Blackwell Publishing Ltd.Oxford, UK and Malden, USACAIMCreativity and Innovation Management0963-1690Blackwell Publishing Ltd, 2005December 2005144331333EDITORIALEDITORIALCREATIVITY AND INNOVATION MANAGEMENT
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Editorial he art and science challenges within the management of product development is the central theme of this issues special section, in which guest editors Paul Coughlan, Mairead Brady and Louis Brennan brought together a total of seven contributions based on papers presented at the 11th International Product Development Management Conference. This conference was organized in June 2004 by the European Institute for Advanced Studies in Management, and hosted by the School of Business Studies, Trinity College in Dublin, Ireland. The seven contributions chosen deal with issues within the product development area that are at the core of creativity and innovation management (CIM). In addition, we have included three further contributions that span contemporary issues in CIM, a book review section and a ‘Call for Events’ section, all of which should be of interest to the creativity and innovation management community of scholars and practitioners. Product development management is an established area of research in the management field and of increasing importance in management practice. The purpose of the International Product Development Management conference organized in Dublin was to deal with the challenges in the art and science of the management of product development. The papers address a range of issues representative of these challenges and of the conference programme. Knowledge generation is a cornerstone of new product development, and post-project reviews are widely recognized as a facilitator of project-to-project learning. In the first contribution to this special issue, ‘Learning from new product development projects: an exploratory study’, Ursula Koners and Keith Goffin note that empirical research on post-project reviews is sparse. They present four in-depth exploratory case studies, which look at how post-project reviews are conducted and the learning that can result. Their findings indicate how appropriately managed post-project reviews can make a significant contribution to knowledge generation and exchange. Armand Hatchuel, Pascal le Masson and Benoit Weil note, in ‘The development of science-based products: managing by design spaces’, that current projects aimed at developing Science-Based Products (SBPs) combine
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three issues: new scientific knowledge, the renewal of the functional space and strict control over process costs and risks. SBP projects can only be partially interpreted by traditional management concepts. This paper aims to describe the issues involved and, more importantly, to propose a management model for science-based products based on the notion of ‘design space’, defined as a collective working space where designers can act in a way that enables them to learn about what they want to learn for their overall design process. The notion of design space offers new logics for evaluating and managing SBP projects: it helps to explain the pitfalls, the difficulties but also, paradoxically, the successes of SBP management. The next contribution, ‘Cross-functional conflict, conflict handling behaviours and new product performance in Spanish firms’, by José Antonio Varela, Pilar Fernández, Luisa Del Río and Belén Bande, posits a model of constructive conflict (or the benefits derived from cross-functional conflict). The authors found that the managers of a sample of innovating Spanish firms perceived positive changes when the parties in conflict: (1) exchanged information to solve problems; (2) emphasized their common interests; and (3) made an effort to maintain good relations. The results of the study also indicate that collaborating to seek a solution to conflicts between areas indirectly influenced the new product programme performance through constructive conflict. In their contribution, ‘Splendid isolation: does networking really increase new product success?’ Ann Ledwith and Paul Coughlan present the case for and against the involvement of external organisations in new product development projects. The paper examines both the frequency of interaction of firms with their customers, suppliers, universities, research institutes and competitors, and also the correlation between such interaction and new product success. Empirical data was collected from 60 electronics firms in Ireland and the UK using a well-established framework. The analysis examines small and large, Irish and UK firms and concludes that the impact of networking and collaboration on new product success is dependent on a range of factors and should not be viewed as a panacea for product development problems.
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The contribution, ‘Striving towards R&D collaboration performance: the effect of asymmetry, trust and contracting’, examines the effects of trust, asymmetry and contracting in R&D collaboration. The authors, Pia Hurmelinna, Kirsmarja Blomqvist, Kaisu Puumalainen and Sami Saarenketo studied 87 small Finnish firms and noted that asymmetry brought major benefits to collaborating firms, but that it could also become the basis of dissimilar orientation towards informal and formal governance methods, and could make managing collaboration and reaching goals more complex. The contribution by John Christiansen, Allan Hansen, Claus Varnes, and Juliana Mikkola is, ‘Competence strategies in organizing product development’. The authors explore the notion and implications of the resource-based view of the firm by investigating how managers involved in product development in two different companies interpret competencies and, subsequently, implement changes with respect to how they organize and structure product development activities. The interpretations and implications of competence strategies are distinctly different in the two companies. The analysis illuminates how competencies may be portrayed as a resource for managers’ intervention in organizational practice, whereby competencies are seen to be a cause, rather than an effect, of organizational structure, as it is often depicted in the literature. Kelly Dawson, Povl Larsen, Gavin Cawood and Alan Lewis, in their contribution, ‘National product design identities’, examine the key characteristics that determine a style in order to investigate the extent to which perceptions of furniture differ for ten selected countries. In addition, they identify which products are thought to be representative of the same ten countries. Visual product identity maps illustrate the results. Overall, the findings indicate which nations are associated with which key characteristics. They also noted that there are five characteristics that are in sharp contrast amongst most nations and furthermore, those that do not display individual identities This special section of this issue is the result of the efforts of many people in addition to the authors. The guest editors are especially grateful to the reviewers who reviewed each of the papers twice: our thanks to one and all. These reviewers are included in the overall list of (ad-hoc) reviewers that the journal publishes in this December issue. We acknowledge their invaluable help in achieving an ever-higher quality of academic contribution for the journal while simultaneously maintaining relevancy
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for the practitioner members of our creativity and innovation management community. There are three additional contributions to this issue of the journal. Geir Ottesen and Kjell Gronhaug present some novel and interesting ideas in ‘Positive illusions and new venture creation: conceptual issues and an empirical illustration’. Although the paper is primarily conceptual, drawing on insights from literatures such as cognitive psychology, strategy, management, and entrepreneurship, it sheds light on how entrepreneurs, public authorities and the media might influence such positive illusions to stimulate innovative initiatives, as well as how entrepreneurs can adjust their misperceptions to avoid negative consequences without killing initiative. The empirical research centres on blue mussel farming, which represents a potentially important innovation within the Norwegian aquaculture industry. We can certainly recommend this paper as an inspirational read. ‘Organizational design for enhancing the impact of incremental innovations: a qualitative analysis of innovative cases in the context of a developing economy’ by Mathew Manimala, P.D. Jose and Thomas K. T Raju is a contribution that supports the often-implicit assumption that incremental innovations could be characterised uniformly as lowimpact. From the comparative analysis of 31 cases of innovations implemented in large firms in India, six sub- themes emerged as important in differentiating between low- and high-impact innovations, namely: individual versus team action; top management support; the role of the immediate supervisor; rewards, recognition and incentives; focus on core versus non-core areas; and documenting and patenting practices. Learning from practice is very important in creativity and innovation management, and therefore it is only fitting to publish a contribution explicitly looking at learning from bad practice, which is addressed by Ellen Enkel, Javier Perez-Freije and Oliver Gassmann in ‘Minimizing market risks through customer integration in NPD. Learning from a bad practice’. From their starting point that the theory of customer integration still lacks a concept and processes, this closing contribution to our December issue illustrates how companies can be helped from a practice perspective to implement customer integration and maximize market safety. In the book review in this issue, Olaf Fisscher discusses George Huber’s The Necessary Nature of Firms, an intriguing and challenging read for practitioners and scholars alike. 2006 should be an eventful year, and we would like to draw your attention to some of © 2005 The Author Journal compilation © 2005 Blackwell Publishing
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the forthcoming conferences: The Creativity and R&D conference to be organized in Taiwan in November 2006, the 2006 R&D Management Conference in Manchester, and the 16th European Doctoral Summer School in Technology Management, hosted for the second time by Tauno Kekäle (
[email protected]; see also www.eiasm.org) at Vaasa University in Finland. Up-to-date information for all three events can be viewed at www.radma.org. As a follow-up to the International Product Development Conference in Dublin from which the papers in this special issue originate, in 2005 the event was organized by John Christiansen and his group in Copenhagen. The upcoming IPDMC in 2006 will take place in Milan, hosted by Roberto Verganti. More details will be posted through our own website and at www.eiasm.org. 2006 is also the year in which we welcome, next to EACI, the association we have been affiliated with from our very first volume, a close co-operation with PDMA, an originally US-based association, now truly
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globally expanding. More about this cooperation and the Product Development Management Association will follow in the editorial for 15(1) and on our website. Please also have a look at the adverts in the back of this issue. Lastly, we hope you enjoy this carefully edited issue, we wish you Seasons Greetings and a very happy and successful 2006 and we look forward to our 15th volume. This volume will start with the March issue, including a number of articles written by members of our own editorial board, which came forth out of the Oxford meeting held in March 2005. Please keep an eye on our website, www.blackwellpublishing.com/caim for preludes to this issue. August 2005 Paul Coughlan, Mairead Brady, Louis Brennan and Petra de Weerd-Nederhof
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Learning from New Product Development Projects: An Exploratory Study Ursula Koners and Keith Goffin Knowledge generation is a cornerstone of new product development, and post-project reviews (PPRs) are widely recognized as a facilitator of project-to-project learning. Empirical research on PPRs is sparse, so this paper describes four in-depth exploratory case studies that look at how PPRs are conducted and the learning that can result. The results indicate that appropriately managed PPRs can make a significant contribution to knowledge generation and exchange. In addition, the study indicates the urgent need for more research into this important area.
Introduction he challenge of new product development (NPD) is not only about the development of superior products. Managers also need to ensure that teams learn from each and every project and create new knowledge (Wheelwright & Clark, 1992). A post-project review (PPR) ‘is a formal review . . . which examines the lessons which may be learnt and used to the benefit of future projects’ (Lane, 2000). Such reviews can help capture the knowledge generated during NPD. Practitioners and academics alike have stressed the importance of PPRs but, surprisingly, our understanding of how they are typically conducted or how learning can occur is limited. There is wide anecdotal and some empirical evidence that not many organizations conduct PPRs (Bowen, Clark & Wheelwright, 1994; Saban et al., 2000). Another issue to note is that the literature on organizational learning is relevant, but most researchers working in the NPD context have failed to consider these insights (McKee, 1992). This paper considers organizational learning issues and presents an investigation of PPRs in four companies, showing their potential to facilitate knowledge creation and learning.
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Literature Review and Theoretical Basis Three bodies of literature are relevant to this study: project management; research and development (R&D) management; and organizational learning.
Project Management Literature The need to formally review projects that have been completed was recognized at the end of the 1950s, parallel to the emergence of project management as a discipline (Weinberg & Freedman, 1984). By the 1970s, recommendations had started to appear on how to conduct PPRs (Gulliver, 1987). However, it is interesting to note that the well-known ‘Project Management Body of Knowledge (PMBOK)’ (Project Management Institute, 1996) did not mention PPRs (Williams et al., 2001), until ‘lessons learned’ was added to the glossary of a recent edition (Project Management Institute, 2000). Three main advantages of PPRs are identified by the literature. First, learning from previous projects can help prevent similar mistakes (Ayas, 1997; Pitman, 1991). Second, disseminating lessons learned is of critical importance (Ayas, 1997) and the methods © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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most often mentioned include databases and rotation of personnel (Balthazor 1994; Holtshouse, 1999). Third, every project needs to contribute to an organization’s continuous improvement (Ayas, 1997; Prahalad & Hamel, 1990). The literature also includes recommendations for conducting PPRs and Table 1 gives an overview of these. Some of these are quite vague (e.g. ‘discourage glib categorization’; Busby, 1999), whereas others are specific. For example, Schindler recommended a ‘project knowledge broker’, responsible for transferring the lessons learnt within and between project teams (Schindler & Gassmann, 2000; Schindler & Eppler, 2003). A key problem is that the studies have not been conducted systematically and so the validity of the recommendations is questionable.
R&D Literature Knowledge is the main source of long-term competitive advantage in R&D (Corso et al., 2001). Therefore, the emphasis on learning from new product development projects is made by several authors (e.g. Bowen, Clark & Wheelwright, 1994; Leonard-Barton, 1992; Liyanage, Greenfield & Dan, 1999). PPRs are widely recognized as an important but seldom used mechanism for learning (Bowen, Clark & Wheelwright, 1994; Bourgault & Sicotte, 1998; Cooper, 1999; Wheelwright & Clark, 1992; von Krogh, 1998). Three empirical articles have established that the use of PPRs in R&D organizations is limited. One showed that only 2 out of 33 microelectronic manufacturers use PPRs and mostly only for ‘radical’ development projects (Boag & Rinholm, 1989). Goffin and Pfeiffer (1999) found that 4 of their 16 case-study companies used PPRs, but failed to give details on how they were used. A survey of 63 R&D managers identified that only 3 percent of their organizations conduct a PPR after every project, but the majority of them (94%) think their organizations should conduct PPRs (von Zedtwitz, 2002). Even though their importance has been recognized, our understanding of PPRs has a weak empirical base, as is demonstrated by Table 2. It can be seen that the four main papers are either based on small samples, or the personal experience of the author. The recommendations have not been derived directly from the data and so it is unclear how applicable they are. Moreover, the recommendations focus on knowledge that can be written down, documented and easily shared. There is no advice on how the PPRs can be used to share experiences that are more difficult © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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to articulate or document. Additionally, the papers are not based on learning theory: ‘academic research on innovation has a strong learning orientation. The problem is that much of the work that has been done is not organized in terms of underlying learning theory’ (McKee, 1992). Consequently, there is a need to introduce an organizational learning perspective.
Organizational Learning This literature focuses on the concept of ‘knowledge’, which was largely introduced by Nonaka (1994). Nonaka indicated that there are two types of knowledge: ‘explicit’ and ‘tacit’. Explicit knowledge is easy to explain and document, whereas tacit knowledge is difficult to articulate. Although it is possible to distinguish theoretically between them, they are hard to differentiate in practice (Brown & Duguid, 1991; Lam 2000). Nonaka concluded that knowledge always has a tacit component that is largely shared through social processes. ‘In project work . . . a great deal of the knowhow required is tied to knowledge that is not written in documents but realised through the expertise and understanding of the project personnel’ (Koskinen, Pihanto & Vanhoranta, 2003). Nonaka (1994) identified various mechanisms for the generation and transfer of knowledge, including the central role of metaphors and stories in discussions. Groups of people who are informally bound to one another by exposure to a common class of problems (‘communities of practice’) are able to exchange knowledge with little verbal or written communication (Wenger & Snyder, 2000). Therefore knowledge – especially tacit knowledge – is often created and shared within a group setting (Sapsed et al., 2000). Although social interactions, metaphors and stories are key exchange mechanisms, the literature (e.g. Nonaka) gives only anecdotal examples and no guidance on how to operationalize these concepts.
Conclusions on the Literature The literature on PPRs in a NPD (i.e. R&D) context is currently limited to statements on their importance, some indication that not many organizations use them, and untested guidelines. Very few researchers have considered the organizational learning literature, which demonstrates the tacit and social sides of learning. Overall, there is a need for empirical studies of both how PPRs are conducted and how they can promote learning.
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Table 1. Guidelines for Conducting PPRs in the Project Management Literature
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Empirical Basis
Details/Critique of Methodology
Recommendations for PPRs
Baird, Holland and Deacon (1999)
Anecdotal examples from USA army projects
• No details given, only discusses how the guidelines could be used by companies
Busby (1999)
Four PPRs in three different companies
Right Track Associates (2002)
Practical consulting experience
• PPRs were observed and semi-structured interviews conducted with participants afterwards • It is unclear whether the study was systematically conducted • No clear link between the findings and the recommendations • No details given
• ‘Make the discussions objective’ • ‘Balance inquiry and advocacy’ • ‘Use inference to understand the issues’ • ‘Consider the whole project history’ • ‘Make a detailed diagnosis and plan remedies properly’ • Consider ‘the bigger system’ • ‘Discourage glib categorization’ • ‘Invite key outsiders’
Schindler and Gassman (2000); Schindler and Eppler (2003)
Action research in nine multinational companies
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• Semi-structured expert interviews • Half-day follow-up workshops • Gives almost no details of the methodology • Apparently no use of the recognized approaches to action research
• ‘Analyse which procedures worked well and which did not’ • ‘Analyse which technical decisions were effective and which were not’ • Ask: ‘was this project a good idea?’ • Ask: ‘were sufficient skills and resources available?’ and ‘were resources utilized to the fullest extent possible?’ • ‘Did the project achieve its goals in terms of process and outcome?’ • ‘Capture the most important experiences directly after each project milestone’ • ‘Have an external neutral moderator’ • ‘Perform the lessons learned gathering graphically’ • ‘Ensure a collective, interactive evaluation’ • ‘Get commitment to apply the insights gained’ • Instigate a ‘project knowledge broker’
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Table 2. Guidelines for Conducting PPRs in the R&D Management Literature Reference
Empirical basis
Details/Critique of Methodology
Recommendations for PPRs
Duarte and Snyder (1997)
Single case study – Whirlpool
• Action research using product development learning template • Claims to be partially based on Huber’s organizational learning model – but it is unclear how
Lilly and Porter (2003)
Two stage research in various organizations
• Exploratory interviews with 16 NPD managers in eight companies • Mail survey across 49 companies • Focus of research is explicit knowledge
Smith (1996)
Anecdotal examples from nine companies
• No details given • Apparently no systematic approach
Wheelwright and Clark (1992)
Various case studies
• Few details given of the selection of cases, or how they were studied
• ‘Document what went well and what needs improvement – at every stage in the process’ • ‘Discuss openly what happened and why’ • ‘Focus on the assumptions and the process used by the team’ • ‘Obtain as many different perspectives as possible’ • ‘Be open to multiple interpretations and a systems perspective’ • ‘Suggest a range of options for improvement’ • ‘Incorporate reviews as a standard part of the development process’ • ‘Formalized review procedures lead to fewer individual learning biases’ • ‘Having multiple perspectives in the review process is very important’ • ‘Conducting only a single review minimizes the ability to effectively learn from the project experiences’ • ‘Learning that does occur is often not fully shared’ • ‘Review every project’ • ‘Assign a reviewer’ • ‘Define a review process’ • ‘Identify strengths’ • ‘Constructively balance positive and negative findings’ • ‘Focus on process improvements’ • ‘Interview key participants and back up the interview with the data’ • ‘Use metrics’ Sample question regarding: • Project background • Pre-project activities • Project team • Project management • Senior management review and control • Protoype and tests
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Research Design Research Questions Based on the gaps in the literature, a number of research questions were developed, two of which are presented here: 1. How do companies conduct post-project reviews? 2. What is the potential for both explicit and tacit learning from PPRs?
Methodology In-depth case studies were selected as the most appropriate methodology for the exploratory research on PPRs for three reasons. First, case studies are most often found when researching complex social phenomena in real-life contexts (Yin, 1994). Second, the limited amount of previous research on PPRs means that themes and patterns need to be identified (Eisenhard, 1989). Third, case studies allow us to look at formal as well as informal processes within an organization and enable the researcher to look at a wide array of variables (Hartley, 1994).
used, and Figure 1 gives an overview. The documents obtained included guidelines for PPRs in companies’ NPD process documentation and minutes of specific PPRs, which were all analysed by content. Second, six interviews with NPD project managers and participants were conducted at each company, using both a structured and semi-structured approach. A structured repertory grid interview was used as this technique is particularly useful when interviewees find it difficult to articulate their views on complex topics (Goffin, 2002). This method identified key ‘lessons learned’ from completed projects. The rest of each interview was used for a semi-structured questionnaire on how PPRs are run (e.g. the timing, location and focus of discussions etc). Lastly, one PPR was observed at each company and analysed using a framework based on organizational learning concepts. Transcripts of meetings were checked with a particular focus on stories and metaphors, as evidence for tacit knowledge creation and transfer. Overall, the multiple sources of data allowed a high degree of triangulation as each aspect of PPRs could be studied from different perspectives.
Cross Case Analysis Sample The sampling frame was large companies in the south of Germany, which is considered to be a leading high-tech region because it accounts for the highest number of patents and R&D investments per capita (Staatsministerium Baden-Württemberg, 2001). The four companies chosen will, for reasons of confidentiality, be designated EngineeringCo, AppliancesCo, MedCareCo and MachineryCo.
Data Sources Because of the complex nature of knowledge and learning, multiple sources of data were
Data Sources
DOCUMENTS
Current PPR practices The analysis of PPR practices was based on the company documents, the interviews and the observations of PPRs and conducted by the two authors in unison. Table 3 shows the evidence for nine key characteristics across the four case studies. These characteristics were derived from ideas in the literature and an inductive process based on the data. Table 3 shows that three companies’ guidelines specify PPRs should be held six months after the product introduction in order to include information about the market acceptance. However, in practice PPRs take place later because of difficulties to set a date for all
INTERVIEWS
OBSERVATIONS
Repertory Grid
Semistructured
Rep. Grid Matrices
Interview Transcripts
PPR Meeting
Data Collection PPR Guidelines
Minutes from PPRs
Notes on Observations
Transcripts of Meetings
Figure 1. Overview of Data Sources Within each Case Study
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participants – this was established by data from the minutes of PPRs and the interviews being contrasted with the company NPD process documentation. The core team is normally gathered in an internal meeting room but the use of an ‘off-site’ approach appears to be positive in setting an appropriate atmosphere for team learning: ‘for me personally the PPR is a gathering of experiences. By participating in a project and in a PPR you learn automatically and are supported by others.’ (Interviewee 3 EngineeringCo) Concluding the PPR with a team celebratory meal (e.g. MachineryCo) also appears to reinforce team learning. Although three companies assign the project manager to moderate, using an experienced moderator from outside the team appears likely to be more effective ‘A good moderator can cope better with people who for example go on about the same thing for ages. The ones we have are really good, know what they are talking about and how to stimulate the discussion.’ (Interviewee 4 Appliances Co) The time invested in a PPR needs to be sufficient to achieve knowledge generation through detailed discussions. The exact time required depends on the complexity of the project in question. The interest and support of senior management has a big influence on the time and effort invested in PPRs. This is evident at ApplicancesCo, where the Chief Technology Officer introduced the PPR process, and a full day is invested using an internal trainer as a moderator. The results are then presented to senior management. Across all four cases it is interesting to see that the discussion is mainly focused on project problems: ‘of course there are always some issues that everyone is surprised about how they develop into big problems during the PPR discussion without anyone realizing their importance before.’ (Interviewee 2 MedcareCo) The focus on problems implies that mainly lessons on how to avoid problems will be disseminated rather than successful practices. At three of the companies the moderator guided discussions in a way that appeared to support knowledge generation and discussions. Examples included discussions based on root cause analysis (e.g. EngineeringCo) and drawing ‘personal satisfaction curves’ (AppliancesCo). Project team discussions are perceived as enlightening: © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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‘yes, I am always surprised what you learn during a meeting like that . . . there are always new aspects of which I was not really aware of before.’ (Interviewee 6 AppliancesCo) All case companies produce a formal report from the PPR, but the dissemination appears to be weak, with little follow-up on action points. This means that much of the learning is not transferred effectively to other projects. It was often mentioned that the PPR itself is the most important dissemination tool and less focus should be put on written documentation: ‘how can I write this down, I know we understand it in the team without any discussion, but for outsiders this might not be clear at all . . .’ (Observation of the PPR at EngineeringCo) The right-hand column of Table 3 gives recommendations based directly on the research. These include the timing, the use of an external moderator, stimulating effective discussions, the follow up of action points and the transfer of findings to future projects. These should enable R&D managers to improve NPD project-to-project learning.
The Potential for Knowledge Creation Our results strongly indicate the potential for learning from PPRs and we will give two categories of examples: quotes from the interviews and an analysis of metaphors used in the PPRs observed. Interviewees often discussed how much they learnt in PPRs that was not documented in the minutes (this was confirmed by triangulation with these documents). For example, ‘I learnt that you do not always have to fill huge files after a PPR. If you have a good team and reflect collectively on each topic, it works just by the common understanding of these people.’ (Interviewee 5 MedcareCo) The tacit nature of much of this learning is typified by the following quote: ‘I think lessons learned I can only disseminate if I register it myself and then use it again in the projects I work in and like that pass the experience on to my colleagues.’ (Interviewee 3 MachineryCo) The second indication of the tacit nature of knowledge generated and exchanged in PPRs is the usage of metaphors. Table 4 shows that in the 15 hours of PPRs observed, a total of 55 metaphors were used. This means that metaphors and stories emerged on average nearly
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Table 3. Selected Key Characteristics of PPRs EngineeringCo
AppliancesCo
MedCareCo
MachineryCo
Conclusions / Our recommendations
1. Timing
Guideline is approximately six months after market launch but later in practice.
Guideline is directly after market launch. In practice at least six months later.
Guideline is six months after market introduction. In practice often later because of availability of the necessary participants.
• Guidelines are not usually followed. • 6 months after launch appears appropriate.
2. Participants
Core project team
Project team with moderator from outside the project. Final presentation is to senior management.
Guideline is six months after market launch. In practice sometimes earlier because of time pressure or senior management priorities. Full project team. For strategic projects the steering committee is also present.
Core project team.
3. Location
Meeting room
External training centre
Meeting room
Meeting room or social setting (e.g. room in a restaurant)
4. Moderation
Project manager
Moderator from internal training unit
In some cases internal auditor
Project manager
• Core team is always present. • The presence of senior management at the presentation motivates and also helps disseminate knowledge. • Separate meeting rooms are always used. • External meetings stimulate open discussion and avoid interruptions. • Usually project managers moderate. • An external experienced moderator can stimulate more effective discussion.
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Characteristics of PPRs
EngineeringCo
AppliancesCo
MedCareCo
MachineryCo
Conclusions / Our recommendations
5. Duration
Max. three hours
Full day
Max. two hours
One hour
6. Focus of discussion
Problems with each project phase, the schedule and capacity
Problems and figures achieved, feedback from the team for project manager
Positive and negative issues, outstanding actions, improvement suggestions
7. Actions taken to stimulate knowledge generation
Discussion of causes and consequences after a round of feedback from the team
Problems but also their causes and consequences and important experiences for future projects Personal satisfaction curves, causal mapping and many opportunities for story telling and metaphors during the day
None identified
8. Documentation
Short report only, as the focus is on the discussion itself and not on documenting it
PPR report with suggestions and a presentation to senior management
PPR minutes as well as action points to follow up
Deep discussion of personal experiences within the team based on questions from project manager and facilitated by the social setting Final report to steering committee with three lessons learnt
• The length of PPRs varies. • Take sufficient time for a detailed discussion. • The focus is nearly always on problems. • The mechanisms that led to project success also need consideration. • The location and moderation influence this. • Companies should consciously try and support the exchange of knowledge.
9. Dissemination of results
Information stays within the project team and learning is seldom followed up.
Report is distributed across business units. Follow-up by top management does not really happen.
Very limited outside of the project team. Minutes go to a steering committee.
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Report goes to project team and steering committee, with a follow-up of action points by project manager.
• Reports or minutes are normal. One company has a presentation to management. • Specific actions are needed to guarantee knowledge transfer. • Lessons learnt often stay with project team. • Management needs to instigate effective dissemination mechanisms including the use of stories and metaphors.
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Table 4. Metaphors and Stories used during PPR discussions Case
Length of observed PPR
Number of metaphors identified
Place of metaphors and stories in the discussion Start
EngineeringCo AppliancesCo MedCareCo MachineryCo Total
2.5 hours 7.5 hours 3 hours 2 hours 15 hours
every 15 minutes of discussion. One example stems from the PPR at Engineering Co, where a participant said, ‘we are always at the very end of the food chain unfortunately’, meaning that he was responsible for the final assembly of products and therefore vulnerable to suffering from all of the problems that were experienced during earlier project phases. Various metaphors were heard at AppliancesCo, including ‘Reichsbedenkenträger’ (German metaphor for someone who has strong doubts about everything ‘Minister of Doubt’) – referring to someone who constantly challenged the team’s plans. This is the first time that empirical data on the level of usage of metaphors in PPRs has been collected, so there is no benchmark as to whether the case companies use metaphors more than other NPD teams. Our analysis shows that PPR participants use metaphors in various ways: to stimulate discussion (observed 12 times), in the middle of a topic, towards the end or as an aside. Often metaphors lightened the atmosphere or allowed sensitive points to be discussed in a non-threatening way. Overall, statements from interviewees about what and how they learned in PPRs and the use of metaphors and stories can be taken as tentative evidence for the creation and transfer of tacit knowledge.
