Koen, P., Ajamian, G., Burkart, L., Clamen, A., Davidson, J., D’Amore, R., Elkins, C., Herald, K., Incorvia, M., Johnson, A., Karol, R., Seibert, R., Slavejkov, A. and Wagner, K. (2001) Providing Clarity and a Common Language to the ‘Fuzzy Front End’. Research-Technology Management, 44, 46–55. MacCormack, A. and Verganti, R. (2003) Managing the Sources of Uncertainty: Matching Process and Context in Software Development. Journal of Product Innovation Management, 20, 217–32. MacCormack, A., Verganti, R. and Iansiti, M. (2001) Developing Products on ‘Internet Time’: The Anatomy of a Flexible Development Process. Management Science, 47, 133–50. March, J.G. (1994) A Primer on Decision Making: How Decisions Happen. The Free Press, New York. Miles, M.B. and Huberman, A.M. (1984) Qualitative Data Analysis, Sage Publications, Beverly Hills, CA. Miles, M.B. and Huberman, A.M. (1994) Qualitative Data Analysis, 2nd edn. Sage Publications, Thousand Oaks, CA. Moenaert, R.K., De Meyer, A., Souder, W.E. and Deschoolmeester, D. (1995) R&D/Marketing Communication during the Fuzzy Front-End.
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IEEE Transactions on Engineering Management, 42, 243–58. Myrup Andreasen, M. and Hein, L. (1987) Integrated Product Development. Springer Verlag, London. Nonaka, I. and Takeuchi, H. (1995) The KnowledgeCreating Company. How Japanese Companies Create the Dynamics of Innovation. Oxford University Press, New York. Orton, J.D. (1997) From Inductive to Iterative Grounded Theory: Zipping the Gap between Process Theory and Process Data. Scandinavian Journal of Management, 13, 419–38. Reid, S. and de Brentani, U. (2004) The Fuzzy Front End of New Product Development for Discontinuous Innovations: A Theoretical Model. Journal of Product Innovation Management, 21, 170–84. Spender, J.-C. (1996) Making Knowledge the Basis of a Dynamic Theory of the Firm. Strategic Management Journal, 17, 45–62. Strauss, A. and Corbin, J. (1998) Basics of Qualitative Research. Techniques and Procedures for Developing Grounded Theory, 2nd edn. Sage Publications, Thousand Oaks, CA. Urban, G.L. and Hauser, J.R. (1993) Design and Marketing of New Products, 2nd edn. Prentice Hall, Englewood Cliffs, NJ. Verganti, R. (1997) Leveraging on Systematic Learning to Manage the Early Phases of Product Innovation Projects. R&D Management, 27, 377– 92. Verganti, R. (1999) Planned Flexibility: Linking Anticipation and Reaction in Product Development Projects. Journal of Product Innovation Management, 16, 363–76. Verworn, B., Herstatt, C. and Nagahira, A. (2006) The Impact of the Fuzzy Front End on New Product Development Success in Japanese NPD Projects. Technische Universität Hamburg-Harburg. Weick, K.E. (1979) The Social Psychology of Organizing, 2nd edn. McGraw-Hill, New York. Weick, K.E. (1993) The Collapse of Sensemaking in Organizations: The Mann Gulch Disaster. Administrative Science Quarterly, 38, 628–52. Weick, K.E. (1995) Sensemaking in Organizations. Sage Publications, Thousand Oaks, CA. Weick, K.E. (2001) Making Sense of the Organization. Blackwell Publishers, Oxford. Yin, R. (1994) Case Study Research – Design and Methods, 2nd edn. Sage Publications, Thousand Oaks, CA. Zhang, Q. and Doll, W. (2001) The Fuzzy Front End and Success of New Product Development: A Causal Model. European Journal of Innovation Management, 4, 95–112.
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Eric Brun (
[email protected]) is an Assistant Professor at the University of Stavanger (UiS), Department for Business Administration, Norway. He has taught at UiS since 2001, lecturing courses on product development and innovation management. Eric Brun holds a Masters Degree (Siv.ing.) in Medical Technology from NTNU – the Norwegian University of Science and Technology. Prior to joining UiS, he worked in the medical device industry, involved mainly in developing and launching medical training products. Other work experience includes business research related to product commercialization and diffusion of environment and energy technologies. Eric Brun is currently embarked on a PhD programme in Industrial Economics and Technology Management at NTNU. The working title of his PhD project is ‘Ambiguity in product innovation processes’, and is based on case studies of product innovation projects in established medical device companies. His main research interests are management of innovation processes, organizational knowledge development and learning and qualitative research methods. Dr Alf Steinar Sætre (alf.steinar@ iot.ntnu.no) is an Associate Professor in the Department of Industrial Economics and Technology Management at The Norwegian University of Science and Technology. His research interests are in the areas of information and communication technologies, organizing, information management, innovation, technology commercialization, product development and new venture creation. He has published papers in such journals as Venture Captial, The International Journal of Entrepreneurship and Innovation, Informing Science and Journal of Information, Information Technologies and Organizations. He is a co-author of the recent book Information and Communication Technologies in Action: Linking Theory and Narratives of Practice. He has authored research reports including Intrapreneurship: An Exploratory Study of Select Norwegian Industries, The Demand Side of the Informal Venture Capital Market, and University Spin-offs as Technology Commercializtion. Alf Steinar has a PhD from The University of Texas at Austin, where he was a Research Associate at the Institute for Creativity and Capital.
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Low-Cost versus Innovation: Contrasting Outsourcing and Integration Strategies in Manufacturing Lars Bengtsson, Robin von Haartman and Mandar Dabhilkar This paper analyses how two different outsourcing manufacturing strategies relate to plant performance and innovation capability when taking into account the organizational integration of design and manufacturing as well as product complexity. The study discriminates between low-cost-oriented outsourcing and innovation-oriented outsourcing. The empirical data used is based on a survey of 267 engineering firms, of which half have outsourced manufacturing. We found that the two outsourcing strategies do have different effects, which illustrates that outsourcing represents a trade-off between improving innovation capability and lowering costs. The study furthermore shows that manufacturing and supplier integration in product design processes is mainly beneficial when applying innovation-oriented outsourcing, and in particular when products and manufacturing processes are complex.
Introduction
O
utsourcing has become a common strategic tool in many Western manufacturing firms in recent years (Beaumont & Sohal, 2004; Kakabadse & Kakabadse, 2005). The most common motives and proclaimed benefits of outsourcing concern cost reduction, due to suppliers’ superior economy of scale and/or lower wages. An emerging rationale for outsourcing is to become more innovative through increased focus and by getting access to suppliers’ competencies (Quinn, 2000; Medina, Lavado & Cabrera, 2005; Outsourcing Institute, 2005; Fifarek, Veloso & Davidson, 2008). Despite the strong arguments for outsourcing research, previous studies on outsourcing effects show few or contradictory results concerning the effects of outsourcing on performance (Gilley & Rasheed, 2000; Laugen et al., 2005; Espino-Rodriguez & PadronRobaina, 2006; Bengtsson, 2008). We suggest three possible explanations for the ambiguous outcomes of outsourcing manufacturing. One is that few studies acknowledge the relation between outsourcing motives and their © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
respective effects. As previous studies mix various motives, the reported outcome will likely differ. A second plausible explanation for the contradictory results is that outsourcing represents a trade-off situation and a dilemma. Previous studies indicate that outsourcing for cost reasons may damage the capacity for industrialization (preparing new products for volume manufacturing) and thus the innovation capability of firms (Mol, 2005; Dankbaar, 2007; Bengtsson & Berggren, 2008). A third possible explanation is that the outcome of outsourcing is moderated by the strategy for internal and external integration, as suggested by some researchers (McIvor, 2005; Espino-Rodriguez & Padron-Robaina, 2006). The integration needs and mechanisms are furthermore affected by the complexity of products and manufacturing processes. High complexity and interdependencies between components and processes have generally been considered a barrier for effective outsourcing (e.g., Chesbrough & Teece, 2002 [1996]; Ulrich & Ellison, 2005). Despite the numerous studies describing the significance
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of integrating suppliers and manufacturing in product development (Primo & Amundson, 2002; Tessarolo, 2007), there is a lack of largescale studies that evaluate the moderating effects of internal and external integration in relation to different types of outsourcing manufacturing. The purpose of the paper is to use a largescale survey to analyse how different manufacturing outsourcing strategies affect performance outcomes when taking into account the integration of design and manufacturing and complexity. In this paper we will specifically separate low-cost-oriented outsourcing from innovation-oriented outsourcing. The purpose can be specified in two research questions: • How do low-cost-oriented and innovationoriented outsourcing manufacturing strategies relate to the effects of outsourcing? • How does integration of product design and manufacturing as well as suppliers affect the outcome of different outsourcing manufacturing strategies? The performance measures used in this study are limited to costs and innovation capability in terms of new functionality in products and time-to-market (TTM). The paper aims to contribute to the outsourcing and operations management literature in several ways. First, it provides a contemporary empirical comparison, using a large-scale survey, of outsourcing motives and strategies and their different effects on cost and innovation capability in engineering firms. Second, the results further explain why previous research has obtained mixed results. By discriminating between two outsourcing strategies, the study explores outsourcing as a trade-off. This sheds more light on how to successfully manage the balance between innovation and cost imperatives in large enterprises. Third, by evaluating the combined effects of outsourcing manufacturing and integration, the study stresses that managing interfaces is a key to successful management of the outsourcing dilemma. Complementary to previous research, this study emphasizes that integrating design and suppliers with manufacturing processes is beneficial mainly when applying innovation-based outsourcing, and in particular when products and manufacturing processes are complex.
Theoretical Framework and Hypotheses There are a number of definitions of outsourcing (see, e.g., Gilley & Rasheed, 2000; Espino-
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Rodriguez & Padron-Robaina, 2006). In this article we define outsourcing manufacturing as the process of transferring in-house manufacturing to an external supplier. In line with GAO (2004), we distinguish outsourcing from offshoring. Outsourcing means externalizing manufacturing activities to external suppliers. Offshoring refers to offshore sourcing from an internal or external supplier located abroad. In the following we will present previous research related to our research questions, and formulate four hypotheses based on this.
How do Outsourcing Motives Relate to Effects? The effects of outsourcing on firms’ performance are not completely clear. Previous outsourcing studies show contradictory results; while some claim a positive relationship between outsourcing and performance outcomes (e.g., Heshmati, 2003; Görg & Hanley, 2005), others report no significant or even negative effects (Gilley & Rasheed, 2000; Laugen et al., 2005; Espino-Rodriguez & Padron-Robaina, 2006). The long-term effects of outsourcing on firm competence and innovation capability are even less known (Smith et al., 2007). One possible explanation for the variety of experiences is that outsourcing is a multifaceted concept; the mixed results could thus be an effect of a combination of different motives. It would indeed be unexpected if, for example, outsourcing aimed at cost reduction increased innovation capability. Even though some studies analyse different kinds of outsourcing, e.g., distinguishing between core and non-core outsourcing (Gilley & Rasheed, 2000), there are no studies to our knowledge specifically scrutinizing the relation between different outsourcing motives and their effects. Based on motives, the outsourcing literature has focused mainly on either one of two types of outsourcing, cost-oriented outsourcing or strategic outsourcing (Kakabadse & Kakabadse 2005; Espino-Rodriguez & Padron-Robaina, 2006). The dominant strategy has been outsourcing for cost reasons, driven by the suppliers’ economy of scale (Quinn, 1999; Cachon & Harker, 2002) and lower labour costs (Choi, 2007). The second type of outsourcing is driven by an ambition to become more innovative. Sometimes this is presented as a strategy to focus on the firm’s core competence and increase its ability to implement fast product development (Harland et al., 2005). There are two main arguments for innovation-oriented outsourcing in the literature. One is that outsourcing © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
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releases resources from non-core activities to be spent on innovation activities (Medina, Lavado & Cabrera, 2005). A more common argument is that outsourcing is regarded as a vehicle for building innovation capability by learning from and getting access to new competencies held by partners and suppliers (Baden-Fuller, Targett & Hunt, 2000; Quinn, 2000; Kakabadse & Kakabadse, 2005). It is argued that development of advanced technological products has increasingly become an inter-organizational process, involving webs of geographically dispersed players and manufacturing sites (Brusoni, Prencipe & Pavitt, 2001; Mol, 2005). In order to discriminate among the different kinds of outsourcing, we start by proposing a direct correlation between outsourcing motives and effects. This can be expressed in two hypotheses: H1a Firms that apply low-cost-oriented outsourcing will lower the product development costs of outsourced products. H1b Firms that apply innovation-oriented outsourcing will improve innovation capability in terms of time-to-market and product functionality.