Discussion Investigating how four companies conduct PPRs using multiple data sources provides a depth of understanding that was previously missing. This allows clearer recommendations to be made about how PPRs should be organized and how discussions can be stimulated. The minutes of PPRs show a focus on explicit knowledge, such as project management
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14 30 5 6 55
Mid
3 6 1 2 12
6 1 3 10
End
Alone 5 13 2 20
6 5 1 1 13
issues (e.g. schedule, cost and quality) and the technical lessons learned (e.g. problems solved). However, interviews with NPD engineers and managers indicate that far more can be learnt from projects, such as better ways to communicate. PPRs have the potential to stimulate learning. However, across all four companies the learning from PPRs is currently only disseminated effectively to the people who participate in the meeting. Although documentation is produced, this is not an effective mechanism and action points do not seem to be followed up efficiently. Based on the research, the main recommendations for practitioners are (see also Table 3): • six months after product introduction sufficient time needs to be allocated to a detailed of both the success and problems encountered on the project. A moderator from outside the team and a suitable location are important to set the right atmosphere for knowledge generation; • the moderator needs to take steps to try and stimulate the exchange of tacit knowledge and focusing on metaphors and stories may help; • management needs to design suitable mechanisms for the dissemination of the results of PPRs across their whole organization; otherwise much of the effort will be wasted. Effective dissemination consists of more than minutes and reports from PPRs. Encouraging social interactions between different project teams may help and using stories to summarize the key learning could well be more effective than just formal reports; • NPD team members view PPRs positively and they can be an ideal opportunity to celebrate success. For NPD researchers there are some important implications: © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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• project-to-project learning has been given too little attention in the past; • there is a need to understand what the frequency of usage of PPRs is and how they are typically conducted; • the exact nature of the lessons learned in PPRs must be investigated (and here we have the opportunity to analyse other aspects of our data); • our understanding of how knowledge is generated in NPD is only just emerging. However, NPD researchers could and should take a lead in investigating how tacit knowledge is generated and how it can be observed (i.e. operationalized). Overall, the research confirms the learning potential of PPRs and, as one interviewee stated: ‘only in such a group with people from different functions . . . [can] you always learn something you did not know before’ (Interviewee 3 AppliancesCo).
References Ayas, K. (1997) Integrating corporate learning with project management. International Journal of Production Economics, 51, 59–67. Baird, L., Holland, P. and Deacon, S. (1999) Learning from action: imbedding more learning into the performance fast enough to make a difference. Organizational Dynamics, Spring 1999, 19–31. Balthazor, L.R. (1994) Project review – do you really know where you are? The Aeronautical Journal, 98(973). Boag, D.A. and Rinholm, B.L. (1989). New product management practices of small high technology firms. Journal of Product Innovation management. 6(2), 109–22. Bourgault, M., Sicotte, H. (1998). Learning conditions and performance of development projects: empirical evidence from a research center. In: Proceedings of the 29th annual project management institute 1998 Seminars & Symposium, 9–15 October 1998, Long Beach, California. Bowen, H.K., Clark, K.B. and Wheelwright, S.C. (1994). Development projects: the engine of renewal. Harvard Business Review, 72(5), 110–119. Brown, J.S. and Duguid, P. (1991). Organizational learning and communities of practice: toward a unified view of working, learning and innovation. Organization Science, 2(1), 40–57. Busby, J.S. (1999). An assessment of post-project reviews. Project Management Journal, 30(3), 23–29. Cooper, R.G. (1999). From experience: the invisible success factors in product innovation. Journal of Product Innovation Management, 16(2), 115–33. Corso, M., Martini, A., Paolucci, E. and Pellegrini, L. (2001). Knowledge management in product innovation: an interpretative review. International Journal of Management Review, 3(4), 341–52. Duarte, D. and Snyder, N. (1997). From experience: facilitating global organizational learning in © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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product development at Whirlpool corporation. Journal of Product Innovation Management, 14(1), 48–55. Eisenhard, K.M. (1989). Building theories from case study research. Academy of Management Review, 14(4), 532–50. Goffin, K. and Pfeiffer, R. (1999) Innovation Management in UK and German Manufacturing Companies. Anglo-German Foundation Report Series, London. Goffin, K. (2002) Repertory Grid Technique. In: Partington, D. (ed.) Essential skills for management research. Sage Publications, London pp. 198–225. Gulliver, F.R. (1987) Post-Project appraisals pay. Harvard Business Review, 87(2), 128–32. Hartley, J.F. (1994). Case studies in organizational research. In: Cassell, C. (eds.) Qualitative methods in organizational research: a practical guide. Sage, London. Holtshouse, D. (1999). Ten knowledge domains: model of a knowledge-driven company. Knowledge and Process Management, 6(1), 3–8. Koskinen, K.U., Pihlanto, P. and Vanhoranta, H. (2003) Tacit knowledge acquisition and sharing in a project work context. International Journal of Project Management, 21(4), 281–90. Lam, A. (2000) Tacit knowledge, organizational learning and societal institutions: an integrated framework. Organization Studies, 21(3), 487–513. Lane, Ken (ed) (2000). Project Management Today. Available at http://www.projectnet.com (accessed 2 February 2000). Leonard-Barton, D. (1992) Core capabilities and core rigidities: a paradox in managing new product development. Strategic Management Journal, 13, Special Issue, 111–25. Lilly, B. and Porter, T. (2003) Improvement reviews in new product development. R&D Management, 33(3), 285–96. Liyanage, S., Greenfield, P.F. and Dan, R. (1999) Towards a fourth generation R&D management model – research networks in knowledge management. International Journal of Technology Management, 18(3/4), 372–93. McKee, C. (1992) An organizational learning approach to product innovation. Journal of Product Innovation Management, 9(3), 232–45. Nonaka, I. (1994) A dynamic theory of organizational knowledge creation. Organization Science, 5(1), 14–37. Pitman, B. (1991) A systems analysis approach to reviewing completed projects. Journal of systems management, 42(6), 6–37. Prahalad, C.K. and Hamel, G. (1990) The core competence of the corporation. Harvard Business Review, 68(3), 79–92. Project Management Institute (1996) A guide to the project management body of knowledge, Project management Institute, PA, USA. Project Management Institute (2000) A guide to the project management body of knowledge, Project management Institute, PA, USA. Right Track Associates (2000) ‘Post project reviews: analyzing lessons learned’. Right Track Asoociates. Available at http://www.ITtoolkit.com. Saban, K., Lamosa, J., Lackman, C. and Peace, G. (2000) Organizational learning: a critical compo-
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nent to new product development. Journal of product and brand management, 9(2), 99–119. Sapsed, J., Bessant, J., Partington, D., Tranfield, D. and Young, M. (2000). From IT to Teams: Trends in the management of organisational knowledge. R&D Management Conference 2000: Wealth from Knowledge: Innovation in R&D Management, Manchester, UK, 10–12 July. Schindler, M. and Gassmann, O. (2000) Wissensmanagement in der Projektabwicklung. Wissenschaftsmanagement. Schindler, M. and Eppler, M.J. (2003) Harvesting project knowledge: a review of project learning methods and success factors. International Journal of Project Management, 21(3), 219–28. Smith, P.G. (1996) Your product development process demands ongoing improvement. Research Technology Management, 39(2), 37–44. Staatsministerium Baden Württemberg (2001). http://www.baden-württemberg.de (accessed 22 May 2001). Von Krogh, G. (1998) Care in knowledge creation. California Management Review, 40(3), 133–53. Von Zedtwitz, M. (2002) Organizational learning through post-project reviews in R&D. R&D Management, 32(3), 255–68. Weinberg, G.M. and Freedman, D.P. (1984) Reviews, Walkthroughs and Inspections. IEEE Transactions on Software Engineering, 10(1), 68–72. Wenger, E. and Snyder, W.M. (2000) Communities of practice: the organizational frontier. Harvard Business Review, 78(1), 139–145. Wheelwright, S.C. and Clark, K.B. (1992). Revolutionizing product development: Quantum leaps in speed, efficiency and quality. The Free Press, New York.
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Williams, T., Eden, C., Ackermann, F. and Howick, S. (2001). ‘The use of project post-mortems’. Strathclyde Business School, Research paper no. 2001/7. Yin, R.K. (1994) Case study research: design and methods. Sage Publications, Applied Social Research Methods Series Volume 5, 2nd edn.
Ursula Koners (
[email protected]) is a PhD Student at Cranfield School of Management and the Head of Project Management at Ravensburger Spieleverlag GmbH, Germany. Her research interests include project management and organisational learning in R&D as well as innovation management. Keith Goffin (
[email protected]) is Professor of Innovation and New Product Development at Cranfield School of Management, UK. His research interests are enhanced methods for market research, knowledge management in R&D, and the role of the CEO in driving innovation performance. His latest book, Innovation Management, was published by Palgrave MacMillan in June 2005.
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The Development of Science-Based Products: Managing by Design Spaces Armand Hatchuel, Pascal Le Masson and Benoit Weil The design of science-based products (SBP) combines three main issues: exploring a functional space, producing scientific knowledge about key phenomena related to the concept and ensuring manageability of the project. Literature on the subject generally considers the three issues to be irreconcilable, on the grounds that a project involving functional exploration and phenomenological exploration is unmanageable. However, based on two SBP cases, we show that this apparent unmanageability is mainly a result of the lack of a relevant managerial model for the interpretation of the observations. We introduce the notion of ‘design space’ as a collective working place where designers can act to learn about what they want to learn (for their overall design process). We show that the design of an SBP is managed as a sequence of design spaces.
Introduction ncreasing attention is being paid to innovation management, at a time when businesses face severe competition that New Product Development (NPD) solutions – such as cutting lead times or updating existing products – fail to fully address. Current projects aimed at developing science-based products (SBPs) combine three issues: new scientific knowledge, the renewal of the functional space and strict control over process costs and risks. SBP projects can only be partially interpreted by traditional management concepts. A new concept is therefore required, which is neither an extended NPD model with scientific knowledge produced at the frontend of the process, nor a complex ‘innovation journey’ (Van de Ven et al., 1999) guided only by random events. This paper aims to describe the issues involved and, more importantly, to propose a management model for SBPs based on the notion of ‘design space’, defined as a collective working space where designers can act in a way that enables them to learn about what they want to learn for their overall design process. The notion of design space offers new logics for evaluating and managing SBP projects: it helps to explain the pitfalls, the difficulties but also, paradoxically, the successes of SBP management; it also shows what has to be managed in ongoing SBP projects.
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The paper is divided into four sections: first, we define SBPs and summarize what is already known about them and the main issues involved. Using design theory to analyse SBP development, in the second section we explain why a new model is needed; third, we define more precisely the notion of design space and show how it supports SBP development. We conclude by addressing the main issues in the management of design spaces and by showing how the notion of design space can be extended well beyond the strict limits of SBPs.
Science-Based Products: Cutting across the Literature SBPs: An Actionable Definition The first step in elaborating a management model for SBP development is to propose an actionable definition. The definition must specify the elements to be managed and must be such that, at the launching of a project, it is clear whether or not it is an SBP development and hence has to be managed as such. Science-based product development can be defined by two related issues: • the product concept still requires functional definition
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• the development requires a programme of scientific research about the main phenomena associated with the product For instance, Cochlear implant development, as described in ‘Innovation Journey’ (Van de Ven et al., 1999), involved research in electronics, acoustics, physics, speech processing and so on, and the functional space was clearly unknown (e.g. deep or partial deafness, more or less adaptable, more or less invasive). This definition implies certain distinctions: • SBPs are different from applied research in NPD. Applied research is usually seen as the application of scientific results already obtained by basic research. For SBPs, the scientific research work has yet to be done, as learning is needed on largely unknown phenomena that are essential to the project. Applied research usually addresses wellidentified functions. With SBPs, the functions are unclear and different phenomena are investigated in an attempt to clarify them. • SBPs are different from basic science programmes. A basic science programme is usually seen as a programme that works on a given phenomenon without a clearly identified application goal. SBPs clearly aim at developing a product: some functional goals can be formulated, albeit only very partially.
SBPs: Review of the Literature The notion of SBP is a new one. However, SBPs can be linked to the most recent trends in the literature on NPD and on innovation processes. Managing Knowledge Production in NPD Different authors have pointed out that ‘traditional’ project management relies on strong hypotheses that are not suitable for innovation. Wheelwright and Clark (1992) spoke of ‘pizza bins of proven technologies’ (p. 40). In NPD, the project has a clear, identified goal. This hypothesis does not exclude innovation, but restricts it to well identified areas. However, several authors have noted that NPD could be extended to more uncertain and dynamic situations (Eisenhardt & Tabrizi, 1995): in this case, it requires a capacity to organize overlapping between the ‘definition phase’ (requirement setting) and the last validation or integration phase, i.e. so-called ‘flexible product development’. MacCormack et al. studied flexible product development in software development and showed that it was based on ‘greater investments in architectural
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design, earlier feedback on product performance from the market and the use of a development team with greater amounts of generational experience’ (MacCormack, Verganti & Iansiti, 2001). This statement raises three questions: is ‘investment’ enough to get the right architecture or what organization is required to design the architecture? Is it possible to organize the exploration of the ‘functional dimension’ of a product instead of relying on an evolutionary process with repeated customer evaluation? What can be done when ‘generational knowledge’ is missing? In the SBP perspective, we study the process by which an organization acquires the relevant architecture and the relevant functional language (the good ‘genes’) for stabilized, flexible PD. Other authors have focused on the beginning of projects in an attempt to understand how companies foster innovation. ‘Fuzzy front end’ (FFE) management was seen as a way of reducing time to market (Reinertsen, 1994), or as a process of refining early business analysis (assessment, detailed market studies, competitive analysis, concept tests, product strategy formulation, opportunity identification and assessment, idea generation, product definition, project planning and executive reviews (Cooper, 1997; Khurana & Rosenthal, 1998). Christensen (1997) and Leifer and Rice (1998) insisted on alternative ways of screening ideas and project portfolios to avoid rejecting breakthrough innovations. These studies underlined the difference between ‘front end’ and the project development itself. These works suggest that innovative concepts have to be prepared upfront, but no specific role is allotted to science, except as a provider of ‘ideas’. We will therefore focus more specifically on how the scientific way of producing knowledge can be used to structure and enrich the fuzzy front end phases and, more generally, the design process. Myers and Rosenbloom (1996) stressed that knowledge is needed along the whole design process, not only at the FFE. This knowledge can consist in research results (Kline & Rosenberg, 1985), firm-specific knowledge, communities of practice, technology platforms and core competencies (Leonard-Barton, 1995; Prahalad, 1993). In relatively stable markets, the organization scans and searches its environment to pick up signals about potential innovation, selects an option, finds resources and proceeds with implementation (Tidd, Bessant & Pavitt, 1997); in more dynamic markets, it has to rely on iterative ‘experiential activities such as prototyping, real-time information, multiple options and experimenting’ (Eisenhardt & Martin, 2000). Yet in this litera© 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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ture, the innovation remains an ‘exogenous’ process, which is only managed by resource and knowledge acquisition; it appears as loosely structured and unavoidably iterative. Studying SBPs enables a detailed investigation of the issue of knowledge production for the design process: what is ‘experimentation’? Is it unavoidably iterative? It mobilizes extremely controlled ways of producing knowledge in order to understand how knowledge production interferes with a design process. In their work on experimentation techniques and their impact on experimentation strategies, Thomke and his colleagues (Thomke, 2003) model the design process as an iterative trial and error process in which managers have to identify the most useful (or, we could say, ‘learningful’) trial techniques for each phase. This approach is interesting, but still does not address the issue of exploring functional spaces, which is also important for SBPs. Managing SBPs and Innovation Processes Innovation processes have been seen as distinct from ‘development’. Burns and Stalker (1961) insisted on the ‘organic’ features of innovative organizations, as compared to ‘mechanical organizations’. Innovation activity is often described as ‘skunk work’ or as processes that need alternative managerial principles (Leifer & Rice, 1998; Tushman, Anderson & O’Reilly, 1997). Tushman and Anderson spoke of ‘ambidextrous management’ that protects and enhances ‘entrepreneurial units’. Nohria and Gulato studied how slack can be useful for innovative organizations (Nohria & Gulati, 1996). Van de Ven et al. (1999) led in-depth studies on the ‘innovation journey’. They underlined how ‘events’ pace the gestation of innovation. However, these authors do not address the issue of innovation management. Van de Ven et al. describe innovation as an ‘inherently uncontrollable process’; managers can only ‘enable’ and take ‘pragmatic decisions’ to react to changing conditions. The process appears to be largely unmanaged and chaotic. Thus, it seems that the more the authors describe innovation processes, the less they see the underlying management principles. These works on innovation processes describe a sequence of actions, but the way they are interpreted does not help to understand how the actions are managed. Should we accept the underlying hypotheses that it is an unmanageable process? Or is it that the authors’ theoretical lenses prevent them from recognizing management processes? Our empirical work on SBPs widely confirms the descriptions found in this © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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literature. However, by introducing a new managerial model (i.e. by changing the theoretical lenses) we are able to demonstrate how SBP development can become a manageable process.
Main hypotheses on managing SBP development Three hypotheses can now be formulated: P1: SBP management requires a new managerial model. P2: We introduce the notion of ‘design space’, a space of collective work where knowledge is produced in relation to the overall SBP process. We claim that building design spaces enables the management of knowledge production in relation to the design process. Following our definition, in SBP projects designers have to learn about the functional space –F and the phenomena P. Moreover, as SBPs are designed products, designers have to control the link between functions and phenomena through devices. In SBPs, designers have to learn about the means of controlling a design, relying on certain phenomena to meet certain functional specifications. This third dimension is called L for ‘likelihood’. Each design space is an opportunity to learn about these three dimensions. P3. We claim that the design process can be traced by the increase in knowledge about F, P and L, in the sequence of design spaces. Various principles for managing design spaces and for SBP development can be derived from these propositions.
Research Methodology: Wearing the Right Lenses We can illustrate our search for a management model by looking at a practical case of SBP development, where we had the opportunity to follow a project step by step, and to interview all the main actors several times over a period of several months. The case study is described in detail in a report published by the Ecole des Mines de Paris (Lapeyronnie & Macaire, 2002). This case enabled us to discover a new management model. This paper shows how the model provides new lenses to look at SBPs. It helps to clarify what can actually be managed in such projects and the main pitfalls of SBP management. In the next section, we present the case and underline the need for a new managerial model to overcome the ‘apparent chaos’ of SBPs.
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A Case Study of SBP Development: In Search of Management Actions Confirming the Nature of the Case The ENERGY case involved a joint project by a public energy research laboratory and a car manufacturer to explore how to provide thermal comfort in cars via slow vertical airflows from the roof. The idea was to provide new types of thermal comfort that were not restricted to a question of average temperatures. The main results of the ENERGY project were as follows: • knowledge on vertical airflows and their cooling capacities. Researchers and engineers gained new learning on several architectural principles, on filtering and diffusing technologies, on the aerodynamic behaviour of vertical airflows in car interiors, etc; • researchers and engineers were also led to revise their understanding of thermal comfort. They identified two thermal regimes: the first consists in decreasing interior temperatures quickly; the second, in maintaining low temperatures. They also observed that traditional air-conditioning systems were adapted (and designed) for the first regime, whereas the vertical airflow cooling system tended to address the second regime. First of all, the case corresponds to SBP development. ‘Thermal comfort’ was an uncertain functional space; science was required to address the main phenomenon (energy studies) and new knowledge was produced on the main phenomenon. Lastly, it was not merely an ‘experiment’ without control, as the project was carefully managed by the car manufacturer’s exploratory team on energy. However, it can also be noted that ENERGY was part of a broader SBP development and did not give birth to a new product. More precisely, the case addressed the initial phases of the related SBP, when the list of specifications was still unknown and the competencies needed were practically unknown.
From ‘Apparently Unmanageable’ to a Sequence of Managed Phases How do the existing models help to describe an SBP process? Following Van de Ven et al., ‘the innovation journey’ is modelled as: ‘new IDEAS that are developed and implemented to achieve desired OUTCOMES by PEOPLE who engage in TRANSACTIONS (relationships) with
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others in changing institutional and organizational CONTEXTS’ (Van de Ven et al., 1999, p. 6–7). In this author’s methodology, any change in one of these five dimensions is an ‘event’. The energy process is characterized by new ideas, evolving outcomes, changing research teams and project leaders, evolving contracts. The model captures a set of events in detail, but its own logic tends to shape the observations in such a way that a seemingly chaotic picture appears, with many diverging events and no managerial logic or impact. How can the type of management that supported the project be accounted for? Obviously, the SBP development was not a pure NPD process, since functions were initially unknown and competencies were not available, but it did involve FFE or ‘scan and search’ strategies. In ENERGY, there were not one but several repeating FFEs, where functions were discussed and new architectural alternatives were investigated; these phases were also closely linked to several cycles of knowledge production in research experiments. Three main phases were identified, each requiring idea generation, functional exploration and knowledge production or acquisition. Each FFE gave birth to a learning phase, each of which was a kind of ‘moment of equilibrium’. It is striking that in the face of broad issues such as innovative thermal comfort in cars, explorations began by addressing a ‘confined’ issue: ‘a demonstrator of slow vertical airflows’. Second, there was not only a single prototype, but a sequence of trials around vertical airflows. Also, the prototypes were linked together. From one prototype to the next, the thermal comfort functions were explored and enriched, and several scientific phenomena were investigated and better understood.
Reshaping the Interpretative Model These observations led us to the hypothesis that the project required a new interpretative model (confirming proposition P1) aimed at revealing management issues and interventions. We can therefore distinguish two management processes acting simultaneously: one which can be described as the repetition of FFEs related to the main project and the other formed by learning phases on more confined topics (see Figure 1 below). It is the combination of these two processes that produces a seemingly chaotic, unmanageable process. We will now model what happens in loops going from the FFE level to different ‘learning phases’ and back. This model will then help us to deduce managerial principles to manage the sequence of learning phases. © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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Value management
Design space 1
Design space 2
Design space 4
Design space 5
Design space 3
Figure 1. Two Management Processes in SBP Development
Managing by Design Spaces: A Model for SBP Management Design space and a transition between design spaces By ‘design space’ we refer to the learning phases, and we consider that the repetition of FFEs builds the value management layer. The SBP process is hence modelled as a sequence of design spaces, each design space being derived from the value management layer and contributing to it in return (see figure 1). A design space is defined as a collective workspace allowing design activity, i.e. aiming at enabling designers to learn about what they want to learn for their overall design process. This can be modelled more precisely by representing the designed object as a set of properties, with the design process consisting in defining these properties step by step. In this model, a design space is an action space for a group of designers, in which they can drive a design activity. This activity does not necessarily address directly all the properties of the target product, but examines a limited number of properties (or constraints) that will help to design the future product. To be more precise, there can be several types of properties: (i) the specifications that have to be met (functions) and (ii) the design parameters defined by the designer and the implied constraints (For examples of this modelling, see Alexander, 1964; Suh, 1990). Moreover, the link between design parameters and functional requirements is based on phenomenological laws. Lastly, the evaluation of the designed object’s performance requires specific evaluation devices. Thus the model of a design space requires three main spaces: a functional space (and its related space of design parameters) F, a phenomenological space P, and a device space, referred to as L (for likelihood function, since this device space is equivalent to a likelihood © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
function L(F, P) of an event realizing F for function through P for phenomenon). In traditional NPD, P, F and L are assumed to be well-known. In SBP development, P, F and L require deep investigation but F, P and L can not easily be addressed directly. SBPs imply a design space for investigating F, P and L: it aims at learning on F1, P1 and L1, these spaces being both accessible to learning (for instance by simulation or by prototyping . . .) and in relation with F, P and L (for instance there are subsets of F, P and L) (see design space 1 in figure 2 below). We can distinguish three main dimensions for this learning: • the space for the phenomena addressed by the design space (P1 in figure 2). These phenomena are the main objects of science. A ‘pure science’ design space will aim at increasing knowledge on phenomena (δP1). Some examples of well-known phenomenological knowledge are mass conservation, electronic charge conservation (Maxwell Gauss law), energy conservation (or first thermodynamic principle), etc. • the space for functions (F1), i.e. some functions of the SBP (and occasionally others) that are addressed in the design space and are increased during the exploration (δF1). • a set of devices (L1), which represents the previous knowledge (principles, expertise) and techniques that provide a link between the spaces of functions and of phenomena. For example, an experimentation device on the cooling capacity of a vertical airflow will link a (partially unknown) family of phenomena and a (partially unknown) family of functions, and the link will be adjustable, depending on the capabilities of the device (adjust airflow temperature, airflow speed, airflow direction and so on). New knowledge about L will be noted δL1. We also define the notion of transition between design spaces as a reformulation of the SBP concept (see illustration in figure 2). This reformu-
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F, P, L Design space inputs:
F1 π F P1 π P L1 π L
dF, dP, dL
Design space 1
F1, P1, L1
dF1, dP1, dL1
Design space outputs:
dF π dF1 dP π dP1 dL π dL1
Figure 2. Design Space Management Process and Principles
lation can address the functions of the SBP (F, increased by δF), the phenomena involved in the SBP (P, increased by δP) and the evaluation processes relating to the SBP (L increased by δL). This reformulation will help to identify a new design space. We will now reinterpret our case study with this model and show how, in practice, design space management helped to overcome the traditional traps of innovation processes.
Design Space and Design Space Sequence in ENERGY The ENERGY project concerned functional exploration on thermal comfort, phenomenological exploration on vertical airflows and exploration on linking energy phenomena and thermal comfort. This is summarized in the top left-hand cell in Figure 3 below. In a first phase, the ENERGY partners decided to build a prototype for vertical cooling airflows in an existing vehicle. They intended to test whether there was a reasonable cooling capacity (F1), to learn about vertical airflows in cars (P1) and to tune aerothermal models (L1). This led to the first design space. Designing the prototype helped them learn about the three spaces (F1, P1 and L1). This learning was then transferred to the overall ENERGY project (see loop in Figure 3 below). The first phase was P-oriented (produce the phenomena), with F reduced to a type of ‘killer’ criteria, i.e. the phenomenon should at least meet a minimal level of performance to deserve further exploration. The design space thus avoided the classical trap of immediately trying to be representative and evaluating whether the phenomenon met the whole set of car specifications. The research lab stated that the prototype did not take into account all the constraints of the automotive industry but was, on the contrary, a ‘phe-
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nomenological’ prototype. This preserved Pexploration in design space 1. Design spaces 2 and 3 were actually launched in parallel. Design space 3 was intended to explore functions further. But a new opportunity appeared in the meantime: through the car maker, the air-conditioning engineering department heard about the new concepts studied by their colleagues from the thermal exploration team. They were interested and offered them the possibility of testing the technology. Both the research lab and the thermal exploration team were happy to seize this (apparently) good opportunity for quickly testing and hopefully developing their concept. Design space 2 was clearly built for validation: the functional dimensions were strictly fixed in accordance with the set of specifications that has to be met by a traditional airconditioning system. Since the traditional system consists of a cold turbulent airflow aimed at cooling cars down quickly after a long period parked in the sun, one criterion, for instance, was air speed. The slow vertical airflow system could not meet this requirement since it was on the contrary built on laminar regimes that require extremely slow flows. The prototype was taken to Spain and evaluated by expert users who checked whether the car (along with several others) met the traditional specifications. Not surprisingly, the result was negative! This led to two conclusions: first, design space 2 provided little in the way of learning and could have killed the whole SBP; second, vertical airflow systems were not ‘carworthy’. Design space 2 illustrated the temptation of the ‘realistic’ trial and was a failure. There were two solutions to get out of this trap: either revise P or revise F. Design space 3 explored the second alternative and was oriented towards functional exploration. A focus group was organized to analyse, describe, crit© 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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F: explore thermal comfort P: explore vertical airflows L: explore architectural principles
dF = 0 DP (increased) DL on the models for thermal effects of vertical airflows
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dF = 0 dP = 0 dL: shows that one configuration is impossible
DF: revised functional spaces (two contrasted thermal regimes) dP: on human physiology DL: new architectual solutions
Design space 2 Design space 1 F1: obtain cooling capacity P1: fluid dynamics in car L1: prototype dF1 ∫ feasible DP1: on laminar flows in cars , on tricks to produce and control P1... DL1: tuning the models
Design space 3
F2: final product specif P2: unchanged (=P1+DP1) L2: Spain + expert users
F3: opened functions P3: = P2 L3: focus group on thermal comfort
dF2 ∫ 0 dP2 ∫ 0 dL2 ∫ the link between P2 and F2 is impossible
DF3: regimes of thermal comfort,... dP3: human physiology DL3: new control parameters of the devices
Figure 3. ENERGY Design Spaces Note: Arrows indicate the direction in which to read the table.
icize and propose improvements for the types of thermal comfort provided by the vertical airflow system and the traditional airconditioning system. It did not intend to explore the airflow phenomenon but led to new knowledge on human physiology. Nonetheless, it mainly supported learning about what thermal comfort could be. Among other results, design space 3 provided the main result of the SBP project: two regimes can be differentiated in thermal comfort, the ‘cooling down’ regime and the ‘maintaining low temperatures’ regime. This also led to the idea of a revised architecture for a dual system. Therefore, design space 3 opened new horizons for vertical airflows. What are the lessons to be learned from the ENERGY case? First, it is now possible to understand where the results came from, the main failures in the management (the temptation of design space 2) and how success depended on carefully managed design spaces (design space 1 and 3). Second, this also supports management reasoning: when should P be investigated, when should F be explored? The sequence of design spaces shows how P was first explored with little functional learning and then F was explored with limited phenomenological learning. With the ENERGY project, we have shown how the analysis of design spaces helps to capture changes in projects, their successes and the risks involved. It also proves to be a managerial tool: the notion of design space © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
helps to identify what has to be learned, under what conditions and with which means and resources. We can conclude that this managerial model on design space enables the management of knowledge production in relation to the design process (Proposition 2). The focus on F, P and L learning dimensions restores the dynamics of the design process (Proposition 3). We can now discuss the managerial implications of the design model.