Outsourcing as a Trade-Off Expanding the previous argument, another possible explanation of the contradictory outcomes is that outsourcing represents a tradeoff situation. The literature on trade-offs is vast and covers several scientific disciplines (see the overview in Ghemawat & Ricart i Costa, 1993), expressed in terms of end poles such as exploit vs. explore (March, 1991) or efficiency vs. flexibility (Adler, Goldoftas & Levine, 1999). The core message is that an organization cannot excel in all areas at the same time, while each capability is contingent on and corresponds to a specific organizational design. In the manufacturing area an early contribution was made by Skinner (1969), who suggested that factories face a trade-off between certain capabilities, such as quality, time and costs. Trade-off models have, however, been questioned by researchers claiming that global competition forces organizations to develop multiple capabilities. They suggest that improvements in performance capabilities in areas such as quality, cost and flexibility relate to each other and follow potential sequences or patterns. An example of this is the so-called sand cone model by Ferdows and de Meyer (1990), which asserts that firms should start with quality. In a meta-analysis White (1996) presented some support for such related capabilities. Adler, Goldoftas and Levine (1999), © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
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however, claim that the empirical support for the sand cone model is weak. When analysing the trade-off between efficiency and flexibility they instead conclude that each firm’s ability to manage the trade-off varies. The key question rather becomes how to take a position above the average trade-off line. Another position is taken by Narasimhan, Swink and Kim (2005), who found that manufacturing capabilities are linked to specific performance gains and suggested that manufacturing plants follow different paths where capabilities are cumulative. This debate is also relevant when analysing outsourcing. Starting with costs, previous studies have shown that outsourcing is a balancing act between lower manufacturing costs abroad and lower transaction costs locally (Mol, 2005). Of specific interest for our study is the trade-off between low-cost-oriented and innovation-oriented outsourcing. Studies indicate that outsourcing for cost reasons may damage the industrialization and innovation capability of the firm (Dankbaar, 2007; Bengtsson & Berggren, 2008). Outsourcing furthermore represents a learning dilemma. While outsourcing may open doors to external expertise and support inter-firm learning processes as described above (e.g., Quinn, 2000), several studies question the realized effects on innovation capability due to risks of organizational fragmentation and loss of critical internal skills, such as process expertise or the architectural knowledge needed to make sound sourcing decisions (Chesbrough & Teece, 2002 [1996]; Hoecht & Trott, 2006). There are also strong arguments in the product development literature for co-locating and integrating key activities, processes and knowledge in product and manufacturing processes, at least in complex product areas (Ulrich & Ellison, 2005). Allocca and Kessler (2006), for instance, found that new product development (NPD) projects were actually slowed down by outsourcing. To test the trade-off when outsourcing manufacturing, we formulate the following hypotheses: H2a Firms that apply low-cost-oriented outsourcing will experience a lower innovation capability, in terms of longer time-to-market and less product functionality. H2b Firms that apply innovation-oriented outsourcing will experience higher product development costs.
The Impact of Internal and External Integration Regardless of whether firms outsource manufacturing or prefer internal manufacturing,
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there is a need to co-ordinate product design and manufacturing by using several integration mechanisms (Passhuis & Boer, 1997; Smulders et al., 2002). This is also recognized by an approach presented by McIvor (2005), whose model, in contrast to many others, distinguishes between two major decisions. The first is the strategic choice of whether to outsource or not, and the second, if outsourcing has been the preferred option, is about how to manage the new supplier relationship. Although outsourcing necessitates some degree of external integration, the effectiveness of that integration may depend on internal integration (Droge, Jayaram & Vickery, 2004; Hillebrand & Biemans, 2004; Gimenez & Ventura, 2005). Koufteros, Vonderembse and Jayaram (2005) conclude that a high degree of external integration may indeed require internal integration. Some authors maintain that both internal and external integration are important for effective NPD (Tessarolo, 2007). This implies that when analysing the effects of outsourcing, both internal and external integration need to be taken into account. In this paper we will restrict our analysis to two organizational mechanisms that describe the extent and form of supplier involvement and the integration of production personnel in the process of developing products and manufacturing processes. The significance of early involvement of suppliers for successful product development is well recognized by numerous studies (e.g., Clark & Fujimoto, 1991; Calabrese, 2000; Ragatz, Handfield & Petersen, 2002; Petersen, Handfield & Ragatz, 2005). In an analysis of three case companies within the telecoms industry, Marshall, McIvor and Lamming (2007) also found that firms that have established collaborative relationships with their suppliers attained higher levels of success with outsourcing. The study did not, however, explicitly discriminate among various outsourcing strategies. An overview of studies on supplier involvement moreover showed mixed results (see Primo & Amundson, 2002). One explanation for this concerns the increased complexity when managing suppliers (Hartley, Zirger & Kamath, 1997) and that early involvement of suppliers is beneficial mostly when the suppliers provide certain skills (Fagerström & Jackson, 2002). Overall this indicates that firms applying an innovation outsourcing strategy would gain more from supplier involvement than firms applying cost-oriented outsourcing. Most researchers agree that efficient NPD and industrialization processes require early involvement of the manufacturing function in the design process (Swink, 1999; Elfving, 2007), particularly when components have a
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high degree of interdependency (Ulrich & Ellison, 2005). Few studies have, however, analysed the outcome of outsourcing in relation to an integrated strategy depending on the internal integration, in our case the involvement of manufacturing personnel in product development processes (see, e.g., Smulders et al., 2002). Because the effects of outsourcing depend on both internal and external integration, we can formulate the following hypotheses: H3a Internal integration between manufacturing and product development has a positive moderating effect on outsourcing, resulting in shorter time-to-market and higher product functionality. H3b External (supplier) integration has a positive moderating effect on outsourcing, resulting in shorter time-to-market and higher product functionality.
Complexity of Products and Manufacturing The need for integration is affected by a number of contingency factors. As rather few outsourcing studies have systematically determined what has been outsourced, we chose to investigate the moderating effect of complexity of the product and manufacturing. In an investigation of three contingencies, Koufteros, Vonderembse and Jayaram (2005) also found that equivocality, which stems from the ambiguity when developing complex products, has an effect on the relationship between integration and performance. For complex and rapidly changing products, integration capabilities seem to be crucial for innovation, i.e., the capability for rapid product industrialization and market introduction, and the knowledge to make proper sourcing decisions (Sturgeon, 2002). Chesbrough and Teece (2002 [1996]) argue that systemic innovation, in contrast to autonomous innovations, require integration rather than outsourcing. Based on the same reasoning, Lakemond, Berggren and van Weele (2006) claim that the need for integration is stressed specifically when dealing with complex products characterized by high interdependencies between various design process steps. This means that outsourcing complex products will likely be much more problematic than outsourcing more modular processes or products (Ulrich & Ellison, 2005). Based on this we suggest the following: H4a The impact of internal integration on outsourcing outcome is stronger when product and manufacturing complexity is high. H4b The impact of external integration on outsourcing outcome is stronger when product and manufacturing complexity is high. © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
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Integration -Supplier integration -Manufacturing integration
H3 Outsourcing strategies -Low-cost outsourcing -Innovation outsourcing
Performance outcomes
H1
-Cost -TTM -Product functionality
H2 H4
Contextual factors -Complexity in product and manufacturing
Figure 1. Conceptual Model
Conceptual Model In order to explore the outcome of different outsourcing and integration strategies empirically while taking the product complexity into account, we can summarize the hypotheses (1–4) in a conceptual model, displayed in Figure 1. Besides the moderating effect of integration, the model also recognizes that integration has a direct effect on performance. The model is inspired by the framework proposed by Espino-Rodriguez and Padron-Robaina (2006).
Survey Methodology and Constructs The empirical data is based on a survey sent out to a representative sample of Swedish manufacturing plants of engineering firms with more than 50 employees in the following sectors: metal goods, machinery, office equipment and computers, other electronics, telecommunications, instrumentation, and automotive (ISIC codes 28–35). The total population was 1,003 plants, from which 606 were randomly selected, in accordance with five strata. The number was later adjusted to 563 owing to factors such as the company going out of business. After sending three reminders, we obtained complete responses from 267 plants, a response rate of 47 per cent. A separate analysis of non-respondents was conducted by telephoning a random and stratified sample of non-respondents. When comparing the answers on key questions (regarding size, kind of production, whether the plant has design capability, as well as the complexity in design and production), no bias was detected. Another analysis comparing early and late responses confirmed the validity of the sample. The survey instrument includes a total of 51 questions, resulting in 198 items. These cover © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
many different areas but this paper is concerned only with those questions dealing with outsourcing characteristics, motives, strategy and outcome, product complexity and supplier integration, as well as internal manufacturing and integration in product development. The analysis in this paper concerns the 50 per cent of the firms that stated they had outsourced manufacturing during the past three years.
Outsourcing Strategies The paper focuses on two types of outsourcing strategies: innovation and low-cost. These strategies reflect both the intentions and the actions taken. The constructs are based on the motives of outsourcing and the characteristics of outsourcing, which concern what is outsourced and to whom. By multiplying the two basic constructs, two strategy indicators were developed, which represent: • low-cost outsourcing, i.e., an indicator of outsourcing manufacturing for cost reasons to low-cost regions; • innovation outsourcing, i.e., an indicator of outsourcing manufacturing and components of high customer value and/or design processes to gain access to new knowledge by engaging suppliers with higher innovative capability. The descriptive statistics on the constructs are presented in Table 1. Firms that do not outsource manufacturing at all, which include half of the companies in the survey, are not analysed in this paper. In the next step, the outsourcing strategy indicators are used in a two-step cluster analysis (SPSS). The result was three groups of firms with significantly different outsourcing profiles on the two indicators (see Table 2). The first two outsourcing strategy clusters were
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Table 1. Descriptive Statistics of Outsourcing Strategy Indicators Mean
SD
Motives (scale 1–5, N = 136) M1. Cost reduction of outsourced component M2. Access to competence M3. To take advantage of supplier’s higher innovation capability
3.6 2.2 1.8
1.5 1.3 1.0
Characteristics of the outsourcing process (scale 1–5, N = 135) C1. High customer value of the outsourced component C2. Design responsibility outsourced when outsourcing mfg C3. Outsourcing to low-cost regions
2.7 4.3 2.7
1.2 1.2 1.6
10.8 4.6
8.8 3.6
Outsourcing strategy indicators (scale 1–25, N = 134) OS1. Low-cost outsourcing (M1*C3) OS2. Innovation outsourcing ((M2 + M3)/2*(C1 + C2)/2)
Note: The survey question on motives (M) was posed as follows: ‘How important were the following motives for outsourcing manufacturing during the last three years?’ Each motive was measured on a five-point scale: 1 = No importance, 5 = Determining factor. The question on characteristics (C) was posed as follows: ‘How would you characterize your manufacturing outsourcing during the last three years?’ A five-point semantic scale was used for each item.
Table 2. Outsourcing Strategy Clusters Cluster
% of firms
Outsourcing strategy indicator Low-cost
1. Innovation outsourcing firms 2. Low-cost outsourcing firms 3. Other outsourcing firms Total (N = 128)
Innovation
Mean
SD
Mean
SD
15 38 47
6.6 21.2 3.9
3.9 4.1 3.0
10.9 3.8 3.1
3.9 2.7 1.3
100
10.9
8.9
4.5
3.6
called innovation-oriented and low-costoriented outsourcing firms. The third cluster of firms focused on other motives, and is left out of our further analysis.
content and the timing of manufacturing department involvement in PD processes. Supplier Integration
Integration Manufacturing Integration The construct on internal integration focuses on the integration of manufacturing function in product development (PD) processes. It is based on the six items presented in Table 3. The statements here are influenced mainly by IMSS (2002) and research on the role of manufacturing in NPD processes (Swink, 1999). The goal of the construct is to capture both the
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The construct on supplier integration is based on the five items presented in Table 4. The statements are influenced mainly by IMSS (2002), but also Ragatz, Handfield and Petersen (2002) and Lamming (1996). The statements regarded the involvement of the company’s most important suppliers, since intensive supplier involvement is likely more interesting to the customer when dealing with strategic or complex products and processes (Primo & Amundson, 2002). The statements © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
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Table 3. Manufacturing Integration. Confirmatory Factor Analysis Indicator of manufacturing integration in product development (scale 1–5) Production personnel inform design personnel about production capabilities The production department suggests changes in product design to improve manufacturability Production processes are developed parallel to product development Production personnel are involved early in product development projects Personnel from production and design cooperate intensively
0.76 0.79 0.82 0.78 0.79
Cronbach’s alpha a = 0.84. Percentage of variance explained b = 62%. N = 257 Note: The survey question was posed as follows: ‘Please indicate how the following statements apply to the role of manufacturing in your internal product development process’. Each motive was measured on a five-point scale.
Table 4. Supplier Integration. Confirmatory Factor Analysis Indicator of supplier integration (scale 1–5) Our most important suppliers contribute early in the product development process We pursue joint efforts to reduce costs We give suppliers access to manufacturing plans and systems They (suppliers) contribute to significant product improvements We co-operate actively to integrate our manufacturing processes
0.80 0.85 0.76 0.81 0.81
Cronbach’s alpha a = 0.87. Percentage of variance explained b = 67%. N = 263. Note: The survey question was posed as follows: ‘Please indicate how the following statements apply to the collaboration with your most important supplier’. Each motive was measured on a five-point scale.
were designed to capture both mechanisms for engaging suppliers as well as to what extent their input is actually valued in the firms’ efforts to reduce costs and develop new products. Combined Effects In order to evaluate the combined effects of outsourcing strategy and the extent of supplier and manufacturing integration, we performed a straightforward multiplication of the previously defined concepts on outsourcing and integration.
Contextual Factor: Product and Manufacturing Complexity The complexity construct is based on the sum of two questions: the complexity of manufacturing and the complexity of designing the main product. Both factors were measured on a five-point scale. The mean value for this construct for outsourcing firms is 7.6, with a standard deviation of 1.8. In the analysis we © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
will specifically investigate firms with more complex products and manufacturing (in this case where the complexity sum is equal to or greater than 8).
Performance Outcomes Performance outcomes are the dependent variables in our conceptual model. In this paper we will focus on one measure of cost reduction and two measures of innovation capability as described in Table 5. The cost measure is given while cost reduction is the main motive for outsourcing manufacturing. The TTM measure is especially interesting, as it reflects the discussion on whether internal and external integration speed up or slow down the product development process (e.g., Tessarolo, 2007). Improved functionality and quality are commonly used measures of innovation capability (see, e.g., Koufteros, Vonderembse & Jayaram, 2005). Two kinds of performance analysis were carried out. In the first analysis we explored the direct outcomes of different outsourcing
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Table 5. Performance Outcomes. Confirmatory Factor Analysis Performance outcome indicators (7-point scale from -3 to +3) (N = 133) Cost reduction (a = 0.64; Var.explained: 73.9%) Reduced costs for the outsourced product Increased control over costs
0.86 0.86
TTM (a = 0.77; Var.explained: 68.5%) Reduced time for developing new products Reduced time for industrialization Reduced costs for developing new products
0.84 0.89 0.74
Functionality (a = 0.44; Var.explained: 65.5%) New functionality in the outsourced product Improved quality
0.81 0.81
Note: The survey question was posed as follows: ‘Please indicate the effect outsourcing of manufacturing has had on the stated factors’. Each motive was measured on a seven-point scale, ranging from -3 to +3.
Table 6. Mean Value Outcomes for Different Outsourcing Clusters (Anova) Outsourcing strategy clusters 1. Innovation-oriented outsourcing 2. Low-cost-oriented outsourcing 3. Other outsourcing
% of firms
Cost
TTM
Functionality
15 38 47
-0.16 0.43 [3*] -0.27 [2*]
0.76 [2**, 3**] -0.11 [1**] -0.15 [1**]
0.59 [2**, 3**] -0.20 [1**] -0.08 [1**]
Note: The group numbers within brackets [ ] indicate that the mean difference between groups is significant at the 0.05 level (*) or at the 0.01 level (**). N = 126.
strategies by comparing the clusters of firms (Table 2). The second analysis concerns correlations between the outcome variables and the indicators for outsourcing strategies and organizational integration, as well as a combination of them.
Results The descriptive statistics of outsourcing strategies that were displayed in Tables 1 and 2 show, as expected, that low-cost-oriented outsourcing is more common than outsourcing for innovation reasons. Table 2 showed that firms also apply strategies other than low-cost or innovation outsourcing. Table 6 shows that firms applying innovation-oriented outsourcing perceive significantly better improvements in TTM and functionality compared to low-cost outsourcing firms (and other firms). Low-cost outsourcing firms, on the other hand, perceive stronger cost reduction than other firms, even though they cannot be significantly separated
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from innovation outsourcing firms. The correlation analysis in Table 7 correspondingly shows that the low-cost outsourcing indicator correlates with the cost performance, while the innovation outsourcing indicator correlates with both TTM and improved product functionality. Hypotheses 1a and 1b are thus supported. There is some evidence to show outsourcing is a trade-off decision. The cluster analysis (Table 6) shows that low-cost outsourcing firms experience significantly lower effects on TTM and product functionality than innovation outsourcing firms. Table 7 also displays a negative correlation between low-cost outsourcing and innovation outcomes in terms of TTM and functionality, even if the correlation is not significant. This means that hypothesis 2a is mostly supported, i.e., that low-costoriented outsourcing lowers the innovation capability compared to other firms. Tables 6 and 7 correspondingly show that firms that outsource for innovation have a lower cost reduction capability than low-cost-oriented firms, but the difference is not significant. This © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
© 2009 The Authors Journal compilation © 2009 Blackwell Publishing
-0.140 -0.077 0.030 -0.012 0.012 -0.056 125
Combined strategy indicators Low-cost outs. ⴱ Supplier integr. Innovation outs. ⴱ Supplier integr. Low-cost outs. ⴱ Manuf. integr. Innovation outs. ⴱ Manuf. integr. Low-cost outs. ⴱ Total integr. Innovation outs. ⴱ Total integr. N= 0.043 0.351 0.017 0.270 0.004 0.382 124
0.159 0.097 0.183
-0.076 0.319
TTM
All firms
0.040 0.268 -0.058 0.148 0.061 0.237 125
0.152 0.065 0.134
-0.085 0.405
Function
-0.041 -0.111 0.056 -0.028 0.026 -0.088 73
-0.037 0.197 -0.053
0.394 -0.056
Cost
0.083 0.508 0.073 0.387 0.054 0.553 72
0.232 0.140 0.380
-0.14 0.454
TTM
0.118 0.304 -0.081 0.195 -0.001 0.244 73
0.146 0.084 0.121
-0.094 0.339
Function
Firms with complex products and manufacturing
Notes: Values in bold indicate correlation is significant at the 0.01 level (two-tailed). Underlined numbers indicate that correlation is significant at the 0.05 level (two-tailed). ‘Outs.’ = ‘outsourcing’.
-0.060 0.162 -0.038
0.413 0.016
Cost
Integration indicators Supplier integration Manufacturing integration Supplier ⴱ Manuf. integration (Total)
Outsourcing strategy indicators Low-cost outsourcing Innovation outsourcing
Indicators
Table 7. Correlation Analysis (Pearson)
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means that we cannot confirm hypothesis 2b based on this analysis. The moderating effects of integration on outsourcing outcomes are displayed in Table 7. Supplier integration exhibits few direct correlations with outsourcing effects, except for TTM. The combined effects of outsourcing and integration are significant for the innovation strategy but not for low-cost outsourcing. This pattern is stronger for complex products and manufacturing. We thus find partial support for hypotheses 3a and 3b. Finally, the results in Table 7 indicate that complex products and manufacturing processes make internal and external integration more important for the success of innovationoriented outsourcing. This means that the study supports both hypotheses 4a and 4b.
Discussion The first research question concerned the performance outcomes of different outsourcing strategies. Even though previous studies have shown contradictory effects of outsourcing, the distinctions between two outsourcing strategies revealed some coherent patterns. Low-cost outsourcing significantly correlated to cost reduction. Correspondingly, there is a clear correlation between innovation outsourcing and innovation outcome (in terms of functionality and TTM). This shows that different outsourcing strategies do have different effects as formulated in the first two hypotheses. This result means that the mixed outcomes presented in previous studies on outsourcing (e.g., Espino-Rodriguez & Padron-Robaina, 2006), might at least partly be explained by a mix of different outsourcing strategies. In contrast to Allocca and Kessler (2006), our findings furthermore show that innovation outsourcing may be beneficial for innovation capability. This contradiction might be explained by differences in measures used, but perhaps more importantly by the fact that we specifically identified firms pursuing an innovation outsourcing strategy. The results provided partial support for the hypotheses that outsourcing represents a trade-off decision. We cannot fully claim that low-cost outsourcing has negative effects on TTM and functionality, but low-cost outsourcing firms do experience significantly lower effects on TTM and product functionality than innovation outsourcing firms. The result confirms the study by Dankbaar (2007) that proposed a possible trade-off between costs and innovation capability when outsourcing manufacturing. The lack of correlation between low-cost-oriented outsourcing and
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innovation capability thus contrasts with the suggestions made by Medina, Lavado and Cabrera (2005). One possible explanation is that firms applying a low-cost-oriented outsourcing strategy do not use the free resources created by outsourcing to cultivate their own innovation capability. Hypothesis 2b was not supported. Firms that apply an innovation-oriented outsourcing have a lower cost reduction capability than low-cost-oriented firms, but the difference is not significant. How can we explain the fact that innovation-oriented outsourcing seems beneficial for innovation outcomes yet performs acceptably at cost reduction as well? One interpretation is that the suggested outsourcing trade-off is only valid for some kinds of outsourcing, like cost-oriented outsourcing. This explanation is supported by studies that stress the interdependencies between manufacturing capabilities and performance (e.g., White, 1996; Narasimhan, Swink & Kim, 2005). Another possible explanation is that innovation-oriented firms could be ‘above the trade-off line’ (Adler, Goldoftas & Levine, 1999), where they perform better than average on innovation and are as good as others in cost reduction. Further research is needed to further explore these explanations. Hypotheses 3a and 3b concerned the combined effects of outsourcing and integration. The correlation analysis shows that early supplier involvement in product development is more beneficial for firms applying an innovation outsourcing strategy than for firms applying low-cost outsourcing. This is in line with expectations, since early supplier involvement is the main rationale for the innovation outsourcing strategy. Moreover, Fagerström and Jackson (2002) claim that early supplier involvement is particularly important when products are complex. Indeed, this study shows a stronger positive effect of supplier integration for firms with more complex products and manufacturing. With regard to the interaction effect between internal and external integration, our results confirm the previous studies of Droge, Jayaram and Vickery (2004) and Gimenez and Ventura (2005), as well as that of Hillebrand and Biemans (2004). The interaction of internal and external integration correlates more strongly with time-to-market than they do on their own. External integration requires internal integration, in this case between manufacturing and product development, in order to establish an efficient development process. Our findings furthermore confirm and refine the conclusions of Marshall, McIvor and Lamming (2007), as our results show that supplier collaboration is beneficial © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
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mainly when dealing with innovation-based outsourcing. However, internal and external integration do not seem to be beneficial for firms applying a low-cost strategy. This is to some extent in line with the distinctions between different supplier relationships made by Tidd, Bessant and Pavitt (2005). Low-cost outsourcing mostly concerns non-core activities and the relation could be characterized as distant and market relational. The lack of correlation does, however, contrast with the suggestions proposed by Medina, Lavado and Cabrera (2005). The firms in our study applying a low-cost outsourcing strategy do not seem to use the free resources created by outsourcing to integrate internally and increase their innovation capability. Finally, our results underline the need for integration of manufacturing and design when outsourcing more complex products (hypotheses 4a and 4b) and manufacturing processes. The findings, which are valid for firms applying innovation-oriented outsourcing, confirm previous studies on relations among product complexity, integration and performance outcomes (e.g., Koufteros, Vonderembse & Jayaram, 2005; Ulrich & Ellison, 2005; Lakemond, Berggren & van Weele, 2006). The results are also in line with the reasoning put forward by, for instance, Chesbrough and Teece (2002 [1996]), who discuss the problem of outsourcing and distinguishing processes when conducting what they call systemic innovation. The results stress the need to manage interdependencies between key processes, such as manufacturing and design, when dealing with complex products and processes.