Discussion and Conclusion: Managerial Implications of the Design Space Model Managerial Implications Managerial actions appear at each step of design space exploration: • The inputs of the design space must be given, in relation to the SBP: this consists in restricting the F, P and L of the SBP to obtain the F1, P1 and L1 of the related design space (see Figure 2 above). This restriction respects certain constraints: • keeping ‘killer criteria’ inside: the initial design spaces are supposed to confirm that the broad concept will resist the first tests. • avoiding ‘validation’: requiring the design space to be representative increases the
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costs (more controlled F1, P1 and L1) and restricts F1 exploration (see the trap of design space 2 and the advantages of design space 1 in the ENERGY project) • The design space is used for learning from F1, P1 and L1. This exploration is constrained by resources, and particularly by time. Design space managers have to find an optimum for the ratio value-added (DS1) / duration (DS1). Work division is possible, as the design space manager can be different from the SBP manager. For instance, when F1, P1 and L1 are welldefined, the design space manager can be a pure scientist, whereas the SBP manager will have to conduct complex reasoning on the objects, combining functional, phenomenological and architectural reasoning. • Lastly, design space outputs are transferred to SBPs where they are used as learning for F, P and L dimensions. The learning may be extremely heterogeneous, for example at different conceptual levels or concerning different aspects of the projects (users, economic models, technical issues, scientific questions, collaborations, etc). What is the relation between this management process and the more classical managerial processes in design, such as cross-functional teams and work breakdown structures (WBS)? The latter are not possible immediately in the case of SBPs (competencies, architectures and functional targets are to a great extent unknown). But the design space model enables them to exist. In ENERGY, cross-functional teams and WBS were found inside each design space (there can be a clear work division in prototype building), where F1, P1 and L1 are designed so as to enable collective work (functions, competencies and targets are better identified). Note that cross-functional teams and WBS can be completely changed from one design space to the other, which explains why, if these processes alone are monitored, a chaotic pattern appears.
Conclusion and Further Research The main results of this research are as follows: On the Management of SBP’s Development As described by other authors, these types of developments show a sequence of important changes that redefine the identity, meaning, knowledge, scope and main actors of projects. However, these changes are neither chaotic, nor random, nor unmanageable in terms of design theory. We interpret them as changes
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in the ‘design spaces’ of projects and define a ‘design space’ as a consistent configuration of a set of functions (F), a set of scientific phenomena (P), and a group of learning devices (L) adapted to the exploration of the relations between (F, P). This definition led to the following observations: • Defining design spaces enables project leaders, scientific researchers, managers and sponsors to co-operate in spite of the unavoidably high levels of uncertainty in SBPs. Thus design spaces reconcile, in a transient but operational way, the logics of scientific inquiry and product development. • The transition from one design space to another (or to several others) appears to be the main driver and strategic issue of the project. In the ENERGY case, we were able to represent and trace these design spaces. • Often, design spaces are associated with well-known types of ‘realization’ (such as computational models, mock-ups, prototypes, demonstrators, etc); yet this research shows that these realizations have no value per se, but only in relation to the project’s design spaces. For the same reason, the notions of ‘critical issue’, ‘critical event’ or ‘bifurcation’ as referred to in the literature on innovation (Van de Ven et al., 1999; Abernathy & Utterback, 1978) have no meaning if they are not related to some ‘design space model’, which is often not made explicit in the case studies. • Many of the paradoxes found in the literature can be tempered: the development of SBPs appears in fact to be managed and organized, but in a very specific way, namely that managers (project leaders) play an important role in the formation (resource allocation, design strategy), transition and abandon of design spaces but not in the management of the design spaces themselves. On the Theoretical Properties of the Design Space Model In this paper we have focused on the definition and managerial logic allowed by the ‘design space’ model. It is also possible to discuss this model within existing design theories. This cannot be done at length in this paper. However, two important remarks can be outlined. • It can be shown that the observed sequence of different design spaces that characterize SBPs do not correspond to classic engineering design steps (Pahl & Beitz, 1977). Unlike such standard development models, the sequence of design spaces is not necessarily © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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convergent or divergent: the shape of the transitions depends on a managed design strategy that is a value-building trajectory where the criteria of failure or success, as well as the scientific outputs of the project are rebuilt between two different design spaces. Rather than the intrinsic uncertainties of SBPs, misunderstandings about the genesis and definition of design spaces could explain their high mortality. • Instead, the formation and surprising sequence of design spaces fits perfectly with what could be predicted by a more universalistic design theory like C-K theory (Hatchuel & Weil, 2003). Using the specific language of this theory, Design spaces emerge with the expanding partitions of an initial concept C0. These partitions will combine only partial functional (F) and phenomenological attributes (P) to generate a new concept C1 provided a C1→K function (the L1 function) can be built and allows the generation of new knowledge or the validation of the attributes of C1. The transition from one design space to another appears naturally in this theoretical framework as the emergence of new partitions suggested by the knowledge generated. The implications of these remarks will be discussed in further research.
Acknowledgements The notion of ‘design space’ was firstly developed by the authors with Gunnar Holmberg and Blanche Segrestin (Holmberg, Le Masson & Segrestin, 2003). We are also very grateful to the Saab AB and its Vice President for Corporate Technology, Billy Fredriksson, for their support and fruitful research collaboration, which gave the first impulse to some of the ideas presented in this paper.
References Abernathy, W. and Utterback, J. (1978) ‘Patterns of Industrial Innovation’, Technology Review, 2, 40– 47. Alexander, C. (1964) Notes on the Synthesis of Form. Harvard University Press, Cambridge, MA. Burns, T. and Stalker, G.M. (1961) The Management of Innovation. Tavistock Publications Limited, London. 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. (1997) Fixing the Fuzzy Front End of the New Product Process. Building the Business Case. CMA Magazine October, 21–23. © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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Eisenhardt, K. and Tabrizi, B. (1995) Accelerating Adaptative Processes: Product Innovation in the Global Computer Industry. Administrative Science Quarterly 40, 84–110. Eisenhardt, K.M. and Martin, J.A. (2000) Dynamic Capabilities: What are They? Strategic Management Journal, 21(10/11), 1105–21. Hatchuel, A. and Weil, B. (2003) A new approach of innovative design: an introduction to C-K theory. ICED’03, august 2003, Stockholm, Sweden, 14. Holmberg, G., Le Masson, P. and Segrestin, B. (2003) How to Manage the Exploration of Innovation Fields? Towards a Renewal of Prototyping Roles and Uses. 3rd European Academy of Management, 3–5 Milan. Khurana and Rosenthal (1998) ‘Towards Holistic “Front Ends” In New Product Development’, Journal of Production Innovation Management, 15, 57–74. Kline and Rosenberg, N. (1985) An Overview of Innovation’. In Ralph Landau and Nathan Rosenberg (Ed) The Positive Sum Strategy, Harnessing Technology for Economic Growth., National Academy Press, Washington pp. 275–305. Lapeyronnie, G. and Macaire, M. (2002) Conception et stratégie d’innovation: confort thermique et qualité de l’air dans l’automobile. Travail dirigé par Armand Hatchuel et Benoit Weil. Ecole des Mines, option Ingénierie de la Conception, Paris, 26. Leifer, R. and Rice, M. (1998) Unnatural Acts: Building the Mature Firm’s Capability for Breakthrough Innovation. 18th Annual International Conference of Strategic Management Society, 1998. Leonard-Barton, D. (1995) Wellsprings of Knowledge. Harvard Business School Press, Boston, MA. MacCormack, A., Verganti, R. and Iansiti, M. (2001) Developing Products on ‘Internet Time’: The Anatomy of Flexible Development Process. Management Science 47(1), 133–50. Myers, M.B. and Rosenbloom, R.S. (1996) Rethinking the Role of Industrial Research. In Rosenbloom, R. S. and Spencer, W.J. (eds) Engines of Innovation, U.S. Industrial Research at the End of an Era. Harvard Business School Press, Boston, MA pp. 209–28. Nohria, N. and Gulati, R. (1996) Is Slack Good or Bad for Innovation? Academy of Management Journal 39(5), 1245–64. Pahl, G. and Beitz, W. (1977) Konstruktionslehre [engineering design], Springer Verlag, édition anglaise: The Design Council, Heidelberg, version anglaise: London. Prahalad, C.K. (1993) The Role of Core Competencies in the Corporation. Research / Technology Management November–December 40–47. Reinertsen, D. (1994) Streamlining the Fuzzy Frontend. World Class Design to Manufacture, 1(5), 4–8. Suh, N.P. (1990) Principles of Design. Oxford University Press, Oxford. Thomke, S.H. (2003) Experimentation Matters. Unlocking the Potential of New Technologies for Innovation. Harvard Business School Press, Boston. Tidd, J., Bessant, J. and Pavitt, K. (1997) Managing Innovation: Integrating Technological, Market and Organizational Change. John Wiley & Sons, Chichester.
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Tushman, M.L., Anderson, P. and O’Reilly, C. (1997) Technology Cycles, Innovation Streams, and Ambidextrous Organizations: Organization Renewal Through Innovation Streams and Strategic Change. In Tushman, M. L. and Anderson, P. (ed.), Managing Strategic Innovation and Change: a Collection of Readings. Oxford University Press, New York 3–23. Van de Ven, A., Polley, D.E., Garud, R. and Santaran, S. (1999) The Innovation Journey, Oxford University Press, New-York, Oxford. Wheelwright, S.C. and Clark, K.B. (1992) Revolutionizing Product Development, Quantum Leaps in Speed, Efficiency, and Quality. The Free Press, Macmillan, Inc., New York.
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Armand Hatchuel is Professor of Design and Management at the Ecole des Mines de Paris and permanent invited Professor at the Fenix Center for Innovations in Management at the Chalmers Institute of Göteborg, Sweden. His research work has been about the theory and history of both management and Design. He has been also working on innovative firms and knowledge creation in design processes. He is member of several editorial boards and scientific committees in these fields. Pascal Le Masson is assistant professor of Management and Design at the Ecole des Mines de Paris and faculty member at Fenix. His research work has been about the new regimes of collective design, with an economics and managerial perspective. Benoit Weil is professor of Management and Design at the Ecole des Mines de Paris. His research work has been about modelling the design reasoning and organizing the innovative firms.
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Cross-Functional Conflict, Conflict Handling Behaviours and New Product Performance in Spanish Firms José Antonio Varela, Pilar Fernández, M. Luisa Del Río and Belén Bande This paper posits an antecedents and consequences model of constructive conflict (or the benefits derived from cross-functional conflict). The managers of a sample of innovating Spanish firms perceive positive changes when the parties in conflict: (1) exchange information to solve problems; (2) emphasize their common interests; and (3) make an effort to maintain good relations. The results of the study also indicate that collaborating to seek a solution to conflicts between areas indirectly influences the new product programme performance through constructive conflict.
Introduction
N
ew product development (NPD) is a complex multifunctional process. Three functional departments have traditionally participated in this process: marketing, R&D and production. Co-ordination among these three areas, with different training, professional experience, roles and responsibilities, is seen to be vital for success in NPD (Xie, Song & Stringfellow, 1998). Co-ordination among the NPD team members from different departments does not mean absolute harmony among them. Souder (1987) considers that excessive harmony may inhibit some behaviours, causing information and observations that are fundamental to innovation to be ignored. In the same line, Dyer and Song (1998, p. 505) consider that ‘a healthy dose of conflict also plays an important role in fostering innovation’. The consideration of NPD as a process of organizational learning which includes the acquisition, dissemination and utilization of information (Moorman, 1995), together with the new paradigm of dynamic creation of knowledge (Nonaka, 1991, 1994) may, in the opinion of Song, Xie and Dyer (2000) influence managers to move from a cross-functional integration perspective (Griffin & Hauser, 1996) and a conflict-elimination perspective (Souder, 1987) to a knowledge creation perspective, where ‘con© 2005 The Authors Journal compilation © 2005 Blackwell Publishing
structive’ conflict is seen as a factor of success in NPD. To our knowledge, little research has examined how new product performance is influenced at the NPD programme level by cross-functional conflict and the conflict resolution behaviours suggested in previous studies. Furthermore, the impact of crossfunctional conflict on new product performance in Spanish firms has not been explored. The aim of this study is twofold: first, to find out how conflicts between areas in Spanish firms are perceived in the context of NPD and more specifically (1) to find out whether cooperative behaviours are habitual, and (2) to find out whether Spanish managers perceive that conflicts have, on occasions, positive consequences. Second, to posit and test a model which captures the influence of conflict on new product performance, this influence being mediated by constructive conflict or the perception of the benefits derived from a conflict between areas. To achieve these objectives, we first review the concept of cross-functional conflict, then the principal contributions to the study of it, the conflict handling behaviours and their relationship to new product performance. We then put forward an antecedents and consequences model of constructive conflict, followed by an exposition of the methodology of the study and the principal results of the
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research. Lastly, we indicate a series of conclusions and limitations to this study.
Cross-Functional Conflict The definitions of cross-functional conflict in previous studies seem to have one point in common, and that is the existence of some disagreement in the interests, opinions and objectives of the members of the organization from different functional departments, who interact and are interdependent as a result of the process in which they are involved. However, Xie, Song and Stringfellow (1998, p. 193) highlight the lack of consensus in defining crossfunctional conflict. For them, this concept refers to ‘the perceived differences in goals and ideologies across interdependent and interactive functions’. Putnam and Poole (1987) indicate three general characteristics of conflict: interaction, interdependence and incompatible goals. Thomas (1992, p. 653) sees conflict as a process ‘that begins when one party perceives that the other has negatively affected, or is about to negatively affect, something that he or she cares about’. In a similar way, Dyer and Song (1997, p. 476) define conflict as ‘task-related disagreements arising whenever the goals of a person or group are perceived to be incompatible with those of another person or group with the express intention of denying the other’s goals’.
Conflict Handling Behaviours The behavioural approach considers different conflict handling strategies or mechanisms that can be defined in terms of their position in the space determined by two orthogonal axes (Thomas, 1976) (see Figure 1): • The determination or assertiveness axis, defined as the degree to which one of the parties attempts to satisfy its own interests. • The co-operativeness axis, or the degree to which one of the parties attempts to satisfy the interests of others. Avoidance is characterized by low levels on both axes: low assertiveness together with low willingness to co-operate, i.e. little concern for satisfying the interests of oneself or of others. Conflicts are avoided rather than faced. Accommodation combines a high willingness to co-operate with low assertiveness. One of the parties adapts to the wishes of the other; the decision taken is unilateral. Competition combines high assertiveness, i.e. great concern for one’s own interests, with a lack of attention to the interests of others.
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Collaboration combines great assertiveness, or pre-occupation for oneself, with great cooperativeness or pre-occupation for others. The maximization of the overall result is sought, rather than the increase of the portion corresponding to one of the parties. Compromise is an intermediate position in which a solution satisfactory to both parties is sought, taking into account the interests of both. Dyer and Song (1997, p. 470) consider that two of these behaviours, avoidance and competition, ‘imply lack of interest in others, minimize the exchange of information and promote efficiency’ and the other three imply pre-occupation for the interests of the other party, but in differing degrees. Acommodation only attempts to integrate the interests of the other party in the conflict; compromise implies moderate pre-occupation by both parties, but does not maximize the interests of either, and collaboration is proactive in benefit of both parties, maximising the interests of both in a ‘win-win’ approach. We chose to explore two of these five conflict handling behaviours. Specifically, we chose to explore collaboration because it represents the ideal in conflict behaviour and it is considered a cooperative style. Avoidance represents just the opposite, as it is characterized by low assertiveness together with low willingness to co-operate. We are interested in comparing the impact of these opposite behaviours. One of the objectives of our study is to find out whether co-operative behaviours are habitual in Spanish firms. Although no research has gone into this topic yet, we propose the following: H1: In the context of new product programmes in Spanish innovative firms, managers will perceive a greater use of collaboration and a lesser use of avoidance to deal with cross-functional conflicts.
Cross-Functional Conflict and New Product Performance The unit of analysis of this research is the NPD programme. This unit was chosen because of the interest in studying conflict handling behaviours and their impact on performance at a programme level. The impact of cross-functional conflict on performance is the subject of contradictory empirical evidence in previous studies. Basically, we can highlight three groups of studies with divergent results. The first group finds a negative association between conflict and performance (Brown, 1983; Schwenk & Cosier, 1993). A second group finds support for the © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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Collaborative behaviours
Cooperativeness Accommodation
Collaboration Compromise Non collaborative behaviours
Avoidance
Competition
Assertiveness
Figure 1. Conflict-handling Behaviours
positive relationship between conflict and performance (Fiol, 1994; Schwenk & Valacich, 1994; Song & Xie, 2000). Lastly, a third group of studies suggest that excessive or very low levels of conflict negatively influence performance, but when there is a moderate level, the results are optimum (Brown, 1983; Gray & Starke, 1984; Xie, Song & Stringfellow, 1998). The way in which the conflict is handled is as important as the existence of conflict (Thomas, 1992). The effects of the different interventions are very varied. Xie, Song and Stringfellow (1998) found that avoiding conflict reduced the probability of success of the new product, and solving it by means of co-operative methods increased this probability. It therefore seems preferable to identify conflict and to manage it by any method, though not optimum, rather than to ignore it. In this study, and following Dyer and Song (1998), we define constructive conflict as personnel working harder, feeling energized by the conflict exchange and positive change. We propose that managers will perceive some positive outcomes from conflicts, and thus, we postulate the following: H2: Most managers working in Spanish innovative firms will perceive some positive changes from conflicts. Dyer and Song (1998) found that co-operative behaviours to manage conflicts had a strong and positive correlation with constructive conflict. Avoidance was found to have a negative correlation with constructive conflict. As con© 2005 The Authors Journal compilation © 2005 Blackwell Publishing
structive conflict had a positive association with cross-functional relationship success and with NPD business success, the authors consider that avoidance may not be appropiate in all instances in the NPD context. We put forward, on the basis of the analysis by Dyer and Song (1998), the last two hypotheses (Figure 2): H3: Constructive conflict in the NPD team will be greater: (a) the greater the use of collaboration as the method of conflict resolution and (b) the lesser the use of avoidance. H4: The greater the constructive conflict in the NPD team, the better new product programme performance.
Empirical Study Sample The sample framework was obtained from a database of innovative companies included in a government listing of firms active in product development. Random selection resulted in 600 firms that satisfied the criteria: (1) firms producing physical products, and (2) firms with departmentalization of the marketing and R&D functions. We were interested in studying crossfunctional conflict and how managers from different functions dealt with it, specifically from marketing, R&D and manufacturing. We knew that all the firms from the database had marketing and R&D departments, so we
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Avoidance
H3b
Constructive conflict Collaboration
New product performance H4
H3a
Figure 2. Antecedents and Consequences of Constructive Conflict: Proposed Model
decided to send the questionnaires to both R&D and marketing managers in the 600 firms accompanied by a letter and a stamped addressed envelope. The problem was to identify a priori managers from the manufacturing function as they usually have different possitions like operations manager or machinery manager, so we decided to send the questionnaires only to marketing and R&D managers but asking them about conflicts between the three areas and also about conflict handling behaviours and constructive conflict outputs. After several phone calls, we received 136 usable questionnaires from 121 companies: 51 from R&D managers, 45 from marketing managers and surprisingly 40 managers of other areas (manufacturing, top management, financial in most cases), so we have managers perceptions from more than two. We think the questionnaires sent to some managers in R&D and marketing were re-directed to other managers who were well informed about the company NPD programme. ANOVA analysis showed no differences in the managers’ perceptions between these three groups of functions: (1) R&D; (2) marketing; and (3) manufacturing and other areas. The effective company response rate was 20.2 percent (121/600). The eventual sample by industry was: food (3.7%), chemical (36.8%), plastics (15.4%), machinery (17.6%), automobiles (2.2%), electrical & electronic (19.1%) and others (5.1%). We have double responses for 15 companies. These companies, that represent a 12.4 percent of the sample, have a double weight and could bias the result. To check this, we compared our results for the whole sample with the results for a smaller sample where all the firms were represented with one observation (we deleted 15 cases). As the results were very similar, we considered the complete sample to test the hypotheses.
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Measurement of the Variables To develop our measures we used an iterative procedure recommended by Song and Xie (1996). From the review of the previous research on NPD, we identified scales to measure the different constructs. Then we refined the scales through interviews with managers from different functional areas, and consultation with academic experts. Most indicators used a Likert-type scale ranging from 1 (strongly disagree) to 7 (strongly agree). To measure new product performance we used the six-item scale designed by Cooper (1984), which integrates three dimensions: overall programme performance, impact of the program on the firm and new products overall success rating (see Appendix 1). The scales of measurement of the two conflict handling behaviours are an adaptation of those that were put forward by Dyer and Song (1998) and Song, Xie and Dyer (2000). The collaboration scale measures if managers ‘exchange complete and accurate information in order to help solve problems’; ‘play down the differences and emphasize the common interests’; ‘look for the middle ground to resolve disagreements’; and ‘go the extra mile to get along with each other’. The three indicators of avoidance measure if managers: ‘try to stay away from disagreements’; avoid openly discussing disputed issues’; and ‘believe it is better to keep feelings to themselves rather than create hard feelings’. Lastly, constructive conflict was measured on the scale used by Dyer and Song (1998), and refers to different conflict outputs such as: (1) knowledge of the contending party; (2) sensitivity; (3) hostility; (4) constructive changes; or (5) energy to work. It is important to note here that we asked managers about their perceptions of conflict © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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between R&D, marketing and manufacturing departments.
Analysis and results Descriptive Analysis The products manufactured by most of the firms in the sample are destined for the productive processes of other firms (64 percent of cases). The proportion of firms that produce for consumer markets is much less (27 percent) and 9 percent produce for both industrial and consumer markets. The means and standard deviations of the managers’ opinions allow us to verify that, in general, they strongly agree that: (1) the NPD programme is very important for the firm’s sales and profits; (2) the objectives of the programme have been achieved; (3) costs have been covered by the income generated; and (4) the programme has been a success from the point of view of overall profitability. In average values, approximately one-third of the firms’ sales are as a result of products launched onto the market in the last three years, and more than half (59 percent) of the new products were a commercial success in the last three years (see Appendix 2). The use of collaborative methods to solve conflicts is more usual than trying to ignore them. Most managers agree with the four indicators of collaboration: (1) ‘we try to exchange complete and accurate information in order to help solve problems’ (78%); (2) ‘we play down the differences and emphasize the common interests’ (64%); (3) ‘we look for middle ground to resolve disagreements (71%); and (4) ‘we go the extra mile to get along with each other’ (80%). But nevertheless, avoidance is not a popular conflict handling behaviour in Spanish firms. Less than 45 percent of managers agree with the indicators of avoidance: (1) ‘we try to stay away from disagreements’ (22%); (2) ‘we avoid openly discussing disputed issues’ (44%); and (3) ‘we believe it is better to keep feelings to ourselves rather than create hard feelings’ (13%). These results strongly support H1, which possited a greater use of co-operative behaviours to deal with conflicts among Spanish managers. Most managers also perceive some positive consequences from cross-functional conflicts. We analyse the percentage of managers who show various degrees of agreement with the statements of constructive conflict, and we conclude that most of them: (1) ‘know each other better because of the way conflicts are handled’; (2) ‘are more sensitive to one another because of the way the conflicts are © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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handled’; (3) ‘doesn’t feel hostile toward each other after a conflict’; (4) ‘see constructive changes occur on projects because of conflict’; and (5) ‘feel energized and ready to get down to work after a conflict’ (see Appendix 2). So H2 is also supported by the data. This descriptive analysis let us achieve the first two objectives of this article. We can conclude that co-operative behaviours are habitual, and preferred to non co-operative behaviours in Spanish firms; and also that managers perceive some benefits from conflicts between areas such as greater knowledge of the contending parties.
Validation of the Scales of Measurement For each of the scales of measurement we eliminated those items whose item-total correlation was below 0.3 (Nurosis, 1993) or the items whose elimination allowed a greater alpha to be obtained. From the reliability analysis of the new product performance measurement scale, initially composed of six indicators, a scale was obtained with two indicators: (1) From an overall profitability standpoint, our NPD programme has been successful; and (2) the overall performance of our new product programme has achieved its objectives. The percentage of current company sales made up by new products and the success rate of products developed in the last three years were very little correlated with the other scale indicators. In order to reflect the three dimensions of the new product performance scale identified by Cooper (1984), three different measures of performance were considered. NPP1 shows the overall programme performance; NPP2 measures the impact of the programme on the firm; and NPP3 refers to the overall success rating of new products. We also calculed the composite reliability and the extracted variance by means of a confirmatory factor analysis carried out using the AMOS 4.01 program. The estimation of the measurement model followed the criterion of maximum likelihood and, to avoid problems due to possible non-fulfilment of the conditions of multivariate normality, the bootstrapping technique was used.1 The collaboration scale did not reach the required extracted variance. To improve the measurement we elimi1 The various measurements of goodness of fit of the confirmatory factor model (Chi-square= 7.171, df.=12, p = 0.846; Chi-square/df = 0.598; CFI= 1.000; GFI= 0.984; AGFI= 0.963; NFI= 0.975; TLI= 1.032; RMSEA= 0.000; Hoelter 0.05= 370) presented offer sufficient evidence to consider the results to be an acceptable representation of the constructs.
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Table 1. Cronbach Alpha, Composite Reliability and Extracted Variance Constructs
Items
Colaboration Constructive conflict New product performance (NPP1)
V4, V5, V7 V11, V12 V13, V14
0.960 Collaboration
Cronbach Alpha
Composite reliability
Extracted variance
0.708 0.655 0.819
0.728 0.652 0.854
0.472 0.484 0.749
0.296 New product performance (NPP1)
Constructive conflict
Figure 3. Antecedent and Consequences of Constructive Conflict: Results
nated the indicator with lowest item-total correlation (V6) and re-estimated the model. The various measures of reliability are showed in Table 1. The validity of the scales was measured by means the same procedure. This method allows us to suppose that correlations between latent variables could exist. As for the convergent validity, all the indicators load significantly (p < 0.05) and substantially (weightings greater than 0.5) on their respective constructs, except one item of avoidance. When this indicator is eliminated the construct is measured by means of a single observable variable; this excessive simplification of the variable devalues its content and leads to its elimination from the model. To analyse the discriminant validity of the constructs we calculated the confidence intervals for the correlations between pairs of constructs. If these intervals do not include the value one, discriminant validity between constructs can be assumed. None of the intervals contains unity, however, the top of the collaboration – constructive conflict interval (0.811, 0.991) is very close to this value, which calls into question the existence of discriminant validity between these two constructs. We decided, despite these results, to keep them as distinct constructs because they are at different levels of causality from the theoretical point of view. Literature considers that conflict handling behaviours are antecedents of managers’ perception of positive consequences from a conflict.