Conclusions The purpose of this study was to analyse how two outsourcing manufacturing strategies, in combination with organizational integration of design and manufacturing, affect innovation capability when taking into account complexity in products and manufacturing. Several conclusions may be drawn from the study, conclusions that also provide further insight into why previous studies on the effects of outsourcing show contradictory results. The first conclusion is that low-costoriented outsourcing differs from innovationoriented outsourcing not only when it comes to motives and characteristics, but also in their distinctly different effects on costs and innovation capability. This highlights the importance of more clearly distinguishing among different kinds of outsourcing strategies when discussing outsourcing effects. A second finding © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
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is that outsourcing represents a trade-off between improving innovation capability and reducing costs. Firms that apply low-costoriented outsourcing may lack focus and thus mechanisms to use the remaining resources for innovation activities. Firms that apply innovation-oriented outsourcing have inferior cost performance, but seem to have established practices that position them above the average trade-off line. Further analysis of different strategies to manage the outsourcing trade-off is needed. A third conclusion is that the outcome of outsourcing depends on how firms choose to integrate design and manufacturing. Firms that apply an innovation outsourcing strategy gain more from integration than firms applying cost-oriented outsourcing. For firms applying outsourcing for innovation reasons, close and early involvement of suppliers and the manufacturing function in the product development process is beneficial. The results thus emphasize the need for integrating both externally and internally in these situations. Firms that apply a low-cost strategy do not benefit from this kind of organizational integration. The study stresses that organizational integration is specifically important for an innovation outsourcing strategy when dealing with complex products and manufacturing, since the degree of complexity decides the need for integrating interdependent processes such as manufacturing and design. In sum, by evaluating the combined effects of outsourcing manufacturing and integration, the study underlines that managing interfaces is key to the successful management of the outsourcing dilemma. Contrasting two outsourcing strategies in combination with analysing the impact of organizational integration provides further explanation of the contradictory results obtained by previous research. The practical implication of the study is that managers contemplating different sourcing decisions are aware of the trade-offs involved. Moreover, after conducting manufacturing outsourcing, supplier and manufacturing integration will help in reaping the benefits expected from outsourcing that is motivated by a desire for increased innovation capability.
References Adler, P.S., Goldoftas, B. and Levine, D.I. (1999) Flexibility Versus Efficiency? A Case Study of Model Changeovers in the Toyota Production System. Organization Science, 10, 43–68. Allocca, M.A. and Kessler, E.H. (2006) Innovation Speed in Small and Medium-Sized Enterprises. Creativity and Innovation Management, 15, 279–95.
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Baden-Fuller, C., Targett, D. and Hunt, B. (2000) Outsourcing to Outmanoeuvre. European Management Journal, 18, 285–95. Beaumont, N. and Sohal, A. (2004) Outsourcing in Australia. International Journal of Operations & Production Management, 24, 688–700. Bengtsson, L. (2008) Outsourcing Manufacturing and its Effect on Engineering Firm Performance. International Journal of Technology Management, 44, 373–90. Bengtsson, L. and Berggren, C. (2008) The Integrator’s New Advantage – Reassessing Outsourcing and Production Competence in a Global Telecom Firm. European Management Journal, 26, 314–24. Brusoni, S., Prencipe, A. and Pavitt, K. (2001) Knowledge Specialization, Organizational Coupling and the Boundaries of the Firm: Why Do Firms Know More Than They Make? Administrative Science Quarterly, 46, 597–621. Cachon, G.P. and Harker, P.T. (2002) Competition and Outsourcing with Scale Economics. Management Science, 48, 1314–33. Calabrese, G. (2000) Small–Medium Supplier– Buyer Relationships in the Car Industry: Evidence from Italy. European Journal of Purchasing and Supply Management, 6, 59–65. Chesbrough, H.W. and Teece, D.J. (2002 [1996]) When Is Virtual Virtuous? – Organizing for Innovation. Harvard Business Review, January– February, 65–73. Choi, E.K. (2007) To Outsource or Not to Outsource in an Integrated World. International Review of Economics and Finance, 16, 521–27. Clark, K.B. and Fujimoto, T. (1991) Product Development Performance: Strategy, Organization and Management in the World Auto Industry. Harvard Business School Press, Cambridge, MA. Dankbaar, B. (2007) Global Sourcing and Innovation: The Consequences of Losing Both Organizational and Geographical Proximity. European Planning Studies, 15, 271–88. Droge, C., Jayaram, J. and Vickery, S.K. (2004) The Effects of Internal Versus External Integration Practices on Time-Based and Overall Firm Performance. Journal of Operations Management, 22, 557– 73. Elfving, S. (2007) Managing Collaborative Product Development. Mälardalen University Press Dissertation, no. 45, Eskiltuna, Sweden. Espino-Rodriguez, T.F. and Padron-Robaina, V. (2006) A Review of Outsourcing from the Resource-Based View of the Firm. International Journal of Management Reviews, 8, 49–70. Fagerström, B. and Jackson, M. (2002) Efficient Collaboration between Main and Sub Supplier. Computers in Industry, 49, 25–35. Ferdows, K. and de Meyer, A. (1990) Lasting Improvements in Manufacturing Performance. Journal of Operations Management, 9, 168–84. Fifarek, B.J., Veloso, F.M. and Davidson, C.I. (2008) Offshoring Technology Innovation: A Case Study of Rare-Earth Technology. Journal of Operations Management, 26, 222–38. GAO (2004) International Trade: Current Government Data Provide Limited Insight into Offshoring of Services, Report No. GAO-04-932, US Government Accountability Office, Washington, DC.
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Ghemawat, P. and Ricart i Costa, J.E. (1993) The Organizational Tension between Static and Dynamic Efficiency. Strategic Management Journal, 14, 59–73. Gilley, K.M. and Rasheed, A. (2000) Making More by Doing Less: An Analysis of Outsourcing and Its Effects on Firm Performance. Journal of Management, 26, 763–90. Gimenez, C. and Ventura, E. (2005) LogisticsProduction, Logistics-Marketing and External Integration – Their Impact on Performance. International Journal of Operations & Production Management, 25, 20–38. Görg, H. and Hanley, A. (2005) International Outsourcing and Productivity: Evidence from the Irish Electronic Industry. North American Journal of Economics and Finance, 16, 255–69. Harland, C., Knight, L., Lamming, R. and Walker, H. (2005) Outsourcing: Assessing the Risks and Benefits for Organisations, Sectors and Nations. International Journal of Operations & Production Management, 2, 831–50. Hartley, J.L., Zirger, B.J. and Kamath, R.R. (1997) Managing the Buyer–Supplier Interface for On-Time Performance in Product Development. Journal of Operations Management, 15, 57–70. Heshmati, A. (2003) Productivity Growth, Efficiency and Outsourcing in Manufacturing and Service Industries. Journal of Economic Surveys, 17, 79–112. Hillebrand, B. and Biemans, W.G. (2004) Links between Internal and External Cooperation in Product Development: An Exploratory Study. Journal of Product Innovation Management, 21, 110– 21. Hoecht, A. and Trott, P. (2006) Innovation Risks of Strategic Outsourcing. Technovation, 26, 672– 81. IMSS (2002) The International Manufacturing Strategy Survey [WWW document]. URL http://www. london.edu. Kakabadse, A. and Kakabadse, N. (2005) Outsourcing: Current and Future Trends. Thunderbird International Business Review, March–April, 183– 204. Koufteros, X., Vonderembse, M. and Jayaram, J. (2005) Internal and External Integration for Product Development – The Contingency Effects of Uncertainty, Equivocality and Platform Strategy. Decision Sciences, 36, 97–133. Lakemond, N., Berggren, C. and van Weele, A. (2006) Coordinating Supplier Involvement in Product Development Projects: A Differentiated Coordination Typology. R&D Management, 36, 55–66. Lamming, R. (1996) Squaring Lean Supply with Supply Chain Management. International Journal of Operations and Production Management, 16, 183– 96. Laugen, B.T., Acur, N., Boer, H. and Frick, J. (2005) Best Manufacturing Practices. What Do the BestPerforming Companies Do? International Journal of Operations & Production Management, 25, 131– 50. March, J. (1991) Exploration and Exploitation in Organizational Learning. Organization Science, 2, 71–87. © 2009 The Authors Journal compilation © 2009 Blackwell Publishing
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Marshall, D., McIvor, R. and Lamming, R. (2007) Influences and Outcomes of Outsourcing: Insights from the Telecommunications Industry. Journal of Purchasing & Supply Management, 13, 245–60. McIvor, R. (2005) The Outsourcing Process. Cambridge University Press, Cambridge. Medina, C.C., Lavado, A.C. and Cabrera, R.V. (2005) Characteristics of Innovative Companies: A Case Study of Companies in Different Sectors. Creativity and Innovation Management, 14, 272–87. Mol, M.J. (2005) Does Being R&D-Intensive Still Discourage Outsourcing? Evidence from Dutch Manufacturing. Research Policy, 34, 571–82. Narasimhan, R., Swink, M. and Kim, S.W. (2005) An Exploratory Study of Manufacturing Practice and Performance Interrelationships. International Journal of Operations and Production Management, 25, 1013–33. Outsourcing Institute (2005) The Outsourcing Institute’s Annual Survey of Outsourcing End Users [WWW document]. URL http://www. outsourcing.com. Passhuis, V. and Boer, H. (1997) Organizing for Concurrent Engineering: An Integration Mechanism Framework. Integrated Manufacturing Systems, 8, 79–89. Petersen, K.J., Handfield, R.B. and Ragatz, G.L. (2005) Supplier Integration into New Product Development: Coordinating Product, Process and Supply Chain Design. Journal of Operations Management, 23, 371–88. Primo, M.A.M. and Amundson, S.D. (2002) An Exploratory Study on the Effects of Supplier Relationships on New Product Development Outcomes. Journal of Operations Management, 20, 33–52. Quinn, J.B. (1999) Strategic Outsourcing: Leveraging Knowledge Capabilities. Sloan Management Review, 40, 9–21. Quinn, J.B. (2000) Outsourcing Innovation: The New Engine of Growth. Sloan Management Review, 41, 13–29. Ragatz, G.L., Handfield, R.B. and Petersen, K.J. (2002) Benefits Associated with Supplier Integration into New Product Development under Conditions of Technology Uncertainty. Journal of Business Research, 55, 389–400. Skinner, W. (1969) Manufacturing – Missing Link in Corporate Strategy. Harvard Business Review, May–June, 136–45. Smith, M., Busi, M., Ball, P. and van der Meer, R. (2007) The Impact of Outsourcing on an Organisation’s Ability to Innovate. Proceedings of the 14th International EurOMA Conference, 17–20 June, Ankara. Smulders, F., Boer, H., Hansen, P., Gubi, E. and Dorst, K. (2002) Configurations of NPD – Production Interfaces and Interface Integration Mechanisms. Creativity and Innovation Management, 11, 62–73. Sturgeon, T.J. (2002) Modular Production Networks: A New America Model of Industrial Organization. Industrial and Corporate Change, 11, 451–96. Swink, M. (1999) Threats to New Product Manufacturability and the Effects of Development Team
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Integration Processes. Journal of Operations Management, 17, 691–709. Tessarolo, P. (2007) Is Integration Enough for Fast Product Development? An Empirical Investigation of the Contextual Effects of Product Vision. Journal of Production Innovation Management, 24, 69–82. Tidd, J., Bessant, J. and Pavitt, K. (2005) Managing Innovation: Integrating Technological, Market and Organisational Change. John Wiley & Sons Ltd., Chichester. Ulrich, K.T. and Ellison, D.J. (2005) Beyond MakeBuy: Internalization and Integration of Design and Production. Production and Operations Management, 14, 315–30. White, G.P. (1996) A Meta-Analysis Model of Manufacturing Capabilities. Journal of Operations Management, 14, 315–31.