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Testing the Hypotheses To test the hypotheses we posited a process which integrated: (1) regression of one conflict handling behaviour (collaboration) against constructive conflict; and (2) regression of constructive conflict against new product performance. In a first step we estimated the model by the bootstrapping estimation process, considering the first measurement new product performance (NPP1) to be the dependent variable (see Figure 3). The results indicate that collaborating to solve a conflict contributes significantly and substantially (b = 0.960; p < 0.001) to explaining constructive conflict and the latter, in turn, to performance (b = 0.296; p < 0.01) when the measurement considered is the overall programme performance (see Table 2).2 The model presents a good fit to the data (Chisquare = 11.859, df = 13, p = 0.539; Chi-square/ df = 0.912; R2(1) = 0.932, R2(2) = 0.1000; CFI = 1.000; GFI = 0.974; AGFI = 0.943; NFI = 0.959; TLI = 1.007; RMSEA = 0.000; Hoelter 0.05 = 238). The constructive conflict construct is very well explained by the model, but performance is explained only in 10 percent of its variability, which is logical if we suppose that new product performance depends on many factors outside cross-functional conflict and the mechanisms for solving it. 2 Following this analysis the reliability and validity of the measurement scales is once more corroborated.
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Table 2. Structural Equation Model results (NPP1), parameter estimates
Path from collaboration to constructive conflict (H3a) Path from constructive conflict to NPP1 (H4) NPP1 to V13 NPP1 to V14 Collaboration to V4 Collaboration to V5 Collaboration to V7 Constructive conflict to V11 Constructive conflict to V12
When the measurement of new product performance is replaced by the percentage of current company sales made up by products introduced over the last three years (NPP2) or by the success rate of product developed in the last three years (NPP3), the relation between constructive conflict and performance ceases to be significant. In the light of these results, H3a can be accepted, and H4 partially. When NPD team members collaborate to solve conflicts, managers perceive positive aspects deriving from them. This constructive conflict also positively influences new product performance when it is measured as the overall programme performance (NPP1).
Discussion In this study we have considered three different measurements of new product performance: (1) managers’ perceptions as to whether the new products development program has achieved its objectives and can be considered a success from the point of view of overall profitability (NPP1); (2) the part of total sales attributable to new products (NPP2) and (3) the proportion of new products that have been a commercial success in the last three years (NPP3). These measurements of performance capture the three dimensions of new product performance posited by Cooper (1984): the overall programme performance, the impact of the programme on the firm and the index of success of the new products. Our results indicate that managers may help to create an environment conducive to high new product program performance by emphasizing co-operative behaviours to manage cross-functional conflicts. Managers in the © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
Standardized estimates
Standard errors
Critical ratios
0.960 0.296 0.730 0.982 0.689 0.644 0.725 0.646 0.685
0.107 0.112 0.049 0.002 0.090 0.083 0.079 0.095 0.085
8.972 2.643 14.898 491 7.656 7.759 9.177 6.8 8.059
R&D, marketing, manufacturing and other areas perceive some positive results when conflicts are handled co-operatively. This is consistent with other studies that highlight that a healthy dose of conflict plays an important role in fostering innovation. As Souder (1988) pointed out, professional disagreements are often a sign of a very healthy and harmonious interface. Collaboration in search of a solution to conflicts between departments influences new product performance indirectly, through constructive conflict, but only when it is measured as the overall programme performance (NPP1). Using collaborative methods to resolve problems between areas favours the presence of benefits after a conflict. This variable, in turn, favours new product programme performance. These results support previous findings (e.g. Dyer & Song, 1998). When managers collaborate to face conflicts, they: (1) exchange complete and accurate information; (2) play down the differences and empasize the common interests; and (3) go the ‘extra mile’ to get along with each other. These behaviours reflect some of the characteristics of the cross-functional harmony states pointed out by Souder (1988), who also stressed that ‘R&D and marketing managers must make special efforts to reinforce in words and deeds their desire that the R&D and marketing parties collaborate. They must constantly send signals to their personnel that collaboration is essential’ (1988, p. 18). Conflict management is a controllable factor. Managers should use appropiate conflict handling mechanisms, because they impact on the new product results through constructive conflict. Our results are in accordance with earlier findings that suggest that managers should move away from a negative view of
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conflict and promote certain conflict handling behaviours (Dyer & Song, 1998). A possible explanation for the not significant relationship between constructive conflict and two measures of new product performance (NPP2 and NPP3) is the specific characteristics of the sample. It consisted of firms from very different industries, which probably affected the values of these indicators. For instance, what was considered an overall success by chemical firms could be seen as a failure by machinery companies. ANOVA further indicated that there were significant differences between firms pertaining to diverse industries in relation to the overall success rating. The average success rates (percentage) of products developed in the last three years were 72 percent for the machinery industry, 69 percent for the electrical and electronic firms, 56 percent for the plastics industry and 47 percent for the chemical companies. The three-item scale proposed for avoidance was found not reliable, so hypothesis H3b could not be tested. The mean values of the three items indicate that managers from different functional areas do not tend to avoid or ignore conflicts, they rather prefer to deal with cross-functional conflict collaboratively. The correlation matrix reveals that when managers avoid openly discussing disputed issues or when they believe it is better to keep feelings to themselves rather than create hard feelings (avoidance) they tend not to feel energized and ready to get down to work after a conflict. The fact that managers try to exchange complete and accurate information in order to help solve problems, play down the differences and emphasize the common interests, look for middle ground to resolve disagreements or go the ‘extra mile’ to get along with each other (collaboration) is positively associated to their perception to be energized and ready to get down to work after a conflict. Given the extant findings on this construct in previous studies, our results are quite inconclusive. In summary, our results at the programme level of analysis support some of the study’s predictions. Particularly, they indicate the importance of collaborating to manage conflicts in order to perceive positive outcomes derived from cross-functional conflict. We found that constructive conflict is a determinant of new product programme performance too. This study makes some contributions by: (1) examining cross-functional conflict in different functional areas; (2) providing a study of the constructive conflict-new product performance link in Spanish firms; (3) emphasizing
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the role of collaboration as a positive determinant of the perception of benefits after a conflict; and (4) testing the causal relationships between the variables at a programme level of analysis.
Limitations and Future Lines of Research The study presents various limitations. First, it is of a transverse character; some of the nonsignificant relations between variables could be significant if longitudinal data were used. Second, some of the constructs have been measured with very few items, which may reduce the validity of the scales. Furthermore, these measurements of the variables are subjective, being the managers’ perceptions. Besides, the same respondents answered questions about new product performance but also about conflict handling behaviours and constructive conflict. Future studies should try to get objective data for new product performance. Future studies should include other means of solving conflicts. It would also be of great interest to study the effects of the level of cross-functional conflict on the methods of resolution employed and on new product performance.
Acknowledgements The authors thank all the anonymous reviewers for their helpful comments. Correspondence to: Pilar Fernández, Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, C/Comandante Izarduy, 23, 01006 Vitoria (SPAIN). E-mail:
[email protected]
References Brown, L.D. (1983) Managing conflict at organizational interfaces. Addison-Wesley Publishing Company, Reading, MA. Cooper, R.G. (1984) The strategy-performance link in product innovation, R&D Management, 14(4), 247–59. Dyer, B. and Song, X.M. (1997) The impact of strategy on conflict: A cross-national comparative study of U.S. and Japanese firms. Journal of International Business Studies, Third Quarter, 467–93. Dyer, B. and Song, X.M. (1998) Innovation strategy and sanctioned conflict: A new edge in innovation? Journal of Product Innovation Management, 15, 505–19. Fiol, C.M. (1994) Consensus, diversity, and learning in organizations, Organization Science, 5, 403–20. © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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Gray, J.L. and Starke, F.A. (1984) Organizational behavior, Charles E. Merill, Columbus, OH. Griffin, A. and Hauser, J.R. (1996) Integrating R&D and marketing: a review and analysis of the literature. Journal of Product Innovation Management, 13, 191–215. Moorman, C. (1995) Organizational marketing information processes: Cultural antecedents and new product outcomes, Journal of Marketing Research, 32, August, 318–35. Nonaka, I. (1991) The knowledge-creating company, Harvard Business Review, November– December, 96–104. Nonaka, I. (1994) A dynamic theory of organizational knowledge creation. Organization Science, 5(1), 14–37. Nurosis, M.J. (1993) SPSS. Statistical Data Analysis. SPSS Inc. Putnam, L.L. and Poole, M.S. (1987) Conflict and negotiation. In Jablin, F.M. (ed.) Handbook of Organizational Communication. Sage, Newbury Park, CA, pp. 549–99. Schwenk, C.R. and Cosier, R.A. (1993) Effects of consensus and Devil’s advocacy on strategic decision making. Journal of Applied Social Psychology, 23, 126–39. Schwenk, C.R. and Valacich, J.S. (1994) Effects of Devil’s advocacy and dialectical inquiry on individuals versus groups. Organizational Behavior and Human Decision Processes, 59, 210–22. Song, X.M. and Xie, J. (1996) The effect of R&D-manufacturing-marketing integration on new product per-
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formance in Japanese and U. S. Firms: a contingency perspective. Working Paper, Report N° 96-117, Marketing Science Institute. Song, X.M., Xie, J. and Dyer, B. (2000) Antecedents and consequences of marketing managers’ conflict handling behaviors. Journal of Marketing, 64, 50–66. Song, X.M. and Xie, J. (2000) Does innovativeness moderate the relationship between crossfunctional integration and product performance? Journal of International Marketing, 8(4), 61–89. Souder, W.E. (1987) Managing new product innovation, Lexington, MA, Lexington Books. Souder, W.E. (1988) Managing relations between between R&D and marketing in new product development projects. Journal of Product Innovation Management, 5, 6–19. Thomas, K.W. (1976) Conflict and conflict management. In Dunnette, M.D. (ed.) Handbook of Industrial and Organizational Psychology. Consulting Psychologists Press, Palo Alto, CA pp. 889– 935. Thomas, K.W. (1992) Conflict and negotiation processes in organizations. In Dunnette, M.D. and Hough. L.M. (ed.) Handbook of Industrial and Organizational Psychology, 3, Consulting Psychologists Press, Palo Alto, CA pp. 651–717. Xie, J., Song, X.M. and Stringfellow, A. (1998) Interfunctional conflict, conflict resolution styles, and new product success: A four-culture comparison. Management Science, 44(12), 192–206.
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Appendix 1: Scales of measurement Variables
Items
Description
Avoidance
V1 V2 V3
We avoid openly discussing disputed issues. We try to stay away from disagreements. We believe it is better to keep feelings to ourselves rather than create hard feelings.
Collaboration
V4
We try to exchange complete and accurate information in order to help solve problems. We play down the differences and emphasize the common interests. We look for middle ground to resolve disagreements. We go the ‘extra mile’ to get along with each other.
V5 V6 V7 Constructive conflict
V8 V9 V10 V11 V12
NPP1
V13 V14 V15
NPP2
V16 V17
NPP3
V18
We know each other better because of the way conflicts are handled. We are more sensitive to one another because of the way that conflicts are handled. We feel hostile toward each other after a conflict (Item reverse score). We see constructive changes occur on projects because of conflicts. We feel energized and ready to get down to work after a conflict. From an overall profitability standpoint, our new product development program has been successful. (last three years). The overall performance of our new product program has met our objectives. (last three years). Profits derived from new products exceeded the costs of the new product programme (last three years). New product programme is very important in generating sales and profits for the company (last three years). Percentage of current company sales made up by new products introduced over the last three years (0–100%). Success rate (percentage) of products developed in the last three years (0–100%).
Note: Likert Scale of seven points (1 = strongly disagree; 7 = strongly agree) for all variables, except for indicators V17 and V18. The indicators that appear in italics did not pass the analysis of reliability/validity of the scales and were eliminated from the model.
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Appendix 2: Descriptive Statistics: Frequencies (%), Means, Standard Deviations and Modes Constructs and indicators Avoidance
Collaboration
Constructive conflict
Values
V1
V2
V3
V4
V5
V6
V7
V8
V9
V10
V11
V12
1 2 3 4 5 6 7 5+6+7 (agreement)
15.6 25.9 20.7 15.6 12.6 8.1 1.5 22.2
4.5 11.2 18.7 21.6 24.6 13.4 6.0 44.0
29.6 31.1 16.3 10.4 8.9 3.0 0.7 12.6
– 2.3 6.8 12.8 27.1 40.6 10.5 78.2
1.5 3.0 12.6 18.5 25.9 29.6 8.9 64.4
0.7 3.7 6.7 17.9 33.6 31.3 6.0 70.9
– 2.2 5.2 12.6 28.1 35.6 16.3 80.0
– 0.7 3.7 17.9 29.1 35.1 13.4 77.6
– 5.2 6.7 17.9 33.6 29.9 6.7 70.2
17.9 24.6 20.9 14.9 15.7 5.2 0.7 21.6
0.8 1.5 2.3 18.0 43.6 30.1 3.8 77.5
0.8 0.8 4.5 16.7 22.0 39.4 15.9 77.3
Total % (1–7)
100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Means S.D. Modes
3.141 4.149 2.496 5.286 4.85 4.978 5.385 5.343 4.963 3.045 5.075 5.402 1.584 1.534 1.450 1.165 1.536 1.211 1.184 1.084 1.223 1.531 0.989 1.191 2 5 2 6 6 5 6 6 5 2 5 6
New product programme performance NPP1
NPP2
Values
V13
V14
V15
V16
Intervals
1 2 3 4 5 6 7 5+6+7
0.7 4.4 4.4 16.3 37.8 26.7 9.6 74.1
– 3.7 6.7 11.1 36.3 34.1 8.1 78.5
1.5 4.4 5.9 14.1 18.5 29.6 25.4 74.0
0.7 0.7 2.2 7.4 12.5 29.4 47.5 89.4
0–10% 11–20% 21–30% 31–40% 41–50% 51–60% 61–70% 71–80% 81–100%
Total %
100.0
100.0
100.0
100.0
Means SD Modes
5.044 1.233 5
5.148 1.169 5
5.363 1.494 6
6.066 1.181 7
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– – –
NPP3 V17
V18
26.0 23.6 19.1 8.4 8.4 6.1 3.8 1.5 3.1
13.3 8.6 5.4 4.0 11.7 3.9 10.9 18.0 24.2
100.0
100.0
29.019 22.75 20
58.695 32.202 80.100
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Splendid Isolation: Does Networking Really Increase New Product Success? Ann Ledwith and Paul Coughlan This paper presents the case for and against the involvement of external organizations in new product development projects. It examines both the frequency of interaction of firms with their customers, suppliers, universities, research institutes and competitors, and also the correlation between such interaction and new product success. Empirical data were collected from 60 electronics firms in Ireland and the UK using a well-established framework (Souder, et al., 1998). The analysis examines small and large, Irish and UK firms and concludes that the impact of networking and collaboration on new product success is dependent on a range of factors and should not be viewed as a panacea for product development problems.
Introduction
A
s technology becomes more complex, it is increasingly difficult for firms, particularly small firms, to have in-house all the resources necessary to develop new technology-based products. Additionally, as product and technology life cycles decrease it is important for firms to engage at an early stage with both their suppliers and customers. The benefits of collaborating for new product development include shared risk and cost, access to skills, technologies and markets, and reduced development times (Perks, 2000). The general perception is that it is good for firms (especially small firms) to involve external enterprises in their innovation efforts, that networking is relatively easy to manage and that the benefits of networking outweigh the costs. However, not all authors share these views (Freel, 2003; Labahn, Ali & Krapfel, 1996; Spann, Adams & Souder, 1991). Several studies have found no link between networking or collaborating on new product development and increased success (Brouwer & Kleinknecht, 1996) and have suggested that networking is used as a substitute for internal R&D rather than as a complementary process (Love & Roper, 2001). Others have found that involving external organizations in product development lengthens development cycle times (Labahn, Ali & Krapfel, 1996). This paper examines the impact of networking on new product success, taking account of
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firm size and location. The focus of this paper is more exploratory than explanatory. The data presented are used to question a widely held belief, that collaboration on NPD projects is linked with increased success. The rest of this paper is structured as follows; first, a brief summary of the literature arguing for and against the involvement of external organizations in NPD is presented. This is followed by a description of the research method employed. Results are then presented and the discussion of the results is summarized in the proposed framework for the inclusion of external organizations in NPD. The conclusion of the paper suggests lessons that can be useful for both researchers and managers and also outlines a direction for future research.
External Interaction in NPD Projects Innovation co-operation is encouraged within EU policy – ‘Collaboration with different enterprises results in lowering the costs and risks of innovation as well as sharing scientific and technical knowledge’ (European Commission, 2000). This advice is based on a body of literature that has focused mainly on collaboration with customers and suppliers. Early studies by von Hipple (1988); illustrated the benefits of collaborating with lead users, that is, users whose needs are ahead of the rest of the market place and who stand to benefit significantly from a particular innovation. More © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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recent work by Thomke and von Hipple (2002) continues to promote the involvement of customers in NPD and proposes the use of a ‘tool kit for customer innovation’ that allows customers to design their own products. Building on von Hipple’s work, many researchers continue to report on the benefits of including users or customers in the product development process (Ciccantelli & Magidson, 1993; Kristensson, Gustafsson & Archer, 2004; Soh, 2003). The practice of developing deep relationships with suppliers and involving them in the development of new products is based to a large extent on the approach of world-class Japanese manufacturers (Liker, 1995). A recent study of 83 US firms (Ragatz, Handfield & Peterson, 2002) concluded that supplier participation in NPD teams improved cycle-time performance and product quality. On the other hand a study of manufacturer-supplier relations in 50 European NPD projects suggested that the impact of supplier involvement is different in the short and long term, and depends on the nature of the relationship (Sobrero & Roberts, 2002). This view, that involving suppliers in developing new products is beneficial but that the benefits may be long term, is shared by others (Bozdogan et al., 1998; Soh, 2003). However, recent research into 597 small and medium-sized manufacturing firms in the UK (Freel, 2003) did not establish a strong link between networking and the level of innovation. Freel (2003) explored the relationship between networking with customers, suppliers, competitors, universities and the public sector, and innovativeness. He found that in the case of product innovation, positive links were only found for firms co-operating with customers and public-sector bodies. Internal resources (R&D expenditure) and employment of technicians were found to be a much stronger determinant of product innovativeness. This result is supported by earlier research in the USA. Spann, Adams and Souder (1991) examined the transfer of technology from US government facilities to 47 start-up firms and concluded that in-house skills and efforts were by far the most important source of technical information. Rothwell and Dodgson (1991) also stress the importance of internal resources. Their study examines the factors that facilitate SME in exploiting external linkages and finds internal resources to be critical – ‘The most important factors determining a SMEs’ propensity and ability to access external sources of technology are internal to the firm’. This view would be supported by the work of Cohen and Levinthal (1999), who suggested that in addition to its obvious role of © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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generating innovations, R&D also increases a firms ‘absorptive’ capacity. They suggested that in order for a firm to be able to exploit external knowledge, it needs to have the internal skills to understand this knowledge and the uses to which it can be put. Absorptive capacity is defined, in this context, as the ability of a firm to absorb a new technology. In other words, as Veugelers (1997) found in a study of 290 Flemish companies, in order for a firm to be able to gain any benefit from external co-operation on NPD projects it must have an internal R&D capability. Furthermore, there was a link between the level of internal R&D expenditure and the probability of engaging in external R&D co-operation. Firms with a higher level of internal R&D expenditure are more likely to be involved in external R&D cooperation. This makes sense from the perspective of transactions costs. Firms with a good understanding, or the ability to easily develop a good understanding, of the technology that they are about to acquire (or collaborate in developing) will experience lower transaction costs than firms without this understanding (Tidd, Bessant & Pavitt, 1998). Results from a more recent study, that examined Irish, UK and German manufacturing plants, were published by Love and Roper (2001). Their study, which included 500 Irish firms, found that ‘in none of the three countries does the intensity of plants’ networking activity have any significant effect on either the extent or success of plants’ innovation activity’. They find support for this result in the work of Brouwer and Kleinknecht (1996), who, in a study of Dutch firms, found ‘against all expectations . . . very little evidence that firms which collaborate on R&D or acquire external technological knowledge have a higher innovation output’. It should be noted however that Love and Roper (2001) limited their definition of networking to collaborative or sub-contract R&D, they did not include collaboration with customers or suppliers. Love and Roper (2001) made two other interesting observations based on their data. First, they found that technology transfer and networking were used as substitutes for internal R&D rather than as complementary processes – this would help to explain the lack of evidence for increased R&D intensity linked with increased networking. Second, in common with earlier research by Acs and Audretsch (1988), they found that R&D intensity varied inversely with firm size but that there was little evidence for a relationship between innovation success and firm size. Labahn, Ali and Krapfel (1996) studied 188 new product development projects in small (fewer than 100 employees) manufacturing
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firms. Their model examined the impact of output control and non-technical outside assistance, moderated by the effects of product innovation and market growth rate, on new products development cycle time. They concluded that ‘outsider involvement further complicates product development and delays the process’. However, they moderate their findings with reference to a much earlier study (Clark, 1989), commenting that ‘the benefits of non-technical outside assistance may be a function of the user’s ability to integrate the expertise’. This is an issue that may apply to a greater extent in the use of outside technical assistance where the firms ability to integrate a new technology becomes a critical issue. In summary, the literature reviewed above shows that while there is encouragement for collaboration in NPD projects, there is an absence of consensus on the benefits of networking. Therefore the question, does networking really increase NPD success, merits attention.
Research Method The data upon which this study is based were collected from 36 Irish electronics firms and 25 UK electronics firms. All firms included in the study were involved in developing new products. The UK data were collected by Rachel Cooper and Joanne Charlton at the University of Salford in the UK, and are part of a larger data set containing firms from a variety of high technology sectors. The Irish sample was composed of 22 small firms (fewer than 100 employees) and 14 large firms and the UK sample consisted of 5 small and 19 large firms. The data were collected using questionnaires developed as part of the INTERPROD project. INTERPROD is an international study of the factors that distinguish new product successes from failures, directed by William Souder at the Center for Management of Science and Technology at University of Alabama in Huntsville, USA. A series of eight questionnaires was administered during a 1–2 hour interview with a manager who had direct responsibility for NPD within the firm. Most of the data gathered are ordinal and were therefore analysed using non-parametric statistical tests, including Spearman rank order correlation and the Mann-Whitney U test. Within INTERPROD, success is defined as the degree to which NPD projects have met or exceeded the commercial expectations of the firm. It is measured using a five-point Likerttype ranking scale as is shown in Table 1. A project scoring 3 or higher is considered to be
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Table 1. Measure of Success Score
Commercial outcome of the product
1 2 3 4 5
Far below our expectations Slightly below our expectations Consistent with our expectations Slightly above our expectations Far above our expectations
a success. This measure of success is consistent with that used in several publications based on the INTERPROD data set (Souder et al., 1998) (Souder & Song, 1997; Souder & Song, 1998; Souder & Jenssen, 1999; Yap & Souder, 1994), though it is acknowledged that it is limited to measuring short-term project success. Firms were asked to rate the frequency of their interaction with six different types of organizations: universities, research institutes, competitors, other companies, customers and suppliers. This was measured using a Likert scale (1 = never, 2 = seldom, 3 = occasionally, 4 = often, and 5 = very often). These data have been used firstly to examine the level of involvement of external organizations in NPD projects within the small and large electronics firms studied in the UK and Ireland. Second, the data have been used to determine whether or not the involvement of external organizations in NPD is linked with increased new product success.
Results Table 2 shows the frequency of interactions between electronics firms and six types of external organizations. Frequency of interactions in small, large, Irish and UK firms are compared and tests are performed comparing (1) small versus large and (2) Irish versus UK firms. Most of the data published about cooperation on innovation projects examine only whether or not firms involve external organizations, not the frequency of the involvement (Labahn, Ali & Krapfel, 1996; Love & Roper, 2001; Veugelers, 1997). Table 3 summarizes the percentage of firms by size and country who have had no involvement with external organizations on innovation projects. To investigate the importance of these findings it is possible to examine the correlation between interaction with each of the six types of external organizations included in this study and the commercial success rate of new © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
2.00 3.50 2.00 4.00 0.000a 0.010a
products. These results are summarized in Table 4.
4.00 4.00 4.00 4.00 0.050a 0.961 3.00 3.00 3.00 3.00 0.145 0.132
Discussion
Customers
The data presented above can be used to address two issues. First, Tables 2 and 3 contain data about the level of involvement of external organizations in NPD projects and second, Table 4 contains data that examines the link between the involvement of external organizations in NPD projects and new product success. Both sets of results are discussed below.
© 2005 The Authors Journal compilation © 2005 Blackwell Publishing
Statistically significant, p ≤ 0.05, Mann Whitney U test. a
Notes:
Significance of differences
Irish Firms (N = 36) UK Firms (N = 24) Small Firms (N = 27) Large Firms (N = 33) Small versus Large firms, p-value UK versus Irish firms, p-value
3.00 3.00 3.00 3.00 0.187 0.263
2.00 2.00 2.00 2.00 0.163 0.868
1.00 2.00 1.00 1.00 0.092 0.002a
Level of Interaction with External Organizations
Frequency of Interaction
Competitors Research Institutes Universities Table 2. Comparison of External Interaction Results
369
Other Companies
Suppliers
SPLENDID ISOLATION
The data show that the overall frequency of interaction with external organizations, with the exception of customers and suppliers, is quite low. Scores for the frequency of interaction were generally less than 3; in terms of the scale used this indicates that most firms interacted externally less than ‘occasionally’. The exception to this is interaction with customers; all firms reported that they often involved customers in their innovation projects. The data presented in Table 3 are higher than those collected by the EU in the CIS2 survey in 1997/8 (European Commission, 2000) where only 19 percent of small manufacturing firms and 50 percent of large manufacturing firms were found to be involved in co-operation for innovation. However, it should be noted that the EU data cover all manufacturing firms including those not involved in innovation, unlike this study, which only includes firms that are actively developing new products. Some of the trends seen in the EU data where large firms were found to be more likely to collaborate externally on R&D than small firms are repeated above. An earlier study of small high-technology Irish firms (Hurst & O’Kelly, 1995) also found that small firms had less interaction with external organizations than large firms. Large firms reported significantly higher levels of interaction with customers and suppliers than small firms. EU data show that vertical co-operation, i.e. with customers and suppliers, is the most common form of collaboration. Many authors have linked innovation-related co-operation with customers with success (Freel 2003; Tidd, Bessant & Pavitt, 1998). Yet Table 3 shows that 19 percent of small firms reported that they did not involved customers in innovation projects. Additionally, 44 percent of small firms reported that they did not co-operate with
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Table 3. Firms Having no Involvement with External Organizations
Irish Firms (N = 36) UK Firms (N = 24) Small Firms (N = 27) Large Firms (N = 33)
Universities
Research Institutes
Competitors
Other Firms
Customers
Suppliers
17%
39%
75%
25%
14%
42%
8%
37%
42%
8%
4%
8%
22%
48%
74%
26%
19%
44%
6%
30%
52%
12%
3%
15%
Table 4. Correlation between Commercial Success and Innovation Co-operation Correlations1 between Average Commercial Success and Innovation Co-operation
Irish Firms (N = 36) UK Firms (N = 24) Small Firms (N = 27) Large Firms (N = 33) All Firms (N = 60)
Universities
Research Institutes
Competitors
Other Firms
Customers
Suppliers
−0.279
−0.191
−0.083
0.158
0.035
−0.122
−0.584a
−0.353
−0.046
0.292
0.197
0.440b
−0.153
0.007
0.182
0.112
0.131
−0.105
−0.585a
−0.439b
−0.150
0.324
0.087
0.329
−0.386a
−0.249
−0.027
0.248
0.112
0.163
Notes: a Correlation coefficients statistically significant at p ≤ 0.01, b Correlation coefficients statistically significant at p ≤ 0.05, two-tailed. The scale used for Commercial Success is; 1 – Far above expectations to 5 – Far below expectations.
suppliers in developing new products. Because of their lower purchasing power and production volumes it is perhaps more difficult for small firms to get co-operation from their suppliers in developing new products. UK firms reported significantly higher levels of interaction with competitors and suppliers than Irish firms. This contradicts the EU data that showed Irish firms having higher levels of interaction than UK firms. When this point is examined further it is found that there are no significant differences in interaction with competitors and suppliers between large Irish and UK firms (the statistical significance of the differences between competitors p = 0.095; suppliers p = 0.583); but significant dif-
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ferences were found between small Irish and UK firms (the statistical significance of the differences between competitors p = 0.025; suppliers p = 0.039). This suggests that small Irish electronics firms operate in a particularly isolated manner when developing new products. In both Ireland and the UK firms were found to be most likely to include customers in their research projects – this is not unexpected. However, it is interesting to note, in both countries, the relatively high level of interaction with universities in developing new products. Irish firms reported more frequent interactions with universities than with suppliers on NPD projects. This is an unexpected finding and merits further investigation. © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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Linking Innovation Cooperation and New Product Success Some of these results presented in Table 4 are surprising. Innovation collaboration does not emerge as a strong success factor – only collaboration with suppliers in UK electronics firms shows a significant positive relationship with commercial success. Co-operation with universities or research institutes was found to correlate negatively with success in all groups of firms in the study with the exception of small firms. A small positive correlation was found between success in small firms and the involvement of research institutes, though Table 3 shows that only half of all small firms involved research institutes in their innovation efforts. The negative impact of collaborating with universities could be as a result of the inability of firms to work with universities and absorb the knowledge available therein, or alternatively (perhaps additionally) the lack of appropriate technology available in a suitable form from the universities. Difficulties in transferring technology from universities and government-funded research to industry have been documented (Hoffman & Parejo, 1998; Spann, Adams & Souder, 1991). The work of Rothwell and Dodgson (1991) would suggest that the solution to this lies primarily within the firms’ own resources, suggesting that electronics firms need to improve their absorptive capacity (Cohen & Levinthal, 1999). Interaction with suppliers is found to be positively correlated with success in large firms and UK firms, but there is a negative association in small firms and Irish firms. Only 55 percent of small firms reported that they involved suppliers in their NPD projects, and the data shown in Table 4 would suggest that it is not a strategy that increases NPD success rates in small firms. A possible explanation for this is that managing the involvement of suppliers in NPD projects is a skill that small firms have not refined; or, as suggested above, suppliers are more reluctant to co-operate with small firms. The involvement of outsiders can complicate the NPD process to an extent that small firms cannot manage effectively – this is supported by previous studies (Labahn, Ali & Krapfel, 1996). Overall the results shown in Table 4 show that external collaboration for NPD does not have a strong positive effect on NPD success in Irish or UK electronics firms, at best the impact in neutral. This would support the findings of several authors (Freel, 2003; Hoffman & Parejo, 1998; Spann, Adams & Souder, 1991), who found that internal resources are more important than external linkages in promoting © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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successful innovation. Labahn, Ali and Krapfel (1996) also found that outsider involvement in NPD could have a negative effect, their study showed that it delayed product launch. Therefore there is some support in the literature for the above findings. Additionally, Table 4 shows that differences exist between the impact of collaboration with external organizations on NPD success in small and large firms.
Summary This paper has examined the impact of networking on new product success. Several studies that found no link between networking or collaborating on new product development and increased new product success were discussed. The literature reviewed suggests that networking is sometimes used as a substitute for internal R&D rather than as a complementary process, and that involving external organizations in product development may lengthen development cycle times. Data collected using the INTERPROD questionnaires were analysed in order to determine the level of involvement of external organizations in NPD projects in Irish and UK electronics firms and also to determine whether there was a link between the involvement of external organizations and new product success. The discussion of these results in the light of the literature reviewed has resulted in the following lessons for managers and suggestions for further research.
Lessons for Managers The data presented in this paper show that the involvement of external organizations in NPD projects is a difficult process to manage successfully. Three lessons emerge from the literature reviewed for those responsible for the development of new products and considering the involvement of external organizations in the process. First, there are many collaborations partners possible. The results show that firms involve a variety of different external organizations in NPD projects. Collaboration with customers was found to be the most common, but a range of other external organizations were also reported to be involved in NPD projects. Collaboration for NPD is complex and can involve a variety of different partners. Second, the exploitation of partnerships depends on the skills available within a firm. Successful collaboration requires a range of skills both technical and commercial; these are sometimes referred to as absorptive capacity.
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Who? Which organisations should firms involved in their NPD projects? Why? Are the reasons for collaboration consistent with the firms NPD strategy?
Successful NPD collaboration
Skills? Does the firms have the necessary skills to benefit from the collaboration?
Figure 1. Proposed Framework for Collaboration on NPD Projects
External assistance on NPD projects can only be of benefit if a firm has the internal expertise to exploit the new knowledge and the commercial skills to manage its transfer. Undertaking collaboration without these skills is not likely to increase new product success. Third, the criteria for collaboration need to be considered in relation to the fit with the development strategy of the firms involved. In other words, the decision to collaborate and the form of collaboration chosen must be made in the context of a firm’s product development strategy.
Lastly, the lessons for managers presented above suggest a framework for managing the involvement of external organizations in NPD projects based on (1) the type of organization with which to collaborate, (2) the skills, or absorptive capacity, of the firm and (3) the firms new product strategy. This is illustrated in Figure 1. The further development and testing of this framework could produce some interesting results that would be useful for managers of product development.
Conclusion Future Research In addition to the lessons for managers presented above this paper has resulted in some findings that are of interest to researchers. These are summarized below. First, a high level of involvement of universities in NPD projects was reported by both UK and Irish firms. However, this was not linked with success. Two reasons for the negative relationship between collaboration with universities on NPD projects and success were propose; (1) lack of absorptive capacity of the firms involved or (2) in appropriate technology from the universities. However, this topic requires further research to fully understand and possibly remedy the negative impact of university collaboration on new product success. Second, the data show that small electronics firms operate in an isolated manner; they interact less frequently with their customers than large firms. This challenges the view of small firms being close to their customers. Irish firms, and particularly small Irish firms, do not interact frequently with suppliers in developing new products. Again, further research is needed to verify this result, explain it and evaluate its impact on the success of small firms.
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The title to this paper posed a question – Does networking really increase new product success? The answer to this question is that networking does not always improve new product success. The data presented in this paper suggest that for many firms the involvement of external organizations in NPD projects does not lead to increased new product success. A review of the literature provided some support for this finding, but further research is needed to fully understand how firms, and particularly small firms, interact with external organizations in developing new products and how this interaction can increase new product success.
References Acs, Z.J. and Audretsch D.B. (1988) Innovation in large and small firms: an empirical analysis. The American Economic Review, 78(4), 678–90. Bozdogan, K., Deyst, J., Hoult, D. and Lucas, M. (1998) Architectural innovation in product development through early supplier integration. R&D Management, 28(3), 163–73. Brouwer, E.A. and Kleinknecht, A. (1996) Determinants of innovation: a microeconometric analysis of three alternative innovation output indicators. In Kleinknecht, A. (ed.), Determinants of Innova© 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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tion: the Message from New Indicators. MacMillan, London. Ciccantelli, S. and Magidson, J. (1993) Consumer idealized design: involving consumers in the product development process. Journal of Product Innovation Management, 10, 341–47. Clark, K.B. (1989) Project scope and project performance: the effect of parts strategy and supplier involvement on product development. Management Science, 35, 1247–63. Cohen, W.M. and Levinthal, D.A. (1999) Innovation and learning: the two faces of R&D. The Economic Journal, 99, 569–96. European Commission (2000) Statistics On Science And Technology In Europe: Data 1985–1999. Freel, M.S. (2003) Sectoral patterns of small firm innovation, networking and proximity. Research Policy, 32, 751–70. Hoffman, K. and Parejo M. (1998) Small firms, R&D, technology and innovation in the UK: a literature review. Technovation, 18(1), 39–55. Hurst, D. and O’Kelly, E. (1995) Competing through Product Development. Forfás, Dublin. Kristensson, P., Gustafsson, A. and Archer, T. (2004) Harnessing the creative potential among users. Journal of Product Innovation Management, 21, 4–14. Labahn, D.W., Ali, A. and Krapfel, R. (1996) New product development cycle time: the influence of project and process factors in small manufacturing companies. Journal of Business Research, 36, 179–88. Liker, J.K. (1995) Engineered in Japan: Japanese Technology Management Practices. Oxford University Press, Oxford. Love, J.H. and Roper S. (2001) Location and network effects on innovation success: evidence for UK, Germany and Irish manufacturing plants. Research Policy, 30, 643–61. Perks, H. (2000) Marketing information exchange mechanisms in collaborative new product development – the influence of resource balance and competitiveness. Industrial Marketing Management, 29, 179–89. Ragatz, G.L., Handfield, R.B. and Peterson, K.J. (2002) Benefits associated with supplier integration into new product development under conditions of technology uncertainty. Journal of Business Research, 55, 389–400. Rothwell, R. and Dodgson, M. (1991) Technology strategies in small firms. Journal of General Management, 17(1), 45–55. Sobrero, M. and Roberts, E.B. (2002) Strategic management of supplier-manufacturer relations in new product development. Research Policy, 31, 159–82. Soh, P. (2003) The role of networking alliances in information acquisition and its implications for new product performance. Journal of Business Venturing, 18, 727–44. Souder, W.E. and Song, X.M. (1997) Contingent product design and marketing strategies influ-
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encing new product success and failure in US and Japanese electronics firms. Journal of Product Innovation Management, 14, 21–35. Souder, W.E., Sherman, J.D. and Cooper, R. (1998) Environmental uncertainty, organisational integration, and new product development effectiveness: a test of contingency theory. Journal of Product Innovation Management, 15, 520–34. Souder, W.E. and Song, X.M. (1998) Analysis of U.S. and Japanese management processes associated with new product success and failure in high and low familiarity markets. Journal of Product Innovation Management, 15, 208–23. Souder, W.E. and Jenssen, S.A. (1999) Management practices influencing new product success and failure in the United States and Scandinavia: a cross-cultural comparative study. Journal of Product Innovation Management, 16, 183–204. Spann, M. S., Adams, M. and Souder, W. (1991) The role of government facilities in technology transfer and local economic development. Journal of Scientific & Industrial Research, 50, 760–70. Thomke, S and von Hipple, E. (2002) Customers as innovators: a new way to create value. Harvard Business Review, 74–81, April. Tidd, J., Bessant, J. and Pavitt, K. (1998) Managing Innovation: Integrating Technological, Market And Organizational Change. Wiley, Chichester. Veugelers, R. (1997) Internal R&D expenditures and external technology sourcing. Research Policy, 26, 303–15. von Hipple, E. (1988) The Sources of Innovation. Oxford University Press, Oxford. Yap, C.M. and Souder, W.E. (1994) Factors influencing new product success and failure in small entrepreneurial high-technology electronics firms. Journal of Product Innovation Management, 11, 418–32.
Ann Ledwith (
[email protected]) is a Lecturer in the Department of Manufacturing and Operations Engineering of the University of Limerick, Ireland. Her research interests include the management of new product development in small firms. Ann is a member of the PDMA UK & Ireland Steering Group. Paul Coughlan (
[email protected]) is Associate Professor of Operations Management and Director of Postgraduate Education at the University of Dublin, School of Business Studies, Trinity College, Ireland where he researches and teaches in the areas of operations management and product development.
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Striving Towards R&D Collaboration Performance: The Effect of Asymmetry, Trust and Contracting Pia Hurmelinna, Kirsimarja Blomqvist, Kaisu Puumalainen and Sami Saarenketo This paper examines the effects of trust, asymmetry and contracting in R&D collaboration. At best, asymmetry brings major benefits to collaborating firms, but it may also become the basis of dissimilar orientation towards informal and formal governance methods, which makes managing the collaboration and reaching goals more complex. These issues are studied among 87 small Finnish ICT firms and the findings indicate that drawing overly straight generalizations on the roles of trust, contracting and asymmetry in R&D collaboration is risky. They all are closely bound together, affect each other differently, and have multiple dimensions.
Introduction nsuring continuous innovation has become more challenging in the dynamic business environment characterized by globalization and technological change. This has led to large and small firms attempting to leverage external knowledge through R&D collaboration with companies possessing complementary knowledge and resources. In a recent study, 94 percent of the technology executives believed that alliances are becoming critical to their strategy (Kelly, Schaan & Joncas, 2002). However, it seems that most studies of interfirm collaboration ‘point to the very considerable difficulties in gaining mutually satisfactory outcomes amongst the partners’ (Dodgson, 1994, p. 287). Overall failure rates of 50–80 percent have been reported (e.g. Heimeriks, 2002; Kelly, Schaan & Joncas, 2002; Stuart, 2000). Collaborative R&D performance depends on many factors. Forrest and Martin (1992) surveyed 144 small biotechnology firms and 70 large companies in their investigation of R&D partnerships. In sum, the critical success factors were agreement on strategic objectives and goals, communication, commitment, good interpersonal relations, compatibility and mutual trust. In a study on collaborative ICT product development Bruce, Leveric and
E
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Littler (1995) identified the following success factors: (1) choice of partner, (2) establishing the ground rules, (3) processual factors (e.g. communication, trust, flexibility), (4) equality of contribution, power and benefits, (5) people (e.g. commitment and personal relationships) and (6) environmental factors. Managing factors such as trust and contracting is especially challenging when the parties are different, i.e. when R&D collaboration is asymmetric (e.g. Bruce, Leveric & Littler, 1995; Forrest & Martin 1992; Jeffries & Reed, 2000). However, to our knowledge there has been very little empirical research on trust and contracts in asymmetric R&D collaboration. Asymmetry in terms of size, capabilities, or cultural surroundings and background can be very beneficial in providing synergy for the R&D collaboration, but the management of asymmetric actors may prove challenging (see Casson, 1995; Doz, 1988; Doz & Hamel, 1998; Forrest & Martin, 1992; Jarillo, 1989; MacLachan, 1995; Pavitt, 1994; Segers, 1992; Teece, 1995; Whittaker & Bower, 1994). Trust and contracts have been studied separately and jointly in qualitative (Blomqvist 2002; Blomqvist, Hurmelinna & Seppänen, 2005) and in analytical or conceptual studies. In this paper we report on a complementary empirical study on the effects of trust © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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(both general and fast trust), contracts and asymmetry on R&D collaboration. We first review the literature, and then formulate and test hypotheses using empirical evidence from 87 Finnish SMEs operating in the ICT field.
Asymmetry and R&D Collaboration Performance Blomqvist (2002, p. 107) defined asymmetry in collaborating firms as ‘diverse resources, capabilities and power as well as the management and organizational culture of actors’. International collaboration can also be perceived as asymmetric in terms of language, culture, business practices and norms. Here we limit the concept to differences in size and nationality.
Asymmetry Based on Size: A Source of Synergistic Benefits Collaboration is often necessary in gaining access to desired resources (Heimeriks, 2002). Given the characteristics of small and large firms, it is understandable that time-to-market is a major motive for large companies to engage in asymmetric collaboration. Partnerships may also lower the risk inherent in R&D, and postpone or obviate the need to hire new employees. Small firms, on the other hand, often need large partners to give them access to distribution channels, legitimization and credibility (Blomqvist, 2002; Stuart, 2000). A demanding large customer may also push the small firm to increase its competitiveness in producing high-quality products and services. Naturally, learning and sharing costs and risks are also important. Thus we hypothesize: H1a: The higher the size asymmetry, the higher the R&D collaboration performance.
Asymmetry as a result of national differences The ability to engage in international activities has become crucial for the survival and growth of the firm. A number of researchers have suggested that existing networks and collaboration facilitate and accelerate the internationalization process (Coviello & Munro, 1997; Holmlund & Kock, 1998). In this, the limited resources of small firms and the strong push to international markets favour collaboration. The partner need not be large or resourceful: knowledge about the foreign markets may be more important. National asymmetry is also a source of challenge in managing collaboration. As Von Zedtwitz and © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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Gassmann (2002, p. 570) state, ‘managing transnational R&D projects is inherently more difficult than managing local projects’. Distance raises transaction and execution costs, affects communication in terms of quality and frequency, may lead to low project efficiency, and introduces principal-agent-related problems (von Zedwitz & Gassman 2002). Thus we hypothesize: H1b: The higher the national asymmetry, the lower the R&D collaboration performance. In sum, asymmetry creates both challenges and benefits. In the following we examine its effects – based on both size and nationality – on the orientation of firms towards contracting and on their propensity to trust the partner.
Asymmetry and Contracting Co-ordinating collaboration through contracts provides clarity about roles and decision-making procedures, and determines the input scope of each firm (Heimeriks, 2002). The term ‘contract’ is defined here as a formal, written agreement between two or more competent parties, which creates obligations. Contracting binds the parties to following joint rules of collaboration, thereby helping to create and maintain a long-term relationship (Frankel, Smitz Whipple & Frayer, 1996). If potential problems are addressed during the negotiation phases, costs and risks could be reduced. The binding effect and the threat of enforcement are also risk-reducing factors (Macneil 1979). By using contracts ‘firms can minimize their external dependencies and protect themselves against opportunism’ (Yli-Renko, Sapienza & Hay, 2001, p. 530). Many issues affect the ‘contractual culture’ adopted by a company, and asymmetric R&D collaboration is bound to involve difficulties arising from the different backgrounds of the co-operating firms. Some companies are inclined to sign contracts before engaging in any co-operative action, while others tend to cooperate on an informal basis (Fraser, Horsfall & Gregory, 2001). Nevertheless, contracts are needed in many situations and may end up being very useful. One example concerns the somewhat controversial situation of rapidly internationalizing companies or small firms engaging in R&D: in order to gain access to the knowledge and resources of foreign or larger firms, they need simultaneously to protect their own knowledge and yet disclose it so as to attract potential partners. In these cases contracts (e.g. non-disclosure agreements) may provide some security. Thus, we hypothesize:
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H2: The higher the asymmetry, the higher the propensity to make contracts.
H3a: The lower the asymmetry, the higher the general propensity to trust;
If all uncertainties related to co-operation could be removed, collaborating firms could write contracts defining each party’s obligations and rights in any situation. Particularly when the financial or strategic stakes are high, such as in collaborative R&D, the difficulties associated with incomplete information about the other firm (which are more pronounced when collaboration is asymmetric) and general uncertainty can be overcome by regulation, supervision and the use of contracts (Göran & Hägg, 1994). In practice, however, comprehensive contracts are too expensive and rigid (Håkanson 1993; Hart, 1989; MacNeil, 1980). Formally specified procedures may protect the collaboration through arising disagreements, but do not guarantee continuance (Luo, 2002). Incomplete contracting demands re-negotiation, which demands commitment, adaptation and trust. Moreover, for economists (Axelrod, 1984; Chiles & McMackin, 1996) trust is often considered an option in decreasing transaction costs: given trust, there is less need for monitoring. Previous research on inter-firm collaboration has referred to contracts as the result of trust (Sako, 1994), antecedents of trust (Barney & Hansen, 1994), complementary control mechanisms (Bradach & Eccles, 1991), alternative modes of coping with risks (Batenburg, Raub & Snijders, 2000), and even as signs of distrust (Macauley, 1963). The different conclusions reflect the complex relationship between trust and contracting. The inborn attitudes of companies toward trust and contracts (possibly stemming from their resources, size, age or culture) may change during collaboration as they learn from each other. Those with the resources and capabilities to gather information about how things are done in different settings do not necessarily have to trust their partners in everything, and can rely on contracts and their own capabilities. A ‘contract orientation’ may gradually develop into a ‘trust orientation’, however. Continuing collaboration reinforces social ties and the norms of reciprocity, and trust may even replace contracts as the control mechanism. On the other hand, a trusting firm may have to change its course if it collaborates with a bureaucratic company requiring contracts. In examining the relationship between orientations more closely, we hypothesize that:
H3b: The lower the asymmetry, the higher the level of fast trust.
H4: The higher the propensity to trust, the higher the orientation against contracting.
Asymmetry and Trust Trust reduces complex realities efficiently and economically (Arrow, 1974), since it enhances the acceptance of uncertainty and the related risk: it could thus be perceived as ‘implicit contracting’. It also increases predictability and permits greater flexibility (Luhmann, 1979) important in R&D collaboration. Psychologists view trust as a personal trait, with some persons being more trusting by nature than others (Deutch, 1960; Rotter, 1967). Values may create a propensity to trust, which is more basic than trust based on specific situations and relationships (Erikson, 1950; Jones & George, 1998; Schein, 1992). This, i.e. the propensity to trust, is referred to in this study as general trust. On the other hand, unlike most earlier research suggesting that trust develops slowly through experience and investment, Blomqvist (2002) found that it sometimes builds and is evaluated very quickly in an intense interaction of managers negotiating on R&D partnership formation. This type of fast trust has been defined as the ‘actor’s expectation of the other party’s capability, goodwill and selfreference in future situations involving risk and vulnerability’ (Blomqvist, 2002, p. 269). This fast and analytic trust enables asymmetric partnership formation, resulting in the willingness of key actors to adapt and invest in the relationship. While trust is clearly a multi-disciplinary phenomenon, and relevant on both individual and organizational levels, our empirical study covers only the selected dimensions: general trust and fast trust. As the type of trust may have several implications, we compare general trust and fast trust in asymmetric R&D collaboration. Social psychologists have identified social and character similarity as an important factor in breeding natural trust (Creed & Miles, 1996). On the individual level it may be based, for example, on education and personality, and on the organizational level on a compatible organizational culture and values. On the national level, social similarity refers to similarities in national cultures. The evolution of trust in asymmetric R&D collaboration is clearly a challenging issue, and we hypothesize that:
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The Effects of Trust and Contracts on Collaboration Performance Collaboration performance and success are considered here in terms of achieving goals pursued through co-operative actions. Our focus is on company satisfaction, which has been a widely accepted (subjective) indicator of goal attainment (Montoro-Sánchez, Mora-Valéntin & Guerras-Martín, 2001). Earlier research has established that both contracts and trust are needed in collaboration. Previous studies (Anderson & Narus, 1990; Mohr & Spekman, 1994) have provided both theoretical and empirical evidence of the importance of trust, and Zaheer, McEvily and Perrone (1998) found a direct link between inter-organizational trust and performance. Similarly, Luo (2002) studied the effects of contracts on performance. However, neither trust nor contracting alone is enough to guarantee performance targets. According to Luo, in the context of international collaboration, ‘No one relies exclusively upon trust during IJV [international joint venture] evolution’ (2002, p. 907), and ‘A contract alone is insufficient to guide IJV evolution and growth’ (p. 905). Furthermore, asymmetry makes performanceimproving trust creation more difficult (Heimeriks, 2002), and creates challenges in terms of contracting. According to MontoroSánchez, Mora-Valéntin and Guerras-Martín (2001), the influence of trust on success varies depending on the nature of the cooperating partners. Similarly, contracting practices vary in different contexts. When different companies collaborate, among the most important capabilities is the ability to understand the other firm and to accept compromises. Thus the contracting process, during which mutual trust is built, may have a profound effect on collaboration performance. Then again, the working of an exchange relationship is greatly influenced by the parties’ abilities to limit the costs associated with contracting (Zaheer, McEvily & Perrone, 1998), such as through securing adequate levels of trust. We looked at whether trust and contracts are needed for achieving goals, and hypothesized that: H5: The lower the orientation against contracting, the higher the R&D collaboration performance. H6: The higher the propensity to trust, the higher the R&D collaboration performance.
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Empirical Evidence Sample The population was defined as small and medium-sized Finnish companies providing value-added services in the ICT sector. The ICT sector was chosen because its dynamism, short product life cycles and systemic nature of the products and services make it likely that many small companies in this industry engage in asymmetric R&D collaboration. In total, 493 companies were identified and contacted between November andDecember 2001: 34 were found to be ineligible and 74 refused to participate. The 385 that agreed to participate received an e-mail message containing instructions for answering the structured webbased questionnaire. A reminder message was also sent. The number of respondents was 123, resulting in an effective response rate of 26.8 percent (123 out of 459). This could be considered adequate as the questionnaire was rather extensive and the respondents were mainly chief executive officers or managing directors with busy time schedules. There were some incomplete responses, and a total of 87 returned questionnaires were usable for the purposes of this study. The validity and reliability of the results were secured by several means. The questionnaire was pre-tested in a number of firms and it was targeted at the most knowledgeable informants. A comparison of the early and late respondents was conducted in order to assess non-response bias (cf. Armstrong & Overton, 1977), which did not appear to have an effect on the results.
Measures and Descriptive Statistics Asymmetry, trust, contracting and R&D collaboration performance were measured at the company level, since our data did not permit analysis at the level of individual R&D collaboration ventures. Restriction to this level is problematic if differences between collaboration ventures within a company were more prominent than differences between companies. Thus, our purpose was to find out how the general attitudes towards trust and contracting were reflected in company-level R&D collaboration performance. The scales for the propensity to trust were multiple-item scales ranging from one to five. The general trust scale included three items describing the person’s general propensity to trust people in the business context. The fast trust measure had four items portraying the person’s capability of building trust and evaluating the counter-
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part’s trustworthiness quickly. The wording of the items, the descriptive statistics and scale reliabilities are shown in Table 1. The Cronbach alpha coefficients indicate an acceptable level of reliability for both scales according to the guidelines presented in Nunnally (1978).
Orientation against contracting was measured on a six-item scale. The reliability of the scale was good (0.80), and the mean value was 2.2, indicating that the respondents generally found contracting necessary. Asymmetry in partnerships was considered from two perspectives: company size and
Table 1. Descriptive Statistics Scale/item
Measurement
Mean
Std. dev
Fast trust I am usually able to gain (very) rapidly the trust of my counterpart in a negotiation
mean of items 1 = fully disagree, 5 = fully agree 1...5
3.43
0.68
3.76
0.88
3.43
1.00
n.a
1...5 1 . . . 5, reversed
3.62 2.91
0.95 0.95
n.a n.a
General trust One can usually trust people in business One can usually trust companies and organisations Trust has no place in business
mean of items 1...5 1...5 1 . . . 5, reversed
3.58 3.40 3.33 4.08
0.69 0.80 0.87 0.94
0.67 n.a n.a n.a
Orientation against contracting If we trust our partner a contract is not of great significance
mean of items 1 = fully disagree, 5 = fully agree 1...5
2.20 2.48
0.80 1.18
0.80 n.a
3.05
1.39
n.a
1...5
1.88
0.94
n.a
1...5
1.93
1.02
n.a
1...5
1.29
0.65
n.a
1...5
2.52
1.42
n.a
Asymmetry Size: Share of partners large National: share of partners foreign
sum of items Ratio 0 . . . 1 Ratio 0 . . . 1
0.54 0.29 0.26
0.39 0.22 0.30
n.a n.a n.a
R&D collaboration performance We developed new products during the course of the partnership
mean of items 1 = not at all, 5 = to a great extent 1...5
3.12 3.57
1.00 1.12
0.83 n.a
2.7755
1.19
n.a
I quickly evaluate the trustworthiness of the other party Trust forms quickly In successful partnerships Trust is formed slowly and only though experience from co-operation
We have been involved in significant corporate partnerships without having signed written contracts If we trust the ability of the key representatives of our partner to consider our needs as well, a written contract is not essential Contracts are no longer necessary since we have worked together with the same partner for a long time Contracts are useless because they are unnecessary once they have been signed We have taken a significant financial risk by initiating a co-operation project without a written contract
We obtained complementary content production expertise from our partners
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Alpha 0.69 n.a
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national background. The measure for size asymmetry was the proportion of all partnerships that the company had with large firms, ranging from 0 to 1, with a mean of 0.29. The national asymmetry measure was the proportion of all partnerships that the company had with foreign firms and the mean value was 26 percent. The combined level of asymmetry was calculated as the sum of size and national asymmetry, thus ranging between 0 and 2, the maximum being achieved by companies exclusively in partnership with large foreign companies. The mean level was 0.54, which means that, on average, slightly more than half of the partners were either large or foreign. Of the 79 companies with partnerships, 29 percent had mainly symmetric relationships and 32 percent reported symmetry in less than a quarter of them. R&D collaboration and performance were measured on two variables. The lack of objective performance measures is clearly a limitation of our study, however. First, the current situation was ascertained by asking whether the company had any R&D partners at the time of the study: more than a third (35 percent) of the respondents mentioned ongoing R&D partnerships. Second, four items measured performance in previous partnerships: 74 companies (85 percent) altogether indicated that the development of new products had been the objective of current or previous collaboration efforts. Of these, 60 percent agreed that they had succeeded in this respect, while 19 percent had not. On the other hand, only 34 percent claimed to have gained complementary technological capabilities from partners, while 43 percent did not.