Lars Bengtsson (
[email protected]) is Professor in Innovation Management at the University of Gävle, Sweden. He is also professor within a PhD school at Royal Institute of Technology (KTH) in Stockholm and a research leader within the KITE research programme at Linköping University. He holds an MSc in Engineering Physics and a PhD in Industrial Management and Work Science. He has (co)authored several articles and books on the subjects of work organization, continuous improvements, manufacturing strategies and outsourcing. He currently leads a research group focusing on the significance of manufacturing competence, logistics management and outsourcing for the innovation capability of industrial firms. Robin von Haartman (robin.
[email protected]) is a doctoral student at the Department of Industrial Engineering and Management, University of Gävle, Sweden. He holds a BEng with honours in Mechanical Engineering as well as an MSc and a Tech. Lic. in Engineering Business Management. His areas of interest are manufacturing strategy, collaboration and supply chain management, and his research has focused mostly on the link between manufacturing competence and external integration. Mandar Dabhilkar (mandar.dabhilkar@ indek.kth.se), PhD, is assistant professor of supply chain management at the Royal Institute of Technology in Stockholm (KTH). He is also a research fellow within the KITE research programme at Linköping University, financed by the Bank of Sweden. His consultancy, research and teaching activities focus on logistics and purchasing management, continuous improvement behaviour and human factors in lean production.
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How to Use an Innovation Audit as a Learning Tool: A Case Study of Enhancing High-Involvement Innovation Erik W. Hallgren Many types of innovation auditing exist, though there are few descriptions of them being tested. Little effort has been made to examine their effect on companies, and even less to considering whether these audits could be used more efficiently. First, this article discusses some of the reasons for doing an innovation audit; then, it examines a new, facilitated, interactive way of using an innovation audit to achieve/improve high-involvement innovation in small- and medium-sized enterprises through a learning process.
Introduction
M
any types of innovation auditing exist; however, little effort has been made to examine their effect on companies, and even less to consider whether these innovation audits could be used more efficiently. This article proposes a new way of using an innovation audit to achieve/improve highinvolvement innovation as defined by Bessant (2003) in small- and medium-sized enterprises (SMEs). Many current innovation audits are rooted in new product development (NPD) theory, with a natural focus on the various developmental phases. A gap exists between these audits and those applicable to a company wishing to focus on innovation in general, to be able to draw on the mental potential of all employees and in circumstances other than simply product development. Traditional innovation audits are still needed, but there is also a need for another type of audit approach. As van der Wiele et al. (1996) discovered, not all companies benefit from traditional innovation audits; they might lack resources or training, or they might be unable or unwilling to implement the proposed improvements. This new way of executing an audit attempts to involve employees,
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letting them decide on the part(s) of the audit on which to concentrate. This article builds on existing innovation audits and attempts to arrive at a new way of using an innovation audit best suited to improving high-involvement innovation. This leads to the introduction of a ‘facilitated interactive innovation audit’ and subsequently to testing this in an action research project that ultimately aims to improve high-involvement innovation. The article draws on two main sources in developing the new audit approach, namely, recommendations from other audits and the high-involvement innovation concept, which are treated in the following two sections. These sources are then integrated in constructing the audit, which is described using a five-layer model. The last part of the article is a case study of an SME trying to enhance highinvolvement innovation using this new innovation audit approach; the article ends with discussion and concluding sections.
Background to Developing the New Audit Approach Searching for literature on innovation audits reveals a certain amount of research. Some © 2009 The Author Journal compilation © 2009 Blackwell Publishing
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authors describe the framework of how these audits could be used (Radnor & Noke, 2002; OECD-EU, 2005; Tidd et al., 2005), while others describe how they have built such an audit from scratch, what steps they have undertaken in testing it, and the results obtained thereby (Rickards & Bessant, 1980; Chiesa et al., 1996; Tang, 1999; Dooley, 2000; Francis, 2000; Cooper et al., 2004; Ozyilmaz & Berg, 2004; Yam et al., 2004). Besides Cooper et al.’s (2004) audit being used as a benchmark, the other reported audits are tested on a small scale. The identified audits were found in literature databases and by following up references in articles. Some older audits that were only developed theoretically are not mentioned here. Two sources are PhD theses respectively developing audits for innovation capability (Francis, 2000) and service innovation (Ozyilmaz, 2001) with a substantial theoretical foundation. One source is the Oslo Manual (OECD-EU, 2005), which contains a very thorough background on building the questions in the European Community Innovation Survey. One source concerns the most cited audit, undertaken with support from the UK Department of Trade and Industry by Chiesa et al. (1996); another source describes an audit undertaken by a consultancy (von Stamm, 2003), and yet another describes a Danish audit involving 150 companies (Center for Ledelse, 2005). All the literature sources that include reflections on actual audit testing have been incorporated into the recommendations presented in the next section. None of the audits produce contradictory conclusions. One might wonder why these recommendations have not previously been incorporated into newer audits; the answer might be the vast legacy of quality audits and benchmarking, where the audit report itself is the absolute goal. The main criticism arising against the reviewed literature is that the audit processes described end with feedback being presented to the company, and have too little employee involvement. Some newer literature on innovation, knowledge management and learning (de Bono, 1970; Nonaka & Takeuchi, 1995; Boer & Bessant, 2002; Bessant, 2003; Argyris, 2004; O’Reilly & Tushman, 2004; Senge, 2006) focuses on high-involvement innovation and participation involving a broad base of employees, not merely the R&D department or management. A new way of using the innovation audit might be necessary in order to achieve/improve such high-involvement innovation. The new approach proposed here takes these considerations into account, and has, moreover, been tested through an action research project focusing on selecting and © 2009 The Author Journal compilation © 2009 Blackwell Publishing
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implementing improvement projects; an audit process that emphasizes other parameters, such as employee involvement, engagement and learning, giving competence and legitimacy to the employees participating. The results showed significant employee involvement and changed behaviour.
Recommendations of Existing Audits and How to Apply Them In developing a new way to undertake an innovation audit, an obvious source of inspiration would be to review the literature concerning existing audits. The recommendations cited here come from reflections and conclusions found in the literature, concerning how the reported audits could be improved. Whenever an audit has been supported by a facilitator, the conclusion is that the role of the facilitator is important in supplying external expertise (Chiesa et al., 1996) and training for the persons involved (van der Wiele et al., 1996). It is possible for an organization to conduct an audit on its own; as explained by van der Wiele et al. (1996), an organization must be fairly advanced to be able to embark on self-assessment and has to start simply by using specialists as assessors. Using an external facilitator both to guide the process and train internal personnel, the combination of insiders and outsiders (Burgelman et al., 1995) allows the company to gain the desired competence rapidly and seamlessly. Little current literature examines how much value companies have found in actually applying the innovation audit results and in choosing between, and implementing, any audit proposals. Chiesa et al. (1996) state that ‘the long-term effectiveness will only be evaluated after some years of use’, indicating the presence of a learning process. Francis (2000) states that some companies studied gained good results from the audits, while others tended to disbelieve the results in the report. The author (of the present article) participated in a project undertaken by CENTRIM in the town of Hastings (Francis and CENTRIM, 2004) and found that the 20 participating SMEs displayed only modest interest in the results of the selfassessment audits but displayed much greater interest in actual consultancy help or training in innovation matters. Audit results are better if the audit process involves as many people as possible, and at the very least, a team should be formed (Chiesa et al., 1996) to take responsibility for the process. Some audits only involve the management group but suggest that broader involvement should be considered (Francis, 2000), perhaps to prevent
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employees from dissociating themselves from the project (Schuring et al., 2003). By discussing how the subject of innovation is treated within the organization, people necessarily become more involved than if they merely answered a number of questions. Chiesa et al. (1996) found that ‘some companies stated that the actual accomplishment of the audit was, in a lot of cases, about the best they had had’. Rickards and Bessant (1980) made the following evaluation: ‘the audit is really useful when the outcome is used to instigate a discussion in the company’; the same was said by a number of companies in a Danish innovation survey (Center for Ledelse, 2005). Who, then, will decide which part of the audit is the most important? Even though an audit could pinpoint issues requiring improvement, employees might not agree with, or understand, the reasons for the recommended changes. People within the company ought to be those who know best; initially, one might need to teach them how and what to observe, but thereafter they should be able to select and decide for themselves. Chiesa et al. (1996) found that asking questions that incorporated metrics helped some companies but certainly not all. They also found that best practice and understanding of innovation are not static. One way of ensuring validity of the audit is to change the audit questions when new ideas have taken root in best practice; another would be to allow employees to help select the areas of interest, guided by their experience of daily work and with inspiration from the audit. By so doing the company does not merely follow a list of best practice but chooses those projects that seem to suit their position best as recommended by Tidd and Hull (2006). The conclusions of the literature survey, applicable in formulating the new audit, are that an external facilitator should always be included (at least on the first few occasions), and that it is also necessary to involve employees in a dedicated team. This is necessary in order to ensure broad involvement, which will create greater legitimacy than if the project were driven by management alone (Clausen & Kamp, 2001; Bessant, 2003; Argyris, 2004). The team then has to decide which parts of the audit they wish to use, while keeping the whole process, including selection and implementation, in view.
High-Involvement Innovation The following presents a more detailed description of high-involvement innovation in order to indicate the methodological basis of the new audit.