Our measures for trust, asymmetry and contracting relate to collaboration in general, and the R&D aspect cannot be separated from other types of collaboration that the firm had engaged in. However, as 85 percent (74 out of 87) had experience of R&D collaboration, it is not likely that these measures lacked the R&D aspect.
Analysis and results In order to identify the relationships between trust, contracting, asymmetry and R&D collaboration, a correlation matrix was computed (Table 2). The Pearson correlation coefficients within the whole sample are shown below the diagonal of the matrix. Above the diagonal are the correlations computed only for the 33 companies with ongoing R&D partnerships. Some differences between these two samples were found, although the small size of the sub-sample does not provide a very firm basis for generalization. Because asymmetry has multiple dimensions with different effects, we sub-divided the first hypothesis: H1a: The higher the size asymmetry, the higher the R&D collaboration performance, and H1b: The higher the national asymmetry, the lower the R&D collaboration performance. According to our findings in Table 2, asymmetry in general is not related to R&D collaboration performance because the two dimensions have different effects. Asymmetry related to size showed a modest positive (although not statistically significant, r = 0.15, p > 0.10) correlation with performance, and related to nationality difference correlated negatively (r = −0.23, p < 0.05).
Table 2. Correlation matrix, whole sample (n = 87) below diagonal, and the sub-sample of those currently engaged in R&D partnerships (n = 33) above diagonal
R&D coll. perf. Fast trust General trust Orient. against contr National asymmetry Size asymmetry Asymmetry
R&D coll. perf.
Fast trust
General trust
Orient. against contr.
Nat. asymm.
Size asymm.
Asymmetry
1 0.21* −0.14 0.06 −0.23** 0.15 −0.10
0.39** 1 0.14 0.14 −0.21* −0.06 −0.19*
−0.02 0.17 1 0.09 −0.18 −0.14 −0.22**
0.14 0.46** 0.02 1 −0.29** −0.06 −0.26**
−0.22 −0.25 −0.14 −0.30 1 0.09 0.82**
0.20 −0.05 −0.24 −0.06 0.28 1 0.64**
−0.05 −0.20 −0.22 −0.24 0.87** 0.72** 1
* correlation is significant at the .10 level, ** correlation is significant at the .05 level © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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Our second hypothesis, H2: (The higher the asymmetry, the higher the propensity to make contracts) was that the orientation against contracting decreased as asymmetry increased. Our empirical results support this notion, but it seems to be specifically the asymmetry arising from the different national background rather than the different size that enhances the propensity to make contracts (r = −0.29, p < 0.05). The level of asymmetry in partnerships was negatively related to the manager’s propensity to trust (general trust r = −0.22, p < 0.05, fast trust r = −0.19, p < 0.10), supporting H3a: The lower the asymmetry, the higher the general propensity to trust, and H3b: The lower the asymmetry, the higher the level of fast trust. As for the fourth hypothesis, H4: (The higher the propensity to trust, the higher the orientation against contracting), there was a strong positive association (r = 0.46, p < 0.05) between fast trust and orientation against contracting, but only among those who were currently engaged in R&D collaboration. Interestingly, general trust was not related to reluctance in this respect. According to our findings, there is no direct association between the reluctance to make contracts and performance in R&D collaboration (r = 0.06, p > 0.10). Thus H5: The lower the
orientation against contracting, the higher the R&D collaboration performance, is not supported. General trust was not related to performance in R&D collaboration either (r = − 0.14, p > 0.10), but the ability to build fast trust showed a positive correlation (r = 0.21, p < 0.10), partly supporting the sixth hypothesis, H6: The higher the propensity to trust, the higher the R&D collaboration performance.
Discussion and Conclusions Figure 1 illustrates the conceptual framework and summarizes the results of our empirical study. Our presumption based on previous literature was that a certain amount of asymmetry and related complementarity enhances collaboration performance. In the light of the data collected, however, (dis)similarity in firm size does not seem to bring notable benefits. Our findings may imply that the possibilities of complementary collaboration are still underexploited. International collaboration, on the other hand, makes the achievement of R&D collaboration goals challenging, as expected. We found that national asymmetry also has an effect on general trust, fast trust, and contract-
Contracting propensity
+
Asymmetry National asymmetry
Size asymmetry
R&D collaboration performance
-
-
+
Trust General trust
Fast trust
Figure 1. Results of the empirical analysis Note: Dashed line applies only among those currently having R&D collaboration, other arrows apply to collaboration in general.
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ing, but that only fast trust is related to R&D collaboration performance. Our results thus deviate from previous studies supporting importance of contracts, and the correlation between fast trust and R&D collaboration performance implies that there are actually different types of trust leading to different outcomes. It may be that these governance mechanisms are not fully exploited – for instance to diminish negative effects of asymmetry. Support for our hypotheses relating to the relationship between asymmetry and trust indicates that it is easier to build trust in symmetric partnerships. Then again, it may be that managers consciously or unintentionally avoid entering into asymmetric partnerships, and trust may prevail because of this. Our data does not provide for studying the importance of previous experiences, but this might be worth examining in future research. Nevertheless, if collaborating parties could reach understanding of the roles of trust and contracts in international contexts, better results could be yielded from asymmetric R&D collaboration. Furthermore, deeper understanding is required in terms of the relationship between trust and contracting. Our results suggest differences between general trust and fast trust in this respect: if managers are able to build fast trust, their orientation towards contracting is lower. This may be explained by the fact that general propensity to trust probably indicates a naïve attitude towards potential partners, whereas fast trust is more analytic, creating more security. It is important to acknowledge these interactions, since our results (e.g. general trust was not related to orientation against contracting, nor to better collaborative performance and contracting is not related to performance) imply that neither trust nor contracting alone is enough to ensure the achievement of collaboration goals. Our findings apply to companies operating in the ICT sector when collaboration is approached from the point of small firms at the company level. Generalizing the results to other fields of business or to individual collaborative R&D projects might not be possible or rational, but this nevertheless provides a starting point for future research. In sum, drawing overly straight generalizations on the roles of trust, contracting and asymmetry in R&D collaboration is risky. They all are closely bound together, affect each other differently, and have multiple dimensions. Asymmetry in collaboration may create grounds for successful R&D, but only when its effects are recognized and controlled. It may also create substantial challenges in terms of © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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trust-building and contracting. Similarly, contracting and trust have certain benefits and certain related problems, and their relationship is dynamic and evolves during collaboration. Acknowledging and understanding this is important in pursuing better R&D collaboration performance.
References Anderson, J.C. and Narus, J.A. (1990) A Model of Distributor Firm and Manufacturing Firm Working Partnerships. Journal of Marketing, 54(1), 42–58. Armstrong, S.J. and Overton, T.S. (1977) Estimating non-response in mailed surveys. Journal of Marketing Research, 18, 263–64. Arrow K. (1974) Limits of Economic Organization. Norton, New York. Axelrod, R.M. (1984) The Evolution of Cooperation. Basic Books, New York. Barney, J.B. and Hansen, M.H. (1994) Trustworthiness as a source of competitive advantage. Strategic Management Journal, 15, 175–90. Batenburg R., Raub, W. and Snijders, C. (2000) Contacts and contracts: Temporal embeddedness and the contractual behavior of firms. ISCORE papers No. 107. Blomqvist K. (2002) Partnering in the dynamic environment: The role of trust in asymmetric technology partnership formation, Doctoral thesis, Acta Universitatis Lappeenrantaensis 122. Blomqvist K., Hurmelinna P. and Seppänen, R. (2005) Playing the Collaboration Game Right – Balancing Trust and Contracting. Technovation, 25(5), 497–504. Bradach J.L. and Eccles R.G. (1991) Price, authority and trust: From ideal types of plural forms in markets, hierarchies and networks. In Thompson, G., Frances, J. Levacic, R. and Mitchell, J. (eds) The coordination of social life. Sage Publications, London pp. 277–92. Bruce, M., Leveric, F. and Littler, D. (1995) Complexities of Collaborative Product Development. Technovation, 15(9), 535–52. Casson, M. (1995) Entrepreneurship and Business Culture: Studies in the Economics of Trust, Volume One, Aldershot, Edward Elgar, Publishing. Chiles, T.H. and McMackin, J.F. (1996) Integrating Variable Risk Preferences, Trust, and Transaction Cost Economics. Academy of Management Review, 21(1), 73–99. Coviello, N. and Munro, H. (1997) Network Relationships and the Internationalisation Process of Smaller Software Firms. International Business Review, 6(4), 361–84. Creed, W.E.D. and Miles, R.E. (1996) Trust in organisations: A conceptual framework linking organisational forms, managerial philosophies, and the opportunity costs of controls. In Kramer, R.M. and Tyler, T.R. (eds), Trust in organisations: frontiers of theory and research. Sage Publications, Thousand Oaks CA, 16–38. Deutch, M. (1960) The Effect of Motivational Orientation upon Trust and Suspicion. Human Relations, 13, 123–29.
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Dodgson M. (1994) Technological Collaboration and Innovation. In: Dodgson, M. and Rothwell, R. (eds), The Handbook of Industrial Innovation. Edward Elgar Publishing, Aldershot pp. 285–92. Doz, Y.L. (1988) Technology Partnerships between Larger and Smaller Firms: Some Critical Issues. In Contractor, F.J. and Lorange, P. (eds), Cooperative Strategies in International Business. Lexington Books, Massachusetts, 317–38. Doz, Y.L. and Hamel, G. (1998) Alliance Advantage: The Art of Creating Value through Partnering. Harvard Business School Press, Boston, Massachusetts. Erikson, E.H. (1950) Childhood and Society. Norton, New York. Forrest, J.E. & Martin, M.J.C. (1992) Strategic Alliances between Large and Small Research Intensive Organizations: Experiences in the Biotechnology Industry. R&D Management, 22(1), 41–53. Frankel, R., Smitz Whipple, J. and Frayer, D.J. (1996) Formal versus informal contracts: Achieving alliance success. International Journal of Physical Distribution & Logistics Management, 26(3), 47–63. Fraser, P., Horsfall, T. and Gregory, M. (2001) Taken on trust: the role of contracts in product development collaborations involving small firms. Paper presented at the EIASM Workshop on ‘Trust within and between organisations’. Amsterdam, The Netherlands, 29–30 November. Göran P. and Hägg, T. (1994) The economics of trust, trust-sensitive contracts, and regulation. International Review of Law and Economics, 14, 437–51. Hart, O. (1989) An Economist’s perspective on the Theory of the Firm. Columbia Law Review, 89(7), 1757–74. Heimeriks, K. (2002) Alliance capability, collaboration quality, and alliance performance: an integrated framework. Eindhoven Centre for Innovation Studies, Working Paper 02.05. Holmlund, M. and Kock, S. (1998) Relationships and the Internationalisation of Finnish Small and Medium-sized Companies. International Small Business Journal, 16(4), 46–63. Håkanson, L. (1993) Managing cooperative research and development: partner selection and contract design. R&D Management, 23(4), 273–85. Jarillo, C.J. (1988) On Strategic Networks. Strategic Management Journal, 9(1), 31–41. Jeffries, F.L. and Reed R. (2000) Trust and adaptation in relational contracting. Academy of Management Review, 25(4), 873–82. Jones, G.R. and George, J.M. (1998) The Experience and Evolution of Trust: Implications for Cooperation and Teamwork. Academy of Management Review, 23(3), 531–46. Kelly M.J, Schaan J-L. and Joncas H. (2002) Managing Alliance Relationships: Key Challenges in the Early Stages of Collaboration. R&D Management, 32(1), 11–22. Luhmann, N. (1979) Trust and Power. John Wiley & Sons, Chichester. Luo, Y. (2002) Contract, cooperation, and performance in international joint ventures. Strategic Management Journal, 23, 903–19. MacLachlan, A. (1995) Trusting Outsiders to Do Your Research: How Does Industry Learn to Do it. Research and Technology Management, 38(6), 48–53.
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Macauley, S. (1963) Non-contractual relations in business: a preliminary study, American Sociological Review, 28(1), 55–67. Macneil, I. (1979) The New Social Contract. Yale University Press, New Haven. Macneil, I.R. (1980). The New Social Contract. An Inquiry into Modern Contractual Relations. New Haven and London. Mohr, J. and Spekman, R. (1994) Characteristics of partnership success: Partnership attributes, communication behavior, and conflict resolution techniques. Strategic Management Journal, 15, 135–52. Montoro-Sánchez, Á., Mora-Valentín, E.M. and Guerras-Martín, L.A. (2001) Links between trust and success within different kinds of interorganizational relationships. An empirical analysis according to the nature of the partner. Paper presented at the EIASM Workshop on ‘Trust within and between organizations’. Amsterdam, The Netherlands, 29–30 November. Nunnally, J.C. (1978) Psychometric Theory, 2nd edition. McGraw-Hill, New York. Pavitt, K. (1994) Key Characteristics of Large Innovating Firms. In: Dodgson, M. and Rothwell, R. (eds), The Handbook of Industrial Innovation. Edward Elgar Publishing Ltd, Aldershot pp. 357– 66). Rotter, J.B. (1967) A New Scale for the Measurement of Interpersonal Trust. Journal of Personality, 35(4), 651–65. Sako, M. (1994) Supplier relationship and innovation. In Dodgson, M. and Rothwell, R. (eds), The handbook of industrial innovation. Edward Elgar Publishing Ltd, Aldershot pp. 242–68. Schein, E.H. (1992) Organizational Culture and Leadership. Jossey-Bass Publishers, San Fransisco. Segers, J-P. (1992) Strategic Partnering Between New Technology Established Firms and Large Established Firms in Biotechnology and Microelectronics Industries in Belgium. MERIT 92-010, Maastricht Economic Research Institute on Innovation and Technology. Stuart, T. (2000) Interorganizational alliances and the performance of firms: A study of growth and innovation rates in a high-technology industry. Strategic Management Journal, 21, 791–811. Teece, D.J. (1995) Firm Organization, Industrial Structure and Technological Innovation. Consortium on Competitiveness and Cooperation Working Paper No. 95–8. von Zedtwitz, M. and Gassman, O. (2002) Market versus technology drive in R&D internationalization: Four different patterns of managing research and development. Research Policy, 31, 569–88. Whittaker, E. and Bower, J.D. (1994) A Shift to External Alliances for Product Development in the Pharmaceutical Industry. R & D Management, 24(3), 249–60. Yli-Renko, H., Sapienza, H. and Hay, M. (2001) The role of contractual governance flexibility in realizing the outcomes of key customer relationships. Journal of Business Venturing, 16, 529–55. Zaheer, A., McEvily, B. and Perrone, V. (1998) Does trust matter? Exploring the effects of interorganizational and interpersonal trust on performance. Organizational Science, 9(2), 141–59. © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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Pia Hurmelinna (
[email protected]) is a doctoral student and a senior assistant in business law, Department of Business Administration, Lappeenranta University of Technology, Finland. Her research interests cover appropriability issues, and especially intellectual property rights. Kirsimarja Blomqvist (
[email protected]) is a professor for knowledge management, director at TeliaSonera Chief Technology Office and a vice-director for Technology Business Research Center at Lappeenranta University of Technology. Her research interests include trust and social capital, R&D management, innovation management, strategic alliances and inter-firm co-operation as well as knowledge creation and knowledge transfer. Kaisu Puumalainen (kaisu.puumalainen@ lut.fi) is a professor in technology research, Department of Business Administration, Lappeenranta University of Technology, Finland. Her research interests cover innovation, international marketing, and small business. Sami Saarenketo (
[email protected]) is a professor in international marketing, Department of Business Administration, Lappeenranta University of Technology, Finland. His research interests cover international marketing and entrepreneurship in technology-based small firms.
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Competence Strategies in Organizing Product Development John K. Christiansen, Allan Hansen, Claus J. Varnes and Juliana H. Mikkola This paper explores the use of the resource-based view in practice. It focuses upon how managers involved in product development in two different companies interpret what competences are, and how competence strategies relate to organizing product development activities. The interpretations and implications of performing competence strategies are distinctly different in the two companies, and the analysis illuminates how competences may be portrayed as a resource for managers’ intervention in organizational practice, whereby competences are seen to be a cause, rather than an effect, of organizational structure, as it is often depicted in the literature. The meaning of resources and competences in practice are mouldable and flexible, and various interpretations of competences are related to local readings of the strategic situation at hand.
Introduction his paper focuses on ‘the performance’ of competence strategies in product development processes. In particular, it addresses the question of how managers understand and use the notion of competences in terms of managing product development. The practice of competence strategies can be studied in multiple ways. In this paper we address the issue of how competence strategies relate to the organization of the product development processes. The research question we address is how competence strategies unfold in practice, and what role competences have in terms of managing product development. In particular, we explore the question of how competences relate to organizational structure as managers make interpretations of ‘competences’ in practice. Several studies of new product development drawing upon a resource-based view have addressed the relationship between organizational structure and organizational competences (Iansiti & Clark, 1994; Kusunoki, Nonaka & Nagata, 1998), in which the organizational structure has been characterized as the ‘well springs’ of competences in organizations (Leonard-Barton, 1995). However, the studies taking a resource-based view have, so far, predominantly portrayed the relationship
T
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between organizational structure and competences as competences being an outcome of organizational arrangements. For instance, Argyres (1996) argues that organizational arrangements affect the possibilities for embedding organizational competences. In this paper, we argue that the relationship between competences and organizational structure might also be ‘the other way around’ when it comes to practice. By studying the particular role played by competences in terms of managing product development in practice, we illuminate the performed relationships between competences and organizational structure, i.e. how the concept of ‘competence’ becomes the point of departure for organizing product development. We contend that these insights have implications for our understanding of what it means to manage competences, how competences are approached, and the effects that competence strategies might have in practice. This paper is based on a constructivist standpoint (e.g. Denzin & Lincoln, 1998; Latour, 2005) when it comes to understanding and studying competences and the resource-based view. In this way, we follow the lines suggested by other researchers who urge for more research of strategy and strategic management in practice (Pettigrew, Thomas & Whittington, 2001; Whittington, 1996). We take how one © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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particular theoretical conceptualization performs in specific organizational settings, in the presumption that this might provide new insights into the meaning and significance of the study object – in this instance: the relationship between competences and organizational structure. The rest of the paper is organized as follows. First, the relationship between organizational structure and competences is discussed. Second, two views on organizational competences are presented, and we adopt a constructivistic perspective for the research. Third, the methodology is presented, and applied to two case companies, where the managerial interpretations and implications of ‘competences’ are presented and discussed. The re-organization of the product development that was carried out at the two case companies, and the role of ‘competences’ and how they affected the integration and disintegration of organizational units and activities in product development are addressed. Lastly, some conclusions and implications for the study of competences are presented.
Competences and Organizational Structure Organizational structure as a management mechanism has often been explored in terms of product innovation processes (Burns, 1963; Burns & Stalker, 1961; Lawrence & Lorch, 1965; Wheelwright & Clark, 1992). Differentiating or decomposing organizational practices is considered to be a significant part of management, as it facilitates the distribution of decision rights and responsibility (Child, 1984; Robey, 1982). However, differentiations of organizational practices also produce a need for integration (Galbrait, 1973; Lawrence & Lorsch, 1967; Lorsch & Lawrence, 1965). Differentiation denotes the constitution of organizational units, whereas integration indicates the inevitable need to coordinate the separate organizational units in organizations. Lawrence and Lorsch (1967, p. 109) put it this way: ‘The first function of an organization is to divide the total task into specialized pieces. The organization’s second function is to provide a means by which units working on different parts of the total task may coordinate their activities to come out with a unified effort’. Although the resource-based view is a relatively new perspective in product development, it has already had a profound impact upon issues of managing product development (Verona, 1999). Following the perspective developed in the resource-based theory of the firm (Barney, 1991; Dierickx & Cool, © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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1989; Prahalad & Hamel, 1990; Peteraf, 1993; Wernerfelt, 1984) a distinct object – the competence – has been found to explain the success of product development (e.g. Iansiti & Clark, 1994; Leonard-Barton, 1995). In this paper we define competences, like Verona (1999), as ‘routines that are intrinsically intangible’ (e.g. Conner & Prahalad, 1996; Itami & Rohel, 1987; Kogut & Zander, 1992; Leonard-Barton, 1992), and their ‘well-spring’ is learning that takes place within the organization (Iansiti & Clark, 1994; Leonard-Barton, 1995; Teece, Pisano & Shuen, 1997; Ulrich & Lake, 1990), which is embedded in heterogeneous resources within the company’ (Verona, 1999, p. 133). Among the studies that focus upon the relationship between organizational structure and competences, Argyres (1996) argues that the extent of divisionalization of a large firm is indicative of its emphasis on inter-divisional co-ordination, since fewer divisional boundaries reduce interdivisional bargaining costs. The greater the number of divisions, however, the higher the co-ordination and bargaining costs a firm incurs (Argyres, 1996). At a certain point, when the benefits of specialization are no longer achievable because of high co-ordination and bargaining costs, the firm may reorganize and consolidate its tasks into a less ‘decomposed’ mode. Argyres (1996, p. 398) argues that firms may follow different strategies in this respect, depending on the extent of the division of labor. A capabilities-broadening strategy aims at innovating by creating new syntheses between R&D in different technical areas. This strategy best suits firms that are less decomposed (i.e. more integrated organizations), as the interdependence is reciprocal, which means that a number of adjustments have to be made by each of the divisions that are working together. A capabilities-deepening strategy is associated with technical activities that are sequentially interdependent, and where the provider is given little feedback from the receiver. The motivation behind this strategy is to lower bureaucratic costs with a divisionalized structure. The capabilities-broadening strategy is related to situations when pursuing exploration, while the capabilities-deepening strategy is similar to pursuing exploitation (March, 1991). Thus, Argyres argues that the type of production and division of labor influence the organizational structure and the competences. In the same line of reasoning, Leonard-Barton (1995) argues that organizational structure is among the important elements that influences and ‘produces’ competences, as they themselves are rather intangible and can be managed by the organizational structure (Iansiti & Clark, 1994).
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We want to explore and analyse how managers interpret and use the notion of competences – focusing in particular upon the relationship between competences and organizational structure, and upon how managers take action(s) based upon that interpretation.
Methodology Research from the resource-based view of product development (e.g. Helfat, 1994, 1997; Henderson & Cockburn, 1994) has been carried out based upon what can be called an ostensive definition of organizational life (Latour, 1986). An ostensive definition is characterised by the presumption that ‘in principle it is possible to discover properties which are typical of life in [organizations] and could explain the social link and its evolution, though in practice they might be difficult to detect’ (Latour, 1986: 272). This paper draws upon constructivist position that draws upon a performative definition that characterise organizational life, as something where ‘it is impossible in principle to define the list of properties that would be typical of life in society although in practice it is possible to do so’ (Latour, 1986: 273). However, researchers have already in other disciplines outlined a more constructivist research for instance in organizational studies (e.g. Denzin & Lincoln, 1998). A similar point has also been made in strategic management studies, where there have been calls for ‘micro-approaches’ and ‘activitybased-research’ research methodologies in order to understand strategy as a practice (Johnson et al., 1998; Pettigrew et al., 2001; Whittington, 1996). The research here is qualitative and constructivistic, and we use the ‘practice and methods of analysis [that] qualitative researchers-as-bricoleurs now employ’ (Denzin & Lincoln, 1998, p. 35), whereby we ‘create, through a set of interpretive practices, the materials and evidence . . . (we) then theoretically analyze’ (1998, p. 38). In this paper we apply a case-based approach that allows us to generate contextdependent knowledge that ‘makes it possible to move from the lower to the higher levels in the learning process’ (Flyvbjerg, 2001, p. 71) as ‘in the study of human affairs, there exists only context-dependent knowledge’ (2001, p. 71). Major insights often have been produced not based on large-scale samples, but on single observations and individual cases (2001, pp. 66 ff). Furthermore, cases make it possible to produce a nuanced view of reality. It is difficult to assume that we can actually produce predictive theory in social science (2001, p. 72) but cases provide illus-
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trations and demonstrations of processes that can be the basis for further insight into the study object. The question of the relationship between organizational structure and competences is explored by undertaking two case studies in two companies (PUMP and PAINT) in order to provide an understanding of managers’ interpretations, and how they perform competence strategies in organizations, as well as to construct the meaning of resource-based view in practice. Thirteen interviews were undertaken with respondents covering major functions of the technology and product development processes, with eight interviews in PUMP and five interviews in PAINT based on a structured interview guide, organized in eight main themes. Each main theme was explored with between three to six questions. Each interview lasted between one-and-a-half and two hours. The respondents included managers of a range of functional areas and projects, including the senior process managers and research and technology executives. The selection was based on two criteria: top management representation – or close to top management and involvement – and responsibility for product development activities in the company. Fully transcribed interviews, documents, field notes and all other written material were made accessible in an electronic database for all the members of the research team. Data were coded and used in several rounds of interpretation, theoretization and evidence checking.
The PUMP Company PUMP is a globally oriented company with its headquarters and a centralized R&D department located in Denmark. The company employs more than 10,000 people, and has five Business Development Centres. There are production facilities located in ten countries, in Europe, USA and Asia, and nine sales regions covering the world market. With an annual production of approximately 10 million units, PUMP is a world leader in full line pump supplies, and – with production and sales companies on every continent – it is also the most global. The company serves a number of business areas based on specific pump applications. The first of these is Building Services, which includes heating, ventilation and air conditioning. The second business area is Industry, which focuses on pumps used within the manufacturing industry for a wide range of specific purposes in production plants and processes. The third business area is Water Supply and © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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Wastewater Treatment, while the fourth – and most recent – business area is Digital Dosing Pumps. PUMP represents itself as being ‘a dynamic company characterized by continuous development and innovation’. In its shortest form, PUMP expresses these values in the phrase ‘Be – Think – Innovate’, or ‘Be responsible, think ahead and innovate’.
The PAINT Company PAINT is a globally oriented company with its headquarters and a centralized R&D function in Denmark, but with four laboratories located locally in the primary markets served, in order to accelerate market adaptation. The company employs 3,300 people in 40 different countries, with 20 production plants worldwide. PAINT is among the top five in the industry. PAINT has to be characterized as a follower, even though it now aspires to be the ‘first in the class’. The competitive strategy is based on value adding in terms of service. A global product programme is available locally, rather
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than a cost focus. Despite the industry traditionally being characterized as ‘paint’, the company now perceives the industry as being a pharmaceutical industry, because of an increase in complexity, and a technological marginalization of the company during the 1990s (a result of a lack of innovation). The company is organized into five segments including marine, protection, industry, decoration and yacht. ‘Service’ has recently been added as a new segment in its own profit centre. Marine constitutes half of the turnover, but this segment is increasingly under pressure. The company is starting to realize that this segment will not be the primary source of turnover in the future.
Competences, Management Intervention and the Organization of the Product Development Process The application of the resource-based view produced new images of the product development process in the two companies, induced
Table 1. Performing Competence Strategies in the Two Cases: Management Interpretation and Mobilization of Competences and Organizational Implications
Reasons for mobilizing the notion of competences in the organization Translation of competences
Organizational structure (due to the resourcebased view)
Management intervention in the product development process
PUMP
PAINT
There is a lack of control. The organization needs to ensure visibility. Competences are linked closely to the idea of organization. Technological competences are interpreted as knowledge about motor technology, hydraulics and electronics. Competences represent a ‘technological platform’ for developing new products. Technological organization: The R&D process is split into a ‘Research and Technology Department’ (sub-divided into motor technology, hydraulics and electronics) and ‘Business Development’. Greater visibility within the product development process. Distribution of decision rights according to competence departments in the Research and Technology Development.
The strategy needs to be changed. The notion of competences gains significance as the company becomes more and more innovative. Technological competences represent knowledge of erosion, anti-fouling, etc. Competences are ‘multi-departmental’, and are specifically developed in Group Marketing, Technical Service and Research. Functional organization: The R&D process is split into ‘Group Marketing’, ‘Technical Service’ and ‘Research’.