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Bessant and Caffyn (1997) defined a new term, namely ‘high-involvement innovation’. In his book published in 2003 (Bessant, 2003) high-involvement innovation is developed into a concept spanning five steps ranging from continuous improvement (Gertsen, 2001) to the learning and constantly developing organization with emphasis on involvement. One might argue, why use highinvolvement innovation at all? Two of the best reasons are given by Tidd et al. and Bessant arguing that incremental improvements and innovation pay off and that collectively the small innovations often have a cumulative gain in efficiency greater than that of occasional radical changes (Tidd et al., 2005) and that everyone carries the basic creative capabilities for finding and solving problems and exploring new opportunities (Bessant, 2003). Involvement and participation are crucial elements of high-involvement innovation and it is imperative that employees accept the role of being actively engaged. The larger the power distance and the more political behaviour resisting change that exist within a company, the more difficult it is for an employee to accept the role of involvement and be allowed and truly encouraged to participate. As high-involvement innovation is a framework for the environment of innovation it does not define any size or type of innovation. Highinvolvement innovation is an approach where as many employees as possible are sought to be involved in participating at any degree in the innovation process (Bessant, 2003), a process that includes every step that leads to improved business and by that, includes more than the new product development (NPD) process. Innovation is defined as any improvement introduced into any area given any size of positive change in the business and with inspiration and involvement from as many employees as possible (Bessant, 2003). With this definition it does not matter if the innovation is a small incremental innovation or a disruptive radical innovation; it is still an innovation. The important aspect is how many were involved in the process and by that, indicating the viability of utilizing the innovation process. This understanding of high-involvement innovation differs from the more productoriented NPD view used in many other audits (Burgelman et al., 1995; Chiesa et al., 1996; Gardiner & Gregory, 1996; Cormican & O’Sullivan, 2004). When the focus is broad, encompassing the full range of innovation, attention must also be paid to the environment of the innovation and how all the employees are involved. © 2009 The Author Journal compilation © 2009 Blackwell Publishing
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How Learning Contributes to Innovation The learning and knowledge needed to gain competence in creating innovations have been treated in theory, such as the learning organization, where an example from management theory could be that by Senge (2006); whereas learning regarding change in cultural aspects is more dependant upon theories such as single- and double-loop learning, as espoused by Argyris (1977), or lateral thinking, by de Bono (1995). The employees in the accompanying case study were trained in the use of double-loop learning and lateral thinking and were encouraged to spread their knowledge within the company. These tools were used for challenging and changing underlying values, routines and norms and for questioning ‘the way we do things here’; these are approaches that comply well with the introduction and enhancement of high-involvement innovation.
The Development and Description of the New Audit Approach by Five Layers An audit comprises more than merely its constituent questions. Other considerations include the underlying methodology of the questions, how the questions are applied, and how feedback is given. Analysing these matters can facilitate the development of a new audit approach, based on the concurrent analysis of traditional audit approaches and the recommendations of others. The ‘facilitated interactive innovation audit’ was constructed mainly as an inspirational
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tool, the material being grouped and collated with the focus on the conditions for highinvolvement innovation. The material for the audit was found through other traditional innovation audits and through literature on high-involvement innovation with the main difference being how the material was used. This new innovation audit approach is based on a group of employees who, co-operating with an external facilitator, discuss and choose the points of interest from the audit material, to ensure involvement of employees and implementation of selected improvement projects. This method of undertaking an audit is described as ‘a facilitated interactive innovation audit’. It is possible to identify five layers in modelling an innovation audit, as inspired by Chiesa et al. (1996), Tang (1999), Francis (2000) and Ozyilmaz and Berg (2004). These five layers are used to demonstrate the difference between the discussed innovation audit approach, by concurrently comparing the traditional NPD audit approach and the new way of using an audit. This traditional NPD audit, as described by Chiesa et al. (1996), is among the most frequently cited; it represents an audit developed from scratch and includes a description of a beta test. A brief comparison is presented in Table 1 followed by a more detailed description.
Layer 1. The Innovation Theory Underlying the Methodology The Traditional Audit Approach The main sources for the audit developed by Chiesa et al. (1996) were Freeman (1983),
Table 1. The Five Layers of an Audit, Comparing the Traditional Audit Approach Described by Chiesa et al. (1996) and the New Innovation Audit Approach The five layers
1:
The traditional audit approach
The new audit approach
Innovation theory under-lying the methodology Methodology of the audit
Technological innovation
High-involvement innovation
Performance and processes Scorecards and questions
4:
The materials used in auditing How the audit is used
5:
Type of feedback and results
Involvement, participation, learning Mind maps, information, inspirational questions Involving, selecting, implementing Implemented projects motivated employees
2: 3:
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Assessing, identifying, defining Report and presentation
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Roberts (1988), Adler et al. (1992) and Burgelman et al. (1995), with particular weighting given to Burgelman et al.’s audit framework. Three other sources are mentioned in systematizing the data, namely, Voss (1988), Clark and Fujimoto (1991) and Roussel et al. (1991). The theoretical inspiration stems from technological product and process innovation theory. The New Audit Approach The underlying rationale of this new audit approach owes a great deal to Bessant (2003) and his concept of high-involvement innovation. In addition, the theory of continuous improvement and innovation (Caffyn, 1999; Gieskes et al., 1999; CENTRIM, 2000; Coughlan et al., 2001; Boer & Bessant, 2002; Chesbrough, 2004) and new ways of looking at interfaces in the company (Cobbenhagen, 2000; Chesbrough, 2004; von Hippel 2005) supported the development of the audit approach. Inspiration was also drawn from sources regarding learning (de Bono, 1970; Argyris, 2004) and participation (Buhl, 2000), with reference to employee involvement.
Layer 3. The Materials Used in Auditing, e.g., Questions and Scorecards The Traditional Audit Approach In their audit, Chiesa et al. (1996) provide many examples cited in the literature of best practice, divided into the following three categories: • Scorecards for rapid overall assessment of the practices adopted. • An in-depth audit for more detailed investigation. • A performance audit. The New Audit Approach The materials used in this new audit approach are based on input from other audit types (Rothwell, 1994; Burgelman et al., 1995; Ahmed, 1998; Tang, 1999; Dooley, 2000; Francis, 2000; von Stamm, 2003), systematized and grouped based on the theoretical foundation mentioned in layer 1 and the literature review of best practice by van der Panne et al. (2003). The audit material is structured using two software systems: mind maps and searchable web pages structured like mind maps but dispersed over several hundred webpages.
Layer 2. Methodology of the Audit The Traditional Audit Approach
Layer 4. How the Audit is Used
The foundation of the audit methodology of Chiesa et al. (1996) is a process model of technical innovation, divided between the following elements:
The Traditional Audit Approach
• Core processes – concept generation, product development, process innovation and technology acquisition. • Enabling processes – resources, systems and tools, and leadership. • Innovation performance – outcome of the above processes. The New Audit Approach Underlying every innovation process is a need for innovation capacity, capabilities and competencies; and the ability to handle the innovation, skills, training and knowledge supporting the underlying aspects in an organization wishing to be innovative. The goal is to strengthen these underlying elements through a learning process. The idea of the new audit approach is to achieve/improve participation and involvement of as many employees as possible; it should not be a management-driven project, but one approved and promoted by management using the background of a systemic, holistic approach.
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The use of the traditional audit is broken down into three steps, as follows: • Assessing current innovation practice and performance by answering the questions. • Identifying the gaps and the reasons for them by comparing the responses to a database of previous responses. • Defining the action plan. The New Audit Approach The following list indicates the steps and rules of using the audit material that attempt to enhance team involvement: • Selecting an innovation steering group (IS group) – a group of employees representing all levels of the company, preferably without the participation of top management (support from management is, however, mandatory). • Educating and training the IS group in innovation. • The IS group has to choose the areas of the audit on which they wish to concentrate. • The IS group is responsible for the process, implementation, setting milestones, planning events, etc. © 2009 The Author Journal compilation © 2009 Blackwell Publishing
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• Ensuring that all employees remain as involved as possible in the work of the IS group. • Making use of the textual information in the audit, most of the elements being backed by explanations, examples, etc. • Creating a learning process with a long duration initiated in a learning lab (Argyris, 2004) and then spreading this learning throughout the organization.
Layer 5. Type of Feedback and Results The Traditional Audit Approach The feedback was given to the companies by the facilitators as a presentation to a broadbased group of those involved and covering the three steps described in layer 4. The issues revealed were then debated at the review meeting, at which responsibilities were assigned for their implementation. The New Audit Approach The result for the company of the audit process is a group of employees trained to some degree in innovation, who have selected a list of projects arising from interaction between the audit material and the rest of the employees through interviews, focus groups, questionnaires, open-space technology meetings, etc. This differs in an important way from traditional audits, in which the feedback is a list of suggested improvements; rather, the selection and initiation of the projects are integral parts of this new audit approach. The background to the development of the new type of audit approach has been described in the previous section, and the new audit approach has been compared to a traditional one in the five layers presented above. The next section describes an action research project in a company testing the new audit approach, followed by a discussion of the results.
Testing the Audit in an SME To validate the new auditing approach, testing was undertaken in a Danish SME over a period of two and a half years. The company, which is over 100 years old, is a trade and service company with 75 employees and current annual turnover of approximately €30 million. The company has shifted over the past ten years from being mainly a raw material supplier, to selling and servicing products to which they can add value with consultancy, installation services and ongoing service con© 2009 The Author Journal compilation © 2009 Blackwell Publishing
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tracts. The company has mainly been innovative on marked issues, and has relied on their suppliers for product innovations. On the one hand, it is a company where change is known to happen; on the other, it is a company where customer and employees’ surveys give the following ranking: ‘trustworthy, stable, but somewhat stagnating’. One of the explanations for the last comment might be that the changes have been made slowly over several years. It is often the norm to expect innovation to come from the R&D department, but this company does not have such a department, and top management, rather than employees, has driven the new initiatives.
Action Research An action research study is a study on interaction of the participants and their environment. One of the roles of the researcher is to bring methods, tools and inspiration to initiate a process and to help sustain it for a certain amount of time. Another role of the researcher is to reflect upon what happens in the project, and to use these reflections to improve the process further. New knowledge is then created in the action between the researcher and the participants, with no parts being dispensable (Argyris, 1993; Dawson, 1997; Greenwood & Levin, 1998; Gummesson, 2000; Reason & Bradbury, 2000; Coughlan & Coghlan, 2002). The action research concept used in this case study has given the researcher the opportunity to observe, follow and participate within the company for two and a half years.
Data Collection Data was collected in different ways and triangulations were done where possible. Work diaries have been made concurrently by use of either notebook or tape-recorder. The material stemmed from company documents; seven semi-structured and 15 non-structured interviews; drawing sessions; six video-interviews; participation in four banquets; 12 workshop days; Open Space Technology meetings with all employees; staff meetings and a large amount of ‘small talk’ discussions with employees and managers. The article has subsequently been reviewed and accepted by the company. To investigate the impact further on the use of the audit approach and the learning process, two drawing sessions inspired by Morgan (2006) were used to study the employees’ perception of innovation and were combined with the data collection methods mentioned above. The drawings were not used to give an exact
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measurement at one point in time but as a comparative tool over time. This was done to reveal elements and opinions of issues which are hard to measure: degree of involvement; employee participation; understanding and learning in regard to innovation. The case study demonstrates that the drawing and metaphor method actually creates opportunities for important discussions and thoughts that are useful in innovation matters when comparing circumstances within the same company over a period of time.
The Project The IS group participated in a learning lab (Argyris, 2004) between November 2005 and May 2007 consisting of four one-day meetings, three two-day seminars, and various shorter meetings. The IS group itself also arranged several working group meetings. The audit was used in different stages: as a learning tool from which to initiate discussions and to select those areas that needed improvement. On the first day-long meeting, several datacollection projects were initiated (i.e., surveys, video interviews and Open Space Technology meetings), inspired by elements of the audit. At the seminar that followed, participants defined the first projects to be implemented with background in the data collection and the innovation audit. The participants’ experiences are illustrated by the following representative quotations: By looking at the audit I gained a more accurate picture of the extent of our task. Now I have acquired some clarity – which actually is a bit scary – that the task is so big, with so many possibilities and places to start – this can go on for ever. This has been a really great learning process, including what we saw on the video – that we are so bad and must learn from our own mistakes – it surprised me – but we just have to do something about it.
Learning as an Integrated Process Owing to the nature of high-involvement innovation, learning is a very important part of the new innovation audit approach. The learning involved arises from several aspects of the audit process. When the IS group was selecting areas of interest from the audit, they needed fundamental knowledge of innovation. Training in this area was undertaken with a facilitator, who helped the group to work through the accompanying material in the audit in the selection process. The learning for the group expanded when the group investigated the
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need for improvements in the company. The IS group participants had to work with such methods as interviewing, problem solving sessions, Open Space Technology meetings, creativity tools and idea management, etc. The main effect of the learning process for the participants was expressed in their daily actions. They had become active political actors, being active in the change process. They only occasionally taught their colleagues, but their impact was observed by all the managers, and by being picked from different departments and geographical locations, they slowly influenced their colleagues into acceptance of several new initiatives, and eased the change in their organizational structure. The legitimacy the participants brought with them, when convincing others to try new things, was amazing, not because they were able to educate them, but merely from being involved, asking questions and having received input from other employees through Open Space Technology meetings, surveys, video interviews, etc.
Results of the Project The intention of this audit was not to produce a certain number of new products; instead, the aim was to create the involvement and learning required for high-involvement innovation. The IS group defined six projects upon which to work: knowledge sharing, marketing, service competence, attitude, ideamanagement, and rewards and recognition. The projects addressing these areas were modelled using knowledge from previous investigations as well as suggestions and examples from the audit material, and were implemented in the company in the following months. All projects were directed by the seven IS group participants, only one of whom was from the management group. These projects have generally been received quite well and have instigated many minor initiatives. Top management was quite satisfied with the results, as were the employees generally. Some employees have, from time to time, commented on the initiatives more negatively, but generally only when they could not perceive their origins or rationale. The mood in the company was formerly rather defensive; now it is more accepting and open to comments where a need for improvement has been identified. One participant in the service competence group observed that: There are more employees speaking up now; it might sound like grumbling, but it is just because we aren’t used to people putting forward suggestions. © 2009 The Author Journal compilation © 2009 Blackwell Publishing
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During project implementation, three groups participated in the learning process and in project selection and implementation. The first group to be involved was the management group, which evaluated and updated the strategy. The second was the IS group, whose main focus was enhancing high-involvement innovation, while the third group looked into one of the six selected projects, namely, how to strengthen service competence. By involving the rest of the employees, most projects enjoyed broad-based implementation from the beginning. This gave legitimacy to group members, when answering the question ‘Why should we undertake this new project?’ with ‘Because you asked for it’. When the audit material was introduced for the participants it was expected that there were going to be long discussions on selecting the different subjects, but within three hours the participants had selected the main areas with which it was relevant for them to start. They were all very determined in the selection process and needed only a short time to select the most important areas. This enforced the author’s theory that most of the time you do not need an audit report to tell you where you need to improve – what you need is motivated employees and managers to make the changes and enough power to ensure it happens. The participants had each selected different areas to investigate from the audit material. The combination of having support from an innovation model, and being motivated by personally having selected the most interesting subject gave the participants a strong starting position towards being political actors and entrepreneurs (Buchanan & Badham, 1999). If the audit material had been used as a traditional audit the personal motivation of working with exactly the subject you found most interesting could be missing. The expert power found by the participants through the use of this facilitated innovation audit might not have been the same through a normal innovation audit report. There is a lot of institutional power (Pfeffer, 1981) in an external report showing improvement areas, but there is probably even more in the personal motivation and expert power found in the process of working with, and choosing, subjects yourself. Comparing the two drawing sessions that were held at the beginning and at the end of the project it was found that the drawings from 2005 all showed a negative view on how ideas were treated. The focus was mainly on how difficult it was to promote new ideas into implementation. In 2007 there are still frustrations but now they are concentrated around lack of steering and progress. The participants used explanations that showed knowledge of © 2009 The Author Journal compilation © 2009 Blackwell Publishing
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the innovation process that was not present in 2005. There was much more energy, involvement and enthusiasm in the subsequent discussion, whereas in 2005 the concern was focused on how difficult, or even impossible, it was to get ideas through. The main concern in 2007 was on concrete issues such as the need of an innovation project manager, more resources available to managers helping with ideas and more courage in trying new things among employees themselves. In 2005 the discussion ended with the words: ‘It is very good that we talk about this today, but the ideas are still being prevented’. The drawing session in 2007 ended with the six participants making suggestions to solve some of the obstacles discussed, and engaging in solving the problems.
Discussion An audit is often used in the process of benchmarking against other companies, to find areas where improvement projects can later be initiated. The Oslo Manual (OECD-EU, 2005) and traditional audits deliberately examine the background and setting of the questions – an obvious step when the goal is benchmarking. In this paper, however, the audit is regarded as a process in which employee involvement and implementing employee-selected improvement projects are its main goals. In the case study, the employees undertook the fitting and refining of the projects by investigating the organization; the audit provided the inspiration for this, and precise answers were unnecessary. Most early-developed audits and product innovation audits have their basis in technologically oriented innovation (Burgelman et al., 1995; Chiesa et al., 1996; Cooper et al., 2004); some audits developed later include service and organizational innovation (OECDEU, 2005), while some specifically focus on service innovation (Ozyilmaz, 2001). Such audits are useful if the main purpose is to pinpoint improvement projects, after which a management group can choose which to implement. However, if the main focus is high-involvement innovation, many human aspects must be taken into consideration. It might be that a combination of a traditional audit and the proposed new way of using the audit could work in tandem; however, in a service company such as the one examined in this case study, the need for technological innovation is much less than the need for high-involvement innovation. Besides being a service company, this SME was regarded as representative of most other companies in Denmark where the majority of companies fall
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into the SME size bracket. The results could probably also be found in larger companies , as they are often grouped into smaller divisions. As for the disadvantages of such a new audit approach, one of the main complaints would probably be their greater use of resources; however, the output of this greater resource use will be an involvement build-up through the employees’ learning processes (Bessant, 2003), which means a greater chance for general acceptance of new projects within the organization. A traditional audit approach might have been able to identify the same improvement areas; it might not, however, have been able to ensure the enthusiasm and participation of group members or to build legitimacy for their acts – some of the building blocks of highinvolvement innovation (Bessant, 2003). A traditional innovation audit might well be suited to improving product development and technologically oriented processes, but to improve high-involvement innovation abilities, the new type of audit approach seems to have an advantage because of its broad-spectrum activity and participation. It was concluded that the audit material in itself was not as important as expected; the important issue was the expert power and motivation that the participants gained from using the material. This supports the statement that the material of the audit is not as important as the learning process that is established.
Conclusion This article proposes a new perspective on innovation audits, building on a criticism of traditional ways of doing them. It is inspired by a review of the innovation audit literature and theory, covering topics such as highinvolvement innovation (Bessant 2003), learning theory and knowledge management (Nonaka & Takeuchi, 1995; Argyris & Schön, 1996). The basis of this new audit approach is highinvolvement innovation against the backdrop of the many existing types of NPD auditing. This context has given rise to a new audit approach based on participation and learning and with a feedback mechanism that differs completely from a report: a group of motivated employees who, themselves, select and drive the improvement projects. Most existing audit types that have been tested cease making observations shortly after delivering the report, meaning that there are very few data from the implementation phase. If the main goal is to enhance a company’s innovation ability, greater focus is needed on
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the project selection and implementation phases. With this criticism in mind, this article describes a new way of using an innovation audit which was tested in an action research project within a service company. The employees used the audit material both for inspiration and as a learning tool, choosing for themselves the questions from the audit on which to work. Concurrently, they held discussions with other colleagues and undertook feasibility studies before selecting projects for implementation. Six of the seven participants in the steering group were not from the management group, which helped to legitimize the audit process to their colleagues. The audit process included not only a measurement phase, but also selection and implementation phases. The projects undertaken in the case study by the audit participants resulted in a new organizational structure, efforts to change habits and routines, improved communication and several other projects. The development of new service products has been started based on ideas collected by the newly established idea-management system. By concentrating on learning as a way to improve involvement in innovation, there is a risk that one might forget to examine the barriers that could exist and might be much stronger than the learning effect, possibly hindering involvement in the long term. Such barriers could include political, power-oriented and psychological issues arising from selecting some employees, and not others, to participate in the steering group. These issues are not covered in this paper, but will be treated in a future article.