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Greater visibility in the product development process. Distribution of decision rights according to functional units throughout the product development process.
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new ways of organizing the product development process, and gave rise to new interpretations of what needed (and what did not need) to be integrated in product development. In PUMP, the notion of competences led to a disintegration of the product innovation process, whereas the focus upon competences in PAINT initiated integration and the formation of a new Technology Department. The reasons for mobilizing competence strategies were also different in the two companies. In PUMP it was a sense of a lack of control, whilst in PAINT it was related to a need to change the overall strategy. In PUMP the development of competence was considered to be a matter of developing different technological platforms. These technological domains had a permanent character with respect to the product innovation processes in the company, and split up the ‘R’ activities from the ‘D’ activities. The product innovation process was divided according to the need to develop special competences within certain technological fields. In PAINT the development of competence translated into a matter of building up competences within a certain technological domain, which distanced the company from its previous ‘me too’ attitude. Developing competences was considered to be a joint effort based on the managerial intention for the company to focus on the development of one or more (core) competences.
Competences and Organizational Structure Prior product development research has addressed the relationship between compe-
tences and organizational structure, but it is often portrayed such that the organizational structure ‘comes before’ competences (e.g. Argyres, 1996). In the cases presented in this paper, it was not a matter of creating a competence strategy that fitted the organizational structure of the company. It became a matter of creating an organizational structure that fitted into the competence strategy. Thus, the competence strategies became a point of departure for management, rather than an intangible effect of heterogeneous resources within the companies. In PUMP the notion of competences led to the disintegration of the product innovation process, whereas the focus on competences in PAINT initiated integration, and the formation of a new Technology Department. Thus, the notion of competences was used by the companies in two different ways, as it constituted two different competence strategies that can be characterized as competence-broadening and competence-deepening respectively, as Argyres (1996) suggests. In PUMP the development of competence was considered to be a matter of developing different technological platforms. These technological domains were of a permanent nature in respect to the company’s product innovation processes, and split up the ‘R’ activities from ‘D’ activities. The product innovation process was divided as a result of the need to develop special competences within certain technological fields. In PAINT the development of competence translated into a matter of building up competences within a certain technological domain, thus distancing the company from its former ‘me too’ attitude.
Table 2. Competence Strategies and the Organization of Product Development
Competence and organization
Competence strategy
Competence divisibility
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PAINT
The competence strategy causes a disintegration of the innovation process in the company, as the activities are organized accordingly. Competence-broadening because a wide variety of competences are important in terms of developing the products (Pumps).
The competence strategy is an integrator, because various resources and activities are oriented towards the same thing (the technological competence). Competence-deepening because distancing the company from its ‘me too’ strategy requires focus on particular technological competence. Competences are considered to be single and embedded in heterogeneous resources within the company.
Competences are considered to be multiple and combinable in the new product development.
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Argyres
Organizational structure
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Our study
Figure 1. Implications of Findings: Organizational Competences as a Driver for Organizational Structure
Developing competences became a joint effort, and it was difficult to split up the activities involved in the competences. The idea was to dig ever deeper in developing one specific competence. The implication is that organizational competences came before organizational structure. The notion of competence became a resource for constructing organizational structure, rather than an outcome of the divisional structure as portrayed by Argyres (1996). In Figure 1 we illustrate the point that competences both can be an effect and a cause of organizational structure in the product development process. Managers’ interpretations of what constitutes competences, and how they are related to product development, particularly ‘successful’ product development, thus became a driver for the design of organizational structures in the cases outlined here. Furthermore, the interpretations are based upon notions of how and what will create successful product development. In the PUMP case, there is a belief that successful product development is a matter of developing a broad range of several different competences (e.g. ‘we use carpet bombing’ says one manager) that are later directed towards the market(s) in ‘product development’. In PAINT, the interpretation is a need for differentiation, which leads to a focus of the development on technical competences, whereby the competence strategy becomes an integrator – not a separator, as in PUMP. The competence analysis leads to two different outcomes, but in both cases competence is the driver for organizational changes and the organization of product development activities. The reorganization embedding the competence strategies described above was, in turn, interpreted by actors in the organizations, as these concrete managerial initiatives (based upon ‘intangible’ competences) related to numerous actors and practices in the two © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
organizations. Table 3 summarizes some of the different interpretations of the reorganization made in the two companies, and indicates how the interpretations of the competences might continue in the two organizations in the future. The table illustrates that the consequences of the reorganization are not onesided. Multiple aspects may be mobilized in the continued articulations of the meaning and significance of competence strategies in the organizations, because, as emphasized from a constructivist point of view, the significance and meaning of things are never ‘locked’ but always ‘open’.
Conclusions This paper addressed the relationship between competence building and the organization of the product innovation process. We explored aspects of the complex relationship between competences in the product innovation process and the issues related the question of how to organize product development. Both companies – starting from very different situations and interpretations – embedded competence strategies in their organizational structure, although in one company the concern for technological competences led to a focus on disintegration, whilst in the other it led to integration. Thus, our study illustrates how competence strategies became an input to, rather than an outcome of, organizational arrangements related to the product development process as often portrayed in the literature (Argyres, 1996; Leonard-Barton, 1995). The constructivist approach applied to this research produces contributions that are not possible with positivistic research; namely a window into how different organizations actually mobilize and take actions based on their interpretations of the ‘resources’ and competences required. The paper illustrates how competences are resources for managers
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Table 3. Summary of the Interpreted Effects of the Reorganizations in the Two Companies
PUMP
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Interpretations of positive effects
Interpretations of negative effects
• Shorter development times in the new product development process • Lower costs in the development process (effectively with regards to technology development issues) • Visibility of the organizational capabilities of the firm (a strategic focus)
• Co-ordination between the product development organization and the competence development organization • Difficulties related to the transfer of technological knowledge
• A reduction in informal (political) networks by increasing formalization and co-ordination • More long-range focus in idea generation
• Technology platforms used as a basis for new products • Improved discipline and knowledge sharing • More market oriented, and a reduction in the use of arbitrary contacts between individual R&D staff and suppliers • Better estimation of sales • Improved co-ordination in product development projects
in terms of constructing organizational structure with regard to the product development process. The notion of competences is part of the way in which managers try to intervene in the product development process. Thus, competences, their significance and their relationship to other aspects in the product development process may be multiple and able to be moulded. Organizational competence can be mobilized in several different situations, and may have different meanings in particular settings. The logic that constitutes the meaning of competences is important for managers to grasp. In practice, the meaning and significance of competences are much more fluid than is usually portrayed in the literature (Conner & Prahalad, 1996; Iansiti & Clark, 1994; Kogut & Zander, 1992). This is not the same as saying that managers interpret the
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• Difficulties motivating personnel for technological development . . . Stronger incentive in the new product development projects • Communication problems between the R&D staff, who are now located in four different departments • Difficulties relating to the interface between the new technology department and the stage-gate process, i.e. skipping over business cases • Only one product has been reported as a success so far, but this is still an incremental improvement compared to competitors • Product application has moved out of R&D and over to Risk Management • Idea generation only partly solved
notion of competences incorrectly. On the contrary, the possibility of bending the concept (‘a competence’) could be considered to be an important part of constructing rigorous managerial translations of organizational practice. This paper contributes by illustrating the multiple ways that competence and the organization of the product development process relate in practice. These findings are important, as they emphasize the fact that the significance of the notion of competences in practice is variable rather than fixed and that the variability seems to play a significant role when it comes to managing product development in practice. Competences are constructs that first really become meaningful when organizations and managers ‘use’ them and make decisions based on their own local interpretations. In this case, we should pay more attention to the © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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process of interpretation of the construct and its use as a basis for decision-making on organizational structure for product development. Furthermore, competence as a construct is flexible, where local interpretations seem to be much influenced by the strategic context and situation for the individual company. Competences thus might be regarded as ‘solutions’ looking for ‘problems’ that they can help to solve (Cohen, March & Olsen, 1972). Hence, we suggest further study of the types of problem related to competences and how managers use this construct in decision-making for product development.
Acknowledgements The authors are grateful for the comments and suggestions from an anonymous reviewer at the IPDMC 2004 conference, from another anonymous reviewer, and from the editors at Creativity and Innovation Management.
References Argyres, N. (1996) Capabilities, technological diversification and divisionalization. Strategic Management Journal, 17(5), 395–410. Barney, J. (1991) Firm Resources and Sustained Competitive Advantage. Journal of Management, 17(1), 99–120. Burns, T. (1963) Industry in a new age. New Society, 31 January, 17–20. Burns T. and Stalker, G.M. (1961) The management of innovation. Tavistock Publications, London. Child, J. (1984) Organizations. A Guide to problems and practice, 2nd edition. Harper & Row, London. Cohen, M., March, J.G. and Olsen, J.P. (1972) A Garbage Can Model of Organizational Choice. Administrative Science Quarterly, 17(1, March), 1–25. Conner, K.R. and Prahalad, C.K. (1996) A resourcebased theory of the firm: Knowledge versus opportunism. Organization Science, 7, 478–96. Denzin, N.K. and Lincoln, Y.S. (1998). Collecting and interpreting qualitative materials. Sage, Thousand Oaks. Dierickx, I. and Cool, K. (1989) Asset Stock Accumulation and Sustainability of Competitive Advantage. Management Science, 35(12), 1504–11. Flyvbjerg, B. (2001) Making Social Science Matter. Cambridge University Press, Cambridge. Galbraith, J. (1973) Designing Complex Organizations. Addison-Wesley, New York. Helfat, C.E. (1994) Firm-specificity in Corporate R&D. Organization Science, 5(2), 173–84. Helfat, C.E. (1997) Know-How and Asset Complementarity and Dynamic Capability Accumulation: the Case of R&D. Strategic Management Journal, 18(5), 339–60. Henderson, R.M. and Clark, K.B. 1990 Architectural Innovation: The Reconfiguration of Existing Product Technologies and the Failure of Estab© 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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lished Firms. Administrative Science Quarterly, 35, 9–30. Henderson, R.M. and Cockburn, I. (1994) Measuring competence? Exploring firm effects in pharmaceutical research. Strategic Management Journal, 15, 63–84. Iansiti, M. and Clark, K.B. (1994) Integration and dynamic capability: Evidence from product development in automobiles and mainframe computers. Industrial and Corporate Change, 3, 557–605. Itami H. and Rohel D. (1987) Mobilizing invisible assets. Harvard University Press, Cambridge, MA. Johnson, G. and Huff, A. (1998) Everyday Innovation/Everyday Strategy. In Hamel, G., Prahalad, G.K., Thomas, H. and O’Neal, D. (eds.), Strategic Fleklbility Managing in a Turbulent Environment, Chapter 2, pp. 13–27, Wiley, Chichester. Kogut, B. and Zander, U. (1992) Knowledge of the firm, combinative capabilities, and the replication of technology. Organization Science, 3(3), 383–97. Kusunoki, K., Nonaka, I. and Nagata, A. (1998) Organizational Capabilities in Product Development of Japanese Firms: A Conceptual Framework and Empirical Findings. Organization Science, 9(6), 699–718. Latour, B. (1986) The Power of Associations. In Law, J. (ed.), Power, Action and Belief, London, Routledge and Kegan Paul, pp. 264–80. Latour, B. (2005) Reassembling the Social – An Introduction to Actor – Network Theory, Oxford University Press. Lawrence, P. and Lorsch, J. (1967) Organization and Environment. Harvard University Press, Cambridge, MA. Leonard-Barton, D. (1992) Core capabilities and core rigidities: A paradox in managing new product development. Strategic Management Journal, 13, 111–25. Leonard-Barton, D. (1995) Wellsprings of Knowledge: Building and Sustaining the Sources of Innovation. Harvard Business School Press, Boston, MA. Lorsch, J.W. and Lawrence, P.R. (1965) Organizing for Product innovation. Harvard Business Review, January–February, 109–120. March, J.G. (1991) Exploration and exploitation in organizational learning. Organization Science, 2, 71–87. Mintzberg, H. (1979) The Structuring of Organizations. Prentice Hall, Englewood Cliffs, NJ. Peteraf, M.A. (1993) The cornerstones of competitive advantage: a resource-based view. Strategic Management Journal, 14, 179–91. Pettigrew, A.M., Thomas, H. and Whittington, R. (2001) Strategic management: strengths and limitations of a field. In Pettigrew, A.M., Thomas, H. and Whittington, R. (eds.), Handbook of Strategy and Management. Sage, London. Prahalad, C.K. and Hamel, G. (1990) The core competence of the corporation. Harvard Business Review, 68(3), 79–91. Robey, D. (1982) Designing Organizations. Richard D. Irwin, Homewood, IL. Teece, D.J., Pisano, D. and Shuen, A. (1997) Dynamic capabilities and strategic management. Strategic Management Journal, 18(7), 509–33.
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Ulrich, D. and Lake, D. (1990) Organizational Capability: Competing from the Inside Out. John Wiley & Sons, New York. Verona, G. (1999) A resource-based view of product development. Academy of Management Review, 24(1), 132–42. Wernerfelt, B. (1984) A Resource-based View of the Firm. Strategic Management Journal, 5, 171–80.
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Wheelwright, S. and Clark, K. (1992) Revolutionizing Product Development. Quantum leaps in speed, efficiency and quality. Free Press, New York. Whittington, R. (1996) Strategy as Practice. Long Range Planning, 29(5), 731–35.
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National Product Design Identities Kelly Dawson, Povl Larsen, Gavin Cawood and Alan Lewis This research examines which key characteristics determine a style in order to investigate to what extent perceptions of furniture differ for ten selected countries. In addition, it identifies which products are thought to be representative of the same ten countries. A Likert scale was implemented to measure the levels of the ten characteristics for the ten countries. Visual product identity maps have been created to illustrate the results. Five characteristics distinctly contrast amongst most nations and furthermore, those that do not display individual identities. Overall, the findings indicate which nations are associated with key characteristics.
Introduction ollowing the post-World War II industrial reconstruction, countries were quick to recognize the competitive advantage of creating distinctive product styles (Aldersey-Williams, 1992). For example, Japan and Germany evolved an industrial design style emphasizing mechanical efficiency (Sparke, 1987), whereas the Scandinavian countries created a style that is traditional, yet construed for modern taste. This style is predominantly evident in Scandinavian furniture design. Various constraints and facilitators can influence national capabilities and are likely to differ with regard to design and manufacture. For example, Germany is renowned for product engineering and is perceived to produce high quality products. Denmark, however, is recognized for design quality rather than product quality (Chao, 1998). Previous research examining product design in relation to the country of origin is primarily focused towards the consumer’s value and perception of a foreign product, whilst not necessarily exploring how physical characteristics differ (Chao, 1998; Keillor & Hult, 1999). It is believed that national boundaries are no longer a differentiating factor in the design of products in today’s ‘mobile’ society and it would be far too simplistic to analyse design upon borders given the existence of transnational identities and multinational corporations (Roberts, 2001). The catalogue from the ‘National Characteristics of Design’ exhibition held at the Victoria and Albert Museum’s Boilerhouse in 1985 reinforced this
F
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view. It was stated that the differences in appearance between products from different countries have become more subtle. According to Verganti (2003) designers are moving away from their traditional roles in the development process, in which they chiefly address issues of style and ergonomics, to a more creative contribution in generating new product concepts. Conversely, the ideal of universal standardization of products is diminishing in the world of commerce and the need to address niche markets has been recognized (de Souza, 2000), an opinion echoed by Aldersey-Williams (1992), who claims that globalist corporations are misunderstanding their multinational markets if they believe that national or regional differences do not exist. Kelley (2001) warns that designers and businesses cannot simply skate over cultural differences – to ignore tradition or widely held beliefs, no matter how mistaken one might believe they are, one does at ones peril. It appears that national and regional character will not be eradicated, certainly not in the near future (AlderseyWilliams, 1992). But how distinct is national character in design? The objective of this study is to identify to what extent characteristics vary depending on the country of origin, using furniture as an example, in addition to establishing which products are perceived to represent a nation. Furniture is a well-established product and has been selected with reference to nationalism in design in publications by AlderseyWilliams (1992), Aynsley (1993). It has been the core product of major design movements such as Arts and Crafts, Art Nouveau, Bauhaus,
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Memphis, which should be familiar to design professionals and those educated to degree level in Design. In leaving the product type open for the participant to decide, it will indicate what they perceive not only to represent a nation but also addressing the characteristics in a broader context. The findings will be of specific interest to product designers and managers, as it has been suggested that firms must identify and match differences in identity to achieve a competitive advantage in order to attain international success (Doyle, Saunders & Wong, 1992). ‘National Characteristic Maps’ will be generated that will create a clear visual indication of the degree to which perceptions of national design identity varies.
Nationalism of Design Country of Origin Research has indicated that the country of origin of a product has a significant bearing on the consumer buying decision (Douglas & Nijssen, 2002; Suh & Kwon, 2002). This bias is reflected in the product attributes and buying intentions determined by an individual personality, known as consumer ethnocentrism (Shimp & Sharma, 1987). Alternatively, this can be described as product judgement, an example of which would be the reluctance to purchase a foreign product, in the belief that it could affect the domestic economy. According to Balabanis and Diamantopopoulos (2004), the ‘foreignness’ of a product is of great concern to international marketers with regard to any possible bearing it may have on consumer preference. Kelley (2001), in his book The Art of Innovation, points out that products with a long heritage or tradition, such as furniture, hand tools and kitchen utensils, are more likely to have perceived customer associations with specific countries than recent technological advances such as cell phones, which are embraced by diverse cultures. Cars and personal stereos too have proven to be fairly international. Using the example of vacuum cleaners, Kelley (2001) highlights why there may be differences – in the USA customers associate performance with high noise levels, whereas in Japan, with its smaller houses and thin walls, quietness is paramount. Likewise with cup-holders in cars – common in the USA because of their drive-through culture, longer distances travelled and more time spent commuting, but not popular in Europe where different cultures exist. Nationalism in design is a relatively neglected area of research, particularly in
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recent years. Previous notable publications that have sought to address this topic are: World Design: Nationalism and Globalism in Design (Aldersey-Williams, 1992) and Nationalism and Internationalism – Design in the Twentieth Century (Aynsley, 1993). These authors assess the design trends in the context of national cultures, demonstrating the social relevance of design, and conclude that varied implementation of materials and techniques can have a bearing on the product appearance, thereby creating a national design identity. Keillor and Hult (1999) describe national identity as the extent to which a culture recognizes its unique characteristics, thus generating a set of meanings that differentiates it from others. Adopting such a statement adds clarity to how national product design identity can be interpreted: a product design identity made up of a set of unique characteristics that distinguish it from other nations.
Style Chan (2000) suggests that if a set of common features are identified, all the objects that possess the same feature set should have the same style, and that greater or fewer numbers of features existing in an object will alter the perception of a particular style. Furthermore, the set of common features in many objects designed by the same person signifies an individual style and if the set appears in objects designed by a group it signifies a group style. Correspondingly, the authors of this paper suggest that a collection of sets can symbolize a national style that could be perceived as a national identity. By identifying which factors distinguish one country’s products from that of another is important because it could be the deciding factor that makes customers buy a particular product – the ‘allure of foreignness’. But which features describe the ‘allure of foreignness’ and could be said to represent a product’s national identity? Hsu, Chuang and Chang (2000) identified fourteen ‘image word pairs’ that were representative of the features designers used in evaluating products in Taiwan: • • • • • • • • • • •
traditional and modern nostalgic and futuristic conservative and avant-garde hand-made and hi-tech obedient and rebellious course and delicate rational and emotional large and compact heavy and handy hard and soft masculine and feminine © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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• childish and mature • unoriginal and creative • common and particular. Chen and Owen (1997) concluded that there were six features that contributed to the formation of visual styles; form elements, joining relationships, detail treatments, materials, colour treatments and textures. Harel and Prabhu (1999), in their research into product design in India, China and Japan, identified the following set of characteristics that differentiated products: • • • • • • • • • • •
form geometry surface colour intuitiveness minimalism articulated impressive robust symmetrical harmoniousness.
Earlier work by Nagashima (1970, 1977) suggested that price and value, service and engineering, advertising and reputation, design and style, together with consumer profiles were features that could be used to differentiate products. Verganti (2003) argues that although most designers know that the appearance of a product is just one of several ways to express a message to the user, apart from styling what matters to the user, in addition to a product’s functionality, is the product’s emotional and symbolic value. Consequently, the features identified in previous research were for this research study synthesized into: • • • • • • • • • • •
design style degree of decoration features attention to detail (level of refinement?) functionality solidarity, build quality, construction material colour texture originality selling price to customer.
Country Selection Prominent countries renowned for exemplary design throughout the twentieth century, (with particular reference to the post-World War II period), have been consistently selected amongst a range of studies. Keillor and Hult’s five-country study of national identity in marketing (1999) develops a framework upon © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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which four dimensions are measured. The components of the framework are belief structure, national heritage, cultural homogeneity and ethnocentrism, for which the following countries were selected: USA, Mexico, Japan, Sweden and Hong Kong. A similar study conducted by Cheron, Hayashi and Sugimoto (1999) investigated Japanese and Canadian consumers’ perception of country and product image and levels of ethnocentrism, whereby countries for consideration included China, France, Canada, Japan, USA, South Korea and Germany. Commonalities amongst Aynsley (1993) and Aldersey-Williams (1992) in their studies of nationalism and globalism in design are the UK, Germany, USA, Italy and Scandinavia. Balabanis and Diamantopopoulos (2004) measured the level of domestic country bias, country of origin effects and consumer ethnocentrism for six of the most economically developed countries (Britain, USA, France, Germany, Japan and Italy), as their products tend to dominate world markets. Less-developed countries were avoided in that investigation because products from such countries are perceived to be of lower quality (Balabanis & Diamantopopoulos, 2004). The criteria for which countries have been selected were based upon previous research for similar investigations into nationalism and country of origin.
Methodology The ten selected countries combine both established and emerging markets and comprised: • • • • • • • • • •
China Denmark France Germany Italy Japan South Korea Spain UK USA.
The study was divided into two strands. One half of the questionnaire asked the sample of design professionals to consider the key product design characteristics for furniture. The second half of the questionnaire asked participants to identify the one type of product that they perceived to be representative of each of the ten countries and how the key product design characteristics related to their opinion of the representative product. Both strands used the same criteria of characteristics to maintain uniformity and the
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Table 1. Key Product Design Characteristics Used in Questionnaires Characteristics: A B C D E F G H I J
Style Degree of decoration Features Attention to detail Functionality Solidness/construction Material Colour Originality Price to customer
Likert Scale: Classical Minimal Few Perfection Simplicity Solid Innovative Subtle New/unknown Very expensive
same Likert scale range was used for each key product characteristic (see Table 1 above). The survey sample was identified from design directories and through personal contacts. The questionnaire was distributed via e-mail. Of the 30 e-mails sent 16 were returned providing a response rate of just over 53 percent. Data from the questionnaires was entered onto spreadsheets to enable a mean figure to be calculated for each characteristic and to facilitate the creation of key product design characteristic maps for each country (see Figure 1).
Limitations of Research Because of the small sample size, the findings reported in this paper should be viewed as tentative. Also, in hindsight it may have been advisable in the second half of the study to ask the design professionals which product types best represented a country, rather than limiting selection to one main product type. This oversight may have biased the results, especially for countries that produce a widespread range of products and or have a diversified ethnic population. However, the findings do provide an interesting insight into the area of national identities and key product design characteristics as perceived by UK design professionals and consequently offer the basis for further in-depth multinational research.
Results Questionnaire Part One Figure 1 shows the results for each individual country’s perceived key product design characteristics for furniture.
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< 1 to 10> < 1 to 10> < 1 to 10> < 1 to 10> < 1 to 10> < 1 to 10> < 1 to 10> < 1 to 10> < 1 to 10> < 1 to 10>
Avant-garde Highly ornamental Many Many errors Over-engineered Flexible Traditional Garish Plagiarized Inexpensive
Noticeable differences between countries suggest that Chinese furniture is perceived to be highly ornamental, brightly coloured, made from traditional materials, classical in style with a hint that designs are copied rather than innovative, but inexpensive to purchase. German furniture comes across as plain, solid, near perfect, only slightly over-engineered and expensive. Points that differentiate Italian furniture revolve around the use of innovative materials, bright colours, originality and avant-garde style, and expensiveness. Danish furniture highlights minimalism, few features, functional simplicity, solid construction, innovative materials and subtle colours, distinctly original and not too expensive. French furniture’s main characteristics seem to be that it uses traditional materials and tends to be expensive. While the USA, UK and Spain also show a bias towards traditional materials, they do not share France’s reputation for expensiveness. Traditional materials are a characteristic evident in Japanese furniture, although the Japanese are perceived as near perfect in regard to attention to detail. South Korean furniture appears to be fairly decorative with many features, colourful, and constructed of traditional materials.
Common Maps Further analysis of the ten countries revealed that there were some whose key product characteristics tended to echo each other. To this end, three maps were created that look to explore the similarities and differences (see Figures 2, 3 and 4). Figure 2 shows that if a piece of furniture displays a tendency towards an avant-garde style, has a higher than average price tag and is highly original, then it is likely to have come from Denmark, Germany or Italy. © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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Figure 1. Key Product Design Characteristic Maps for Furniture
Further analysis from within this group of the key product characteristics for furniture suggests that: • Furniture that has a minimal amount of decoration and whose colour is distinctly subtle is likely to be of Danish origin. © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
• Furniture that shows a high level of attention to detail and is of solid construction is likely to be of German origin. • Furniture that looks flexible and with colours that lean towards garish is likely to be Italian.
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A J
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Figure 2. Comparison Between Similar Key Product Design Characteristic Maps I Notes: A = Style (1 Classical to 10 Avant-garde) B = Decoration (1 Minimal to 10 Highly ornamental) C = Features (1 Few to 10 Many) D = Attention to detail (1 Perfection to 10 Many errors) E = Functionality (1 Simplicity to 10 Over-engineered) F = Solidness (1 Solid to 10 Flexible) G = Material (1 Innovative to 10 Traditional) H = Colour (1 Subtle to 10 Garish) I = Originality (1 Unknown to 10 Plagiarized) J = Price to customer (1 Very expensive to 10 Inexpensive)
Figure 3 compares the far-eastern countries of China, South Korea and Japan, which all show similar characteristics, albeit with greater degrees of variance than in the cases of Denmark, Germany and Italy. It would appear that if a piece of furniture tends to have above average decoration, possess many features, uses very traditional materials and is brightly coloured, it is likely to be of Chinese, South Korean or Japanese origin. Characteristics that distinguish individual countries within this group are: • Furniture that is highly classical in style, very highly decorated and ornamental, uses very bright colours verging on garish, uses highly traditional materials, is well recognized rather than new or unknown in terms of originality and is inexpensive to purchase is likely to be Chinese.
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• Furniture that has many features and is over-engineered is likely to be South Korean. • Furniture that is slightly more expensive than average and displays a high degree of attention to detail with a tendency to newness or the unknown in terms of originality, is likely to be Japanese. Analysis of the four remaining countries, USA, UK, France and Spain (see figure 4) reveals very few distinguishing key product characteristics, with only France standing out on ‘price to customer’ and a slightly higher tendency towards decoration and ornamentation. It would seem unlikely that by simply increasing the price to the customer and adding some additional decoration and ornamentation the USA, UK and Spain could produce French furniture. © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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Figure 3. Comparison Between Similar Key Product Design Characteristic Maps II Notes: A = Style (1 Classical to 10 Avant-garde) B = Decoration (1 Minimal to 10 Highly ornamental) C = Features (1 Few to 10 Many) D = Attention to detail (1 Perfection to 10 Many errors) E = Functionality (1 Simplicity to 10 Over-engineered) F = Solidness (1 Solid to 10 Flexible) G = Material (1 Innovative to 10 Traditional) H = Colour (1 Subtle to 10 Garish) I = Originality (1 Unknown to 10 Plagiarized) J = Price to customer (1 Very expensive to 10 Inexpensive)
The similarities between these countries highlight the need for more research with particular emphasis on a wider range of key product characteristics to help ascertain their individual characteristics. Were the respondents to the questionnaire suggesting that these countries produce bland, unmemorable furniture or that these countries are not recognized for their furniture but some other product?