References Adler, S., McDonald, W. and MacDonald, F. (1992) Strategic Management of Technical Functions. Sloan Management Review, 33, 19. Ahmed, P.K. (1998) Benchmarking Innovation Best Practice. Benchmarking: An International Journal, 5, 45–58. Argyris, C. (1977) Double Loop Learning in Organizations. Harvard Business Review, 55, 115–25. Argyris, C. (1993) Knowledge for Action – A Guide to Overcoming Barriers to Organizational Change. Jossey-Bass, San Francisco, CA. Argyris, C. (2004) Reasons and Rationalizations; The Limits to Organizational Knowledge. Oxford University Press, Oxford. Argyris, C. and Schön, D.A. (1996) Organizational Learning II – Theory, Method, and Practice. Addison-Wesley, Reading, MA. Bessant, J. (2003) High-Involvement Innovation, Building and Sustaining Competitive Advantage Through Continuous Change. Wiley, Chichester. Bessant, J. and Caffyn, S. (1997) High-Involvement Innovation Through Continuous Improvement. © 2009 The Author Journal compilation © 2009 Blackwell Publishing
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International Journal of Technology Management, 14, 7–28. Boer, H. and Bessant, J. (2002) Organising of Continuous Innovation. Aalborg University, DK and Cranfield University, UK. Buchanan, D. and Badham, R. (1999) Power, Politics, and Organizational Change: Winning the Turf Game. Sage, London. Buhl, H. (2000) Hvor Vildt Kan det Blive? – Forankring af Participation Belyst Gennem Kommunikativ Praksis i Arbejdslivet. PhD Thesis, Technical University of Denmark, Lyngby. Burgelman, R.A., Maidique, M.A. and Wheelwright, S.C. (1995) Strategic Management of Technology and Innovation, 2nd edition. McGraw-Hill, New York. Caffyn, S. (1999) Development of a Continuous Improvement Self-Assessment Tool. International Journal of Operations and Production Management, 19, 1138–53. Center for Ledelse (2005) The Seven Circles of Innovation – An Innovation Management Model. [WWW document]. URL http://www. innovationcup.dk. CENTRIM (2000) Handbook of Continuous Improvement Enablers for Practitioners of New Product Development. CENTRIM, University of Brighton, Brighton. Chesbrough, H. (2004) Managing Open Innovation. Research Technology Management, 47, 23–26. Chiesa, V., Coughlan, P. and Voss, C.A. (1996) Development of a Technical Innovation Audit. Journal of Product Innovation Management, 13, 105–36. Clark, K.B. and Fujimoto, T. (1991) Product Development Performance: Strategy, Organization, and Management in the World Auto Industry. Harvard Business School Press, Cambridge, MA. Clausen, C. and Kamp, A. (2001) Forandringer i Arbejdslivet – Mellem Læring og Politik. Tidsskrift for arbejdsliv, 3, 73–94. Cobbenhagen, J. (2000) Successful Innovation, Towards a New Theory for the Management of Small and Medium-Sized Enterprises. Edward Elgar Publishing, Cheltenham. Cooper, R.G., Edgett, S.J. and Kleinschmidt, E.J. (2004) Bench Marking Best NPD Practices – I. Research Technology Management, 47, 31–43. Cormican, K. and O’Sullivan, D. (2004) Auditing Best Practice for Effective Product Innovation Management. Technovation, 24, 819–29. Coughlan, P. and Coghlan, D. (2002) Action Research for Operations Management. International Journal of Operations and Production Management, 22, 220–40. Coughlan, P., Harbison, A., Dromgoole, T. and Duff, D. (2001) Continuous Improvement Through Collaborative Action Learning. International Journal of Technology Management, 22, 285–302. Dawson, P. (1997) In at the Deep End: Conducting Processual Research on Organisational Change. Scandinavian Journal of Management, 13, 389–405. de Bono, E. (1970) Lateral Thinking, A Textbook of Creativity. Penguin Books, Harmondsworth. de Bono, E. (1995) Serious Creativity. Journal for Quality and Participation, 18, 12. Dooley, L. (2000) Systems Innovation Management. PhD Thesis, National University of Ireland. © 2009 The Author Journal compilation © 2009 Blackwell Publishing
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Francis, D.L. (2000) Assessing and Improving Innovation Capability in Organisations. PhD Thesis, The University of Brighton. Francis, D.L. and CENTRIM (2004) New Enabling Services to Support Innovation in New and Emerging Firms – Guide to the Innovation Health-Check. Freeman, C. (1983) The Economics of Industrial Innovation. The MIT Press, Cambridge, MA. Gardiner, G.S. and Gregory, M.J. (1996) An AuditBased Approach to the Analysis, Redesign and Continuing Assessment of a New Product Introduction System. Integrated Manufacturing Systems, 7, 52–59. Gertsen, F. (2001) How Continuous Improvement Evolves as Companies Gain Experience. International Journal of Technology Management, 22, 303– 26. Gieskes, J.F.B., Boer, H., Baudet, F.C.M. and Seferis, K. (1999) CI and Performance: a CUTE Approach. International Journal of Operations and Production Management, 19, 1120–37. Greenwood, D. and Levin, M. (1998) Introduction to Action Research. Sage, Thousand Oaks, CA. Gummesson, E. (2000) Qualitative Methods in Management Research. Sage, Thousand Oaks, CA. Morgan, G. (2006) Images of Organization. Sage Publications, Toronto. Nonaka, I. and Takeuchi, H. (1995) The KnowledgeCreating Company. Oxford University Press, New York. OECD-EU (2005) Oslo Manual – Guidelines for Collecting and Interpreting Innovation Data, 3rd edition, OECD, Paris. O’Reilly, C.A. and Tushman, M.L. (2004) The Ambidextrous Organization. Harvard Business Review, 82, 74–81. Ozyilmaz, A. (2001) Service Innovation Audit and the Role of Information Technology (IT) in Service Innovation. PhD Thesis, Rensselaer Polytechnic Institute. Ozyilmaz, A. and Berg, D. (2004) Auditing Entrepreneurial Service Innovations. International Journal of Services, Technology and Management, 5, 394–429. Pfeffer, J. (1981) Power in Organizations. Harper Business, Stanford, CA. Radnor, Z.J. and Noke, H. (2002) Innovation Compass: A Self-Audit Tool for the New Product Development Process. Creativity and Innovation Management, 11, 122–32. Reason, P. and Bradbury, H. (2000) The Handbook of Action Research: Participative Inquiry and Practice. Sage, London. Rickards, T. and Bessant, J. (1980) The Creativity Audit: Introduction of a New Research Measure During Programmes for Facilitating Organizational Change. R&D Management, 10, 67–75. Roberts, E.B. (1988) What We’ve Learned: Managing Invention and Innovation. Research Technology Management, 31, 11–29. Rothwell, R. (1994) Towards the Fifth-Generation Innovation Process. International Marketing Review, 11, 7–31. Roussel, P.A., Saad, K.N. and Erickson, T.J. (1991) Third Generation R&D – Managing the Link to Corporate Strategy. Harvard Business School Press, Boston, MA.
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Schuring, R.W., Harbers, C., Kruiswijk, M., Rijnders, S. and Boer, H. (2003) The Problem of Using Hierarchy for Implementing Organisational Innovation. International Journal of Technology Management, 26, 903–17. Senge, P.M. (2006) The Fifth Discipline, The Art and Practice of The Learning Organisation. Random House, Business Books, New York. Tang, H.K. (1999) An Inventory of Organizational Innovativeness. Technovation, 19, 41–51. Tidd, J. and Hull, F.M. (2006) Managing Service Innovation: The Need for Selectivity Rather than ‘Best Practice’. New Technology, Work and Employment, 21, 139–61. Tidd, J., Bessant, J. and Pavitt, K. (2005) Managing Innovation – Integrating Technological, Market and Organizational Change. John Wiley & Sons, New York. van der Panne, G., van der Beers, C. and Kleinknecht, A. (2003) Success and Failure of Innovation: A Literature Review. International Journal of Innovation Management, 7, 309–38. van der Wiele, A., Williams, A.R.T., Dale, B.G., Carter, G., Kolb, F., Luzon, D.M., Schmidt, A. and Wallace, M. (1996) Self-Assessment: A Study of Progress in Europe’s Leading Organizations in Quality Management Practices. International Journal of Quality and Reliability Management, 13, 84–104. von Hippel, E. (2005) Democratizing Innovation. The MIT Press, Cambridge, MA.
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von Stamm, B. (2003) Innovation audit tool, London Business School. [WWW document]. URL http://www.innovationwave.com [accessed on 4 March 2004]. Voss, C.A. (1988) Implementation: A Key Issue in Manufacturing Technology: The Need for a Field of Study. Research Policy, 17, 55–63. Yam, R.C.M., Guan, J.C., Pun, K.F. and Tang, E.P.Y. (2004) An Audit of Technological Innovation Capabilities in Chinese Firms: Some Empirical Findings in Beijing, China. Research Policy, 33, 1123–40.
Erik W. Hallgren (
[email protected]) has a PhD from DTU Management, the Technical University of Denmark. He has a BSc(Eng) and a Masters in Management of Technology. The subject of his PhD thesis was learning and innovation in SMEs with particular attention to participation and involvement by employees. He has 15 years of experience in the electronics industry as both R&D manager and researcher, including receiving two patents, with companies such as Intel Denmark, Vitess Semiconductor, among others.
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Book Review O’Connor, G., Leifer, R., Paulson, A.S. and Peters, L.S. (2008) Grabbing Lightning, Jossey-Bass, San Francisco, CA. 332 pp, $29.95, ISBN 978-0-7879-9664-2. Chi si ferma è perduto1
Grabbing Lightning, written by four professors at the Lally School of Management and Technology of Rensselaer Polytechnic Institute, follows eight years after the successful pioneering book by the same group: Radical Innovation: How mature firms can outsmart upstarts.2 Radical Innovation summarized the findings of Phase I of this study (1995–2000) which included ten major US technology-intensive companies, including DuPont, GE, IBM, General Motors and United Technology. In 2000, the authors concluded that ‘the vast majority of the projects we studied originated and progressed solely because of the strong will and persistence of a talented champion with ties and protection from a senior management sponsor. Project teams and their leaders spent a great deal of time fighting against the norms of their companies’ (emphasis added). In order to remove, or at least improve, this opportunistic, antagonistic and politically vulnerable approach, the authors proposed the concept of a radical innovation hub to systematize and legitimize the process, protect the human capital, and improve the probability of success. However, of the ten companies that participated in Phase I, none adopted the innovation hub. The authors laconically stated ‘Interesting and discouraging’ and moved on to Phase II, with the participation of 21 companies that ‘had declared a strategic intent to develop or evolve a sustainable breakthrough3 1
Italian proverb: If you stop, you lose! Harvard Business School Press, Boston, MA. Reviewed by Pier A. Abetti in Creativity and Innovation Management, Vol. 10, No. 1, March 2001, pp. 60–63. 3 In Phase I, radical innovation was defined objectively as having the potential for a five- or tenfold improvement in performance or a 30–50% cost reduction. In Phase II, ‘radical’ became ‘breakthrough’, defined subjectively as ‘creation of a new platform or business domain that has high impact on current or new markets’, without quantitative measures. 2
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innovation capability’, including GE, IBM, DuPont, Intel, Xerox, Hewlett Packard and Corning. The ambitious goal of Grabbing Lightning is to build up and institutionalize a selfsustaining integrated management system for breakthrough innovators which would be separate from the existing mainstream management system, with different objectives and performance measures. The proposed system includes five elements: mandate and responsibilities, structure and processes, resources and skills, leadership and governance, metrics and reward systems. These elements are competently and exhaustively described in the book, with many practical examples, in the form of ‘stories’. To overcome the dichotomy between the established ‘mainstream system’ and the new ‘innovation system’, the authors propose the creation of a new ‘innovation function’ at the corporate level, parallel to existing functions: R&D, engineering, manufacturing, marketing, finance, legal and other functions. Chapter 1 describes the building blocks that comprise the innovation function: discovery, incubation and acceleration. Chapter 2 discusses a company’s organizational capacity for innovation, Chapter 3 the discovery competency, Chapter 4 the incubation competency, Chapter 5 the acceleration process. Chapter 6 summarizes the integrated discoveryincubation-acceleration system and the appropriate metrics. Chapter 7, entitled ‘orchestration’, analyses the difficult, everchanging relationships between the innovation function and the mainstream organization. Chapter 8 explains how to get started in developing a breakthrough innovation (BI) capability and Chapter 9 how to sustain and grow this capability. At the end of most chapters there are questionnaires for assessing the BI competency of the company, as of now and as desired future objective. The analysis of the BI process is thorough, with good practical advice for employees of all functions and all levels.
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The book is easy and enjoyable to read, because it is not written in academic jargon, but rather almost in journalistic style. Readers should always keep it easily accessible as reference and assistance in case of problems with breakthrough and even incremental innovations. However, there are also shortcomings for readers of technical and marketing backgrounds. First, the description of the 21 participating companies is too general and incomplete (three lines per company), there is no technical or market description of the breakthrough projects in which the companies have been involved, the results obtained, and the key factors that contributed to success or failure. Second, the financial aspects are completely lacking, in spite of the fact that most of the BI projects studied must have required expenditures of many millions of dollars over many years. It is naïve to ignore the financial aspects of BI, because profitability is now driving the short-term and even more the long-term strategies of most, if not all, innovative corporations which have participated in the study. The subtitle of Grabbing Lighting is ‘Building a capability for Breakthrough Innovation’, but could also have been ‘How to Keep Breakthrough Innovation alive by navigating through the jungle of corporate politics’. In
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Number 1
2009
fact, many previous studies of corporate venturing and corporate venture capital have shown that the funding cycles for innovating last only three or four years, in parallel with economic cycles. The problem is that most radical or breakthrough innovations require double that time to succeed and repay the initial investment. Therefore, project teams are frequently operating under the threat that their project will be arbitrarily killed or cut drastically by top executive management. The main ongoing concern is to survive at any cost, including going underground or spinning off from the company. The Italian proverb quoted above states this quite succinctly: ‘If you stop, you lose!’ Given the present perilous state of the world economy, it is not clear if and when the more progressive and innovative companies striving for BI will adopt the new innovation function advocated by the authors. Independently of this outcome, Grabbing Lightning is very timely reading for all managers, researchers, new product planners and developers who want to keep the torch of creative BI burning in the present challenging times. Pier A. Abetti Rensselaer Polytechnic Institute
© 2009 The Author Journal compilation © 2009 Blackwell Publishing