Questionnaire Part Two The second part of the questionnaire sought to identify the type of product that the sample of design professionals perceived to be representative of each of the ten countries. In the case of only three countries (see table 2) did the majority of participants have a decisive opinion on the type of products that best © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
represented a particular country: Germany was renowned for the automobile industry (12); Japan for its electronics industry (16); South Korea for electronics (9). Referring back to Figure 4, which sought to identify a key product characteristic map for the USA, UK, France and Spain, and then comparing the responses shown in table 2 for each of the four countries, it is evident that none of the countries have a clearly recognizable or distinct product associated with them. Neither the USA or France was renowned for its furniture, the UK only received one vote, but for Spain furniture was seen as the most representative of a range of products, but not decidedly so. It would appear that from this pilot study that furniture is not generally associated with the four countries, and therefore explains the rather bland response displayed in Figure 4.
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A 10 9 8 7 6 5 4 3 2 1 0
J
I
B
C
H
D
E
G F
USA
UK
French
Spanish
Figure 4. Comparison Between Similar Key Product Design Characteristic Maps III Notes: A = Style (1 Classical to 10 Avant-garde) B = Decoration (1 Minimal to 10 Highly ornamental) C = Features (1 Few to 10 Many) D = Attention to detail (1 Perfection to 10 Many errors) E = Functionality (1 Simplicity to 10 Over engineered) F = Solidness (1 Solid to 10 Flexible) G = Material (1 Innovative to 10 Traditional) H = Colour (1 Subtle to 10 Garish) I = Originality (1 Unknown to 10 Plagiarised) J = Price to customer (1 Very expensive to 10 Inexpensive)
Comparison between Furniture and other Products In comparing the maps of the nations for both furniture and the product or products that the respondents associated with a country revealed that there are in fact several similarities with selected characteristics (see Figure 5). The key product characteristic similarities between furniture and electronics for Japan relate to level of ‘decoration’, ‘attention to detail’, ‘originality’ and ‘price to customer’. Notable differences are found in the level of ‘style’ with the electronic products showing a marked move towards an avant-garde styling and ‘features’ where the electronics show a greater number being designed into products. Minor differences relate to a slighter greater emphasis on over-engineering the functionality of electronics and ‘colour’, which appears to be brighter than the Japanese furniture.
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In the case of Germany there is hardly any discernable differences between cars/electronics and furniture with only the number of features and brightness of colour showing slight increases. Analysis of the map for South Korea’s furniture versus cars/electronics key product characteristics, although not as tight a fit as Germany’s, does not offer such noticeable differences as Japan’s. ‘Decoration’, ‘innovative materials’ and ‘colour’ are used more in South Korea’s electronic products than its furniture, while ‘attention to detail’ is seen as less.
Managerial Implications An interesting observation to be drawn from the Japanese, German and South Korean cases is that none of the respondents considered the © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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401
16
2 2
6 3
Spain
USA
4 9
France
Japan
6 2
UK
3 8
China
Italy
12 4
S. Korea
Automotive Electronics Giftware Furniture Food & Drink Consumer goods Fashion Toys Engineering Audio Holidays Leather & shoes Bathrooms Household appliances Medical Ceramics Computers Machines Sports equipment White goods Power tools Plastic products
Germany
Denmark
Table 2. Products Associated With Each Country
3
4
1
2 1
2
2 3 1
1 1
4
3 1
2 2 2 1
1
products that were representative of each country to include furniture, and yet the similarities between the key product characteristics of furniture and electronics or cars/ electronics were close. This suggests that there are ‘national key product characteristic’ that are transferable across product sectors. In the ten countries analysed, UK design professionals expected specific qualities to be inherent in products emanating from six countries, with three more countries displaying a slightly lessclear distinction. Such information could influence decisions as to where to outsource production when targeting specific markets or where to buy-in components and subassemblies. Analysis of the first strand of the research revealed that there were general similarities between three groups; Denmark, Germany and Italy; South Korea, Japan and China; USA, France, UK and Spain. However, within the first two groups there were sufficient differences to be able to identify defining characteristics for each country regarding their style of furniture. But in the case of the third group the only discernable difference © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
1 2 2 1
1 4 1 4 3 1 1 1 1
was that French furniture tended to be very expensive. This is of value to design management in that it could provide a broad specification for targeting sales to specific markets, as proven by previous research that has shown that the country of origin of a product has a significant bearing on the consumer buying decision (Douglas & Nijssen, 2002; Suh, 2002). Denmark and Italy have for a long time been associated with furniture, and in the second strand of the research these two countries received the highest scores for furniture. Germany’s highest score was for automotive products – cars such as the Volkswagen Beetle became an icon of the late twentieth century; USA computers – the power of Microsoft, IBM, Hewlett Packard; Japan and South Korea electronics – the formers’ association with the Walkman, VCRs and televisions, and the latter with cheaper versions; France food and drink and automotive – fine wines, French as the language of food, the unique Citroen; UK medical – perhaps because of the notoriety of the National Health Service; but in all cases again product ranges that have traditionally
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Electronics Furniture
A
A
A J
Cars & Electronics Furniture
Cars & Electronics Furniture
J
B
J
B
B
I
C
I
C
I
C
H
D
H
D
H
D
G
E F Japan
G
G
E
E
F South Korea
F Germany
Figure 5. Comparisons Between Furniture and Representative Products Notes: A = Style (1 Classical to 10 Avant-garde) B = Decoration (1 Minimal to 10 Highly ornamental) C = Features (1 Few to 10 Many) D = Attention to detail (1 Perfection to 10 Many errors) E = Functionality (1 Simplicity to 10 Over-engineered) F = Solidness (1 Solid to 10 Flexible) G = Material (1 Innovative to 10 Traditional) H = Colour (1 Subtle to 10 Garish) I = Originality (1 Unknown to 10 Plagiarized) J = Price to customer (1 Very expensive to 10 Inexpensive) been associated with each country. As Kelley (2001) pointed out, countries that have a long heritage of producing a particular product will always be associated with that product. However, a long tradition does not fit in with China, which as a country has only recently opened up to modern production methods. Why then this preference for associating electronics with China? Could it be as Kelley (2001) pointed out – that it is only new products that can break away from traditional associations or in the case of China the willingness to take up new production methods? Conversely, could this explain why Spain appears to have no clear or distinct national product characteristics – it is not associated with any breakthrough products? Such observations highlight the wider implications for individual countries, as governments intent on improving national economies would be inclined to alter how their nations are perceived by channelling monies into encouraging breakthrough products or through the use of new production methods to create a new set of national product design characteristics.
Conclusions The results of this study demonstrate the diversity of multinational markets, reinforcing
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the opinion of Aldersey-Williams (1992), who suggests that national and regional character will not be eradicated in the near future. It has demonstrated how UK design professionals perceive products from a national perspective, taking into consideration a structured set of characteristics. The results of this pilot study into national key product characteristics has serious implications for management within businesses involved in product design because it suggests that; national characterists are recognized for furniture; that in some cases national characterists are recognized across product types; and that specific product sectors are associated with most of the countries. The limitations of this pilot study research have been stated regarding the small sample size, that is, the findings reported in this paper should be viewed as tentative. However, the findings do provide an interesting insight into the area of national identities and key product design characteristics as perceived by UK design professionals, and consequently offer the basis for further in-depth multinational research. The decision to select furniture was based on its longevity in design history and also familiarity to designers. However, as noted by Kelley (2001), furniture’s longevity means that it may be stereotyped as representative of certain countries. © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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Leaving the product category open for suggestion in the second half of the questionnaire provided an opportunity to consider which products were seen to be representative of a nation, and although this showed that many countries are associated with specific product sectors, others are less so, notably the USA, UK and France, while Spain has no clear product sector. The fact that Spain revealed no true key product characteristics based on the ten tested in this pilot study, and to a lesser degree USA, UK and France, could be a result of the limited range of characteristics tested. To ascertain if this is the case a wider, more diverse and detailed selection of characteristics, which builds on previous research findings by other authors as well as the research reported in this paper, needs to be conducted. Targeting a considerably larger sample population would also help to validate the findings.
References Aldersey-Williams, H. (1992) World Design: Nationalism and Globalism in Design. Rizzoli International Publications. Aynsley, J. (1993) Nationalism and Internationalism: Design in the Twentieth Century, Victoria and Albert Museum, London. Balabanis, G. and Diamantopopoulos, A. (2004) Domestic country bias, country-of-origin effects, and consumer ethnocentrism: A multidimensional unfolding approach. Journal of the Academy of Marketing Science. Chan, C-S. (2000) Can style be measured? Design Studies, 21, 277–91. Chao, P. (1998) Impact of country-of-origin dimensions on product quality and design quality perceptions. Journal of Business Research, 42, 1–6. Chen, K. and Owen, C. (1997) Form language and style description. Design Studies, 18, 249–74. Cheron, E., Hayashi, H. and Sugimoto, T. (1990) Contrasting country and product images of Japanese and Canadian consumers and the effect of ethnocentrism, Centre de Recherce en Gestion, University of Quebec, Quebec.
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de Souza, M. and de Jean, P-H. (2000) Cultural Influence on Design. IWIPS 2000 proceedings, University of Technology of Compiegne, France., Baltimore, Maryland, July. Douglas, S. and Nijssen, E.J. (2002) On The Use Of ‘Borrowed’ Scales In Cross-National Research: A Cautionary Note. New York University, New York. Doyle, P., Saunders, J. and Wong, V. (1992) Competition in global markets: a case study of American and Japanese competition in the British market. Journal of International Business Studies, 23, 419–42. Harel, D. and Prabhu, G. (1990) Designing for other cultures: A strategic approach. Design Management Journal, Fall, 60–68. Hsu, S., Chuang, M. and Chang, C. (2000) A semantic differential study of designers’ & users’ product form perception. International Journal of Industrial Ergonomics, 25, 375–91. Keillor, B.D. and Hult, G.T.M. (1999) A five-country study of national identity: Implications for international marketing research and practice. International Marketing Review, 61, 65–82. Kelley, T. (2001) The Art of Innovation. Harper Collins Business, London. Nagashima, A. (1970) A comparison of Japanese and US attitudes towards foreign products. Journal of Marketing, 34, 68–74. Nagashima, A. (1977) A comparative ‘made in’ product image survey among Japanese Businessmen. Journal of Marketing, 41, 95–100. National Characteristics of Design exhibition catalogue (1985) Boilerhouse project. Victoria and Albert Museum, London. Roberts, M. (2001) Border Crossing: The Role of Design Research in International Product Development. Institute of Design at the Illinois Institute of Technology. Shimp, T.A. and Sharma, S. (1987) Consumer ethnocentrism: Construction and validation of the CETSCALE. Journal of Marketing Research, 27, 280–89. Sparke, P. (1987) Design in Context. Book Sales. Suh, T. and Kwon, I. (2002) Globalisation and reluctant buyers. International Marketing Review, 19, 663–80. Verganti, R. (2003) Design as brokering of languages: Innovation strategies in Italian firms. Design Management Journal, Summer, 34–42.
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Kelly Dawson (kdawson@designreality. co.uk) is Research Assistant investigating national and international product design characteristics at the National Centre for Product Design & Development Research (PDR), Cardiff, UK. She is currently product designer for Design Reality, St. Asaph, North Wales, UK. Povl Larsen (
[email protected]) is Senior Research Officer in design and innovation management at the National Centre for Product Design & Development Research (PDR), Cardiff, UK. His research interests cover barriers to innovation, design management, decision support systems, smart clothes and wearable technology. He is also active in research into design and management accounting processes in medium-sized enterprises. He has published over 30 papers in these areas and in related fields. Gavin Cawood (gcawood@designwales. org.uk) is currently the Senior Advisor/ Programme Manager for Design Wales, Cardiff, UK. In developing research outcomes and exploring best practice Design Wales is also lead partner on an Interregfunded network of six design support organizations across Europe over the next three years (http://www.seedesign.org). After graduating with a degree in industrial design, Gavin started his career as a consultant working for organizsations as diverse as Marconi and the Early Learning Centre. Prior to his current work in Wales, he was lead industrial designer for Xerox Europe, during which time he gained an MBA. Alan Lewis (
[email protected]) is Director of the National Centre for Product Design & Development Research (PDR), Cardiff, UK. He was one of the founders of PDR and has worked with many companies in a variety of industry sectors, helping them to improve their product development processes. He has a particular knowledge of the SME sector of the economy and has published extensively on product development within this sector. His current research interests include product design management and international approaches to the provision of design support mechanisms. He has published more than 60 papers in these areas and in related fields.
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Positive Illusions and New Venture Creation: Conceptual Issues and An Empirical Illustration Geir Grundvåg Ottesen and Kjell Grønhaug This paper discusses the nature and role of positive illusions in the exploitation of new ideas and innovation leading to the development of new enterprises and industries. Positive illusions imply misperceptions of oneself and the environment that can lead to faulty investments and bankruptcies. However, without the optimistic misperceptions of one’s own abilities and opportunities that positive illusions imply, little or nothing would happen. Thus, illusions that lead to initiative and commitment are crucial to create and exploit new innovations, even though venturing into new business areas always involves risk and potential failure. We discuss how entrepreneurs, public authorities, and the media might influence such illusions to stimulate innovative initiatives, as well as how entrepreneurs can adjust their misperceptions to avoid negative consequences without killing initiative. The paper is primarily conceptual and draws on insights from literatures such as cognitive psychology, strategy, management, and entrepreneurship. In our discussion we also utilise examples from blue mussel farming, which represents a potentially important innovation within the Norwegian aquaculture industry.
Introduction nnovations resulting in the development of new companies and industries are essential for wealth creation in society. For example, new firms create new jobs, providing wages and exciting work challenges. New ventures may also yield profit for owners and investors, which may enhance their ability and willingness to invest in new business ideas and innovations. Profitable new firms also contribute taxes from owners and employees that can be applied for the good of society. It is, however, well known that starting new businesses is risky. Many new companies fail, and the rate of bankruptcies is considerably higher for new companies than for those that have survived the first difficult years. The risks associated with starting new companies are particularly high in new or emerging industries (Aldrich & Fiol, 1994; Porter, 1980; Utterback, 1994). An important reason for this is that in a new industry, one hardly ever knows who is going to buy the new products and services and potential buyers will often have difficulty in evaluating the new products or services that
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are offered. It can also be difficult to know who the competitors will be and what production technology will be most efficient. Additional factors that make the start-up of new companies in emerging industries difficult and uncertain are that the initiative-takers often have limited financial resources, and that adequate knowledge and competencies are limited. In spite of high historical failure rates in almost any emerging industry, a common observation is that when a new industry ‘opens up’, large numbers of entrepreneurs, venture capitalists, consultants and others are attracted (Utterback, 1994). A good example of this is the numerous start-ups of so called dot.com companies (Shapiro & Varian, 1999). In many ways, this behaviour can be compared with participating in a lottery because in most new industries there will only be a few winners, and it is often impossible, a priori, to predict who the winners will be (Camerer & Lovallo, 1999). How then can such seemingly irrational behaviour be explained? It seems as though many are driven by unrealistic expectations about the future prospects of their
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ventures. For example, Pinfold (2001) found among a sample of new companies (n = 548) in New Zealand that they believed the chance of failing was half the historical failure rate. The same informants also estimated their own future earnings to be considerably higher than achieved earnings in established companies. This indicates that many of these informants are wrong about their future performance. Such tendencies to over-optimistic expectations about the future characterize most human beings (Taylor, 1989; Taylor & Brown, 1988) and seem to lead to overconfidence among entrepreneurs and others involved in utilizing new business ideas and innovations (Bazerman, 1998; Camerer & Lovallo, 1999; Lavallo & Kahneman, 2003). But how are such misperceptions created – and given that they might lead to mistaken start-ups – can (or should) they be avoided? These questions are important because insights into overconfident venturing may lead to reflections about the role and consequences of over-optimism in terms of facilitating the creation of new businesses and industries. In order to shed light on this problem, we follow Baron’s (2004) recommendation to draw on perspectives from cognitive science in order to improve our understanding of entrepreneurial phenomena. More specifically, a stream of literature that has specifically addressed ‘positive illusions’ seems useful (Taylor, 1989). Basic findings from this literature demonstrate that people have a tendency to perceive themselves, their surroundings and the future in a more positive light than what the ‘objective’ reality would indicate. This implies that positive illusions involve erroneous perceptions of oneself and the environment. In the literature on entrepreneurship and decision-making, negative consequences of positive illusions are often focused on. For example, Bazerman, in his discussion of positive illusions and entrepreneurs, points out that: ‘People lose their money investing their life savings in new businesses with little chance of success’ (1998, p. 98). However, at the same time, positive illusions are important. If all uncertain situations had to be ‘analysed to death’, nothing would happen because ‘reality’ would take on such a gloomy and brutal appearance that few or none would dare to invest (Bazerman, 1998; Busenitz & Barney, 1997; Zacharakis & Shepherd, 2001). In addition, positive illusions give rise to a go-ahead spirit and overconfidence that can lead to success even in new and uncertain business areas (Bazerman, 1998). In this article, we discuss how positive illusions arise and what importance they have for the establishment of new companies and
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industries. We also address how different market actors such as entrepreneurs, public authorities, financial institutions, researchers, and the media contribute to over-optimism in emerging industries. Furthermore, we discuss how entrepreneurs might try to adjust their perceptions without losing their initiative. Throughout the article we draw on examples from the Norwegian aquaculture industry, where the farming of blue mussels and other marine species represents innovations that many have had much faith in. The remainder of the article is organized as follows. In the next section, we discuss the nature of positive illusions. We then discuss how different types of actors involved in industry creation contribute to over-optimism and positive illusions. After that we discuss whether and how entrepreneurs can learn and thus adjust their misperceptions. Lastly, we draw conclusions and discuss their implications.
Positive Illusions It is well established that human information processing is incomplete. This relates to the limits of our cognitive capacity, including our limited capacity to notice, interpret, store and make use of data (Simon, 1957). In order to cope with an excess of data, humans take a range of shortcuts when processing information. An important point is that these strategies tend to be applied subconsciously and are influenced by prior knowledge and selfserving interpretations, which often lead to erroneous perceptions (Bazerman, 1998; Fiske & Taylor, 1991; Tversky & Kahneman, 1974). When such errors or biases show an enduring and systematic pattern that assumes a particular direction they are termed ‘illusions’ (Taylor & Brown, 1988). Here we are concerned with illusions that assume a positive and often self-serving direction, which have been labelled ‘positive illusions’ (Taylor & Brown, 1988). According to Bazerman (1998), positive illusions can be divided into four main categories: (1) an unrealistically positive view of oneself, (2) unrealistic optimism, (3) an illusion of having control and (4) self-serving attribution. An unrealistically positive view of oneself reflects a tendency to consider oneself better than others in a number of desired areas, which involves unrealistically positive perceptions of one’s own abilities and qualities. Taylor (1989) reported, for example, that students expect that they – to a much greater extent than what the realities would indicate – will be among the best in their class, get a good job with high pay, be satisfied in their job, give birth to © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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gifted children and so on. Unrealistic optimism involves erroneous perceptions that the future will be better and brighter for oneself than for others. Pinfold’s (2001) study of New Zealand firms illustrates this. The illusion of being in control reflects the belief that uncontrollable events can be controlled and that one’s own actions will have a certain outcome. Self-serving attribution involves trying to explain and understand the causes of an event. In such explanations, success is usually ascribed to internal conditions such as one’s own decisions, while responsibility for failure is ascribed to outside, uncontrollable causes (Clapham & Schwenk, 1991). Self-serving attribution increases the confidence one has in one’s own abilities, which enhances the propensity to embark on new risky businesses. An important point is that highly uncertain situations, such as starting a new business in a new area, leave much room for misinterpretation. This is so because in uncertain situations, the perceiver’s prior knowledge and expectations influence perception to a much larger extent than in unambiguous situations where the meaning is clear to most people (Bunderson & Sutcliffe, 1995). Interestingly, entrepreneurs seem to have more positively biased knowledge structures than nonentrepreneurs have. This is demonstrated by research showing that entrepreneurs tend to categorize business situations in a more positive way than non-entrepreneurs (Palich & Bagby, 1995). In addition, Lovallo and Kahneman (2003) argue that entrepreneurs typically ignore the results of similar situations that might shed light on their current efforts.
An Empirical Illustration In recent years, a large number of Norwegian companies have started farming blue mussels and other marine species. These firms face many of the uncertainties usually associated with start-ups in emerging industries (see for example, Porter, 1980). Preliminary figures for sales volume and profits show rather negative tendencies. For example, only one out of several hundred companies within the bluemussel farming sector in Norway reported a profit in 2002. Nonetheless, many new mussel farmers appear to be very optimistic. A good example is the company Norshell AS, which has been one of the largest and most highly profiled blue-mussel companies during the past five or six years. Two former ministers of fisheries and thus presumably experts and authorities in the seafood industry, Jan Henry T. Olsen and Otto Gregusson, contributed to the company’s visibility and growth. Olsen © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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was Chairman of the Board and Gregusson Managing Director (before he was appointed Minister of Fisheries in 2000). In a full-page advertising supplement in Norway’s main business newspaper (Dagens Næringsliv) on 7 August 2001, it is argued that the European mussel market is very large and that there are good opportunities for Norwegian blue-mussel companies. Furthermore, Norshell claims that in 2005, they will produce 45,000 tonnes of mussels at a value of NOK 560 million. The company also claims that: ‘Such a development will bring Norshell from today’s deficit to a solid annual profit of NOK 100–120 million’, which implies an operating margin of more than 20 percent. It is difficult to evaluate a prognosis for future sales, but the figures that are given seem unrealistic. For example: Norwegian exports of blue mussels from all Norwegian suppliers in 2001 totalled 343 tonnes (the domestic market is very small). This indicates that a production of 45,000 tonnes is an unrealistic goal for one company even if it has four years in which to accomplish it. It also seems rather optimistic to expect an operating margin of more than 20 percent for a relatively young company (Norshell AS was founded on 31 January 1997) in a new field in an industry characterized by a high degree of uncertainty. In 2001, the company had a deficit of more than NOK 25 million. Another part of the story is that in autumn 2002, Norshell AS was converted to a holding company with minimum activity. In retrospect, it is easy to see that the management of Norshell was influenced by positive illusions. For example, the management seems to have overestimated the company’s ability to control uncontrollable factors, as there were long periods when the company was prevented from harvesting mussels because of algae toxins. In the advertising supplement, Managing Director Fridrik Sigurdsson was quoted as saying: ‘We must have better control over conditions in the sea so that we can avoid this problem’. Uncertainty caused by natural conditions is, however, difficult – if not impossible – to take control of (see for example, Prochaska, 1984; Sutcliffe & Zaheer, 1998). Almost every mussel farmer in Norway faces problems associated with algae toxins. That Norshell’s management thought they would be able to control this situation indicates an unrealistically positive view of themselves in relation to other farmers. When the company failed they ascribed this mainly to outside causes (that is, algae toxins), displaying self-serving attribution. In light of their claims about future opportunities and poor results, Norshell also seems to have been overly optimistic about their future prospects.
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It must be pointed out that Norshell in no way represents a unique case within blue-mussel farming or other unrelated emerging industries – just think of the views associated with investments in the many dot.com companies that later went bankrupt. From the above discussion and illustration one may easily get the impression that positive illusions are only negative. But as argued at the outset, positive illusions also have positive consequences for individuals, new companies and the emergence of new industries. This mainly relates to the go-ahead spirit and overconfidence that positive illusions give rise to. In other words, when their own abilities and the environment are perceived unrealistically positively, entrepreneurs may take on and tackle very risky businesses with an enthusiasm, commitment and self-confidence that can lead to success (Bazerman, 1998; Busenitz & Barney, 1997; Dutton, 1993). Because of the crucial role positive illusions play in exploiting new ideas and innovations, it is relevant to understand how such illusions are created. In the next section we discuss how entrepreneurs, public authorities and other actors involved in industry creation contribute to positive illusions and over-optimism.
The Creation of Positive Illusions In new areas, new companies need to attain ‘legitimacy’, that is to show that they can fulfil their obligations and deliver what they promise. Legitimacy is important to new ventures because it improves access to resources (Zimmerman & Zeitz, 2002). For new actors, it is also necessary to mobilize and procure the various types of resources they need, for example, capital from venture capitalists or financial institutions. The Norshell case demonstrates how a company tried to influence positively others’ perceptions of market opportunities and itself. This indicates that attaining legitimacy and mobilizing resources are perceived more easily when firms and market opportunities are perceived positively. But the information provided might not be completely correct, as the Norshell case shows. In fact, it has been convincingly argued that firms compete for attention and positive perceptions by providing selfserving and distorted information (Rindova & Fombrun, 1999). Similarly, venture capitalists, consultants, researchers and others that may benefit from new initiatives in new areas are also likely to contribute with positively laden information because they see new markets for what they have to offer. The result is a stream of positive information
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about specific firms and market opportunities. In new areas, where existing knowledge about opportunities is limited, such information will be difficult to verify. But, importantly, entrepreneurs will – as other human beings – tend to seek information supporting and justifying their actions, while ignoring disconfirming evidence (Bazerman, 1998). This implies that positive information will be discovered easily. Public authorities can also actively contribute to creating optimism around new and desired areas through signalling activities. Signalling activities are typically used to effectively communicate intentions, motives and goals (Herbig, 1996). For example, by offering product warranties and money-back guarantees, business firms send a signal that their products are of high quality. The authorities can also do this by means of specific support schemes to signal desired business areas. They can also direct attention towards areas of current interest through publication of commissioned studies, reports and press releases. For example, the Research Council of Norway actively tries to set the agenda for entrepreneurial activity by allocating funds and stimulating research and development within preferred areas such as marine biotechnology and marine farming. A good example is the report The Marine Adventure (NFR, 2000), which begins with the following sentence: ‘The Research Council of Norway is convinced that the marine sector will be more important for Norway’s economic, social and industrial life in the year 2020 than it is today’ (p. 3). And: ‘The report is no sweeping analysis . . . But a report like this can set one’s imagination going’ (p. 3). This suggests that a conscious attitude towards – and belief that – creating optimism and attention in desired areas is important for new business activity. This contributes to the stream of positively laden information about opportunities within specific areas. The media also play an important role in creating optimism. This is particularly because of the media’s role in agenda-setting. What the media focuses on attracts attention, while other factors are ignored (Hilgartner & Bosk, 1988). An interesting example is that the news profile around new marine farming initiatives has been very positive in recent years. For example, the front page of a recent issue of The Economist (August 9–15 2003) has the headline ‘Blue revolution: the promise of fish farming’ and contains a special report that is very positive regarding the future prospects of fish farming. In Norway, the trade and business press has been full of articles and news regarding new fish-farming initiatives. Here, farming © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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of cod, halibut, blue mussels and many other more or less unknown species has often been portrayed as an industry sector that will virtually grow ‘up to the sky’. It has been difficult to find information in the media that challenges this view. The media can also be a spokesman for actors trying to benefit from media attention and a positive presentation of opportunities and their own ventures, as illustrated by the Norshell advertisement described above. Individual actors can also contact appropriate news media and present ready-to-print stories. This is the essence of public relations (see for example, Wilcox, 1997). A final factor that can contribute to positive illusions in emerging industries is that entrepreneurs, because of their shared interests and similarity in identity, will often become members of groups or communities (Fiol & O’Connor, 2002). And importantly, groups are susceptible to group thinking (Janis, 1972). A distinctive feature of group thinking is ‘oneeyedness’ and an absence of critical voices, which means that overly optimistic forecasts or other positive illusions fall on fertile ground, as they will not be scrutinised. For example, Bazerman (1998) points out that the tendency to attribute positive results to oneself and negative results to external factors (that is, self-serving attribution) not only applies to individuals, but also to the group to which the individual belongs. In this way, individuals can erroneously believe that members of their group are better in a number of areas than individuals who do not belong to the group, which creates fruitful ground for group thinking. Tendencies toward group thinking can, for instance, find expression when the members of the group meet. For example, in recent years it has become very popular to establish ‘networks’ with the objective of bringing together entrepreneurs, public authorities and various resource providers (for example, researchers and suppliers) so that their interests can become known and participants can share experiences and learn from each other. In Norway, the authorities have contributed to such networks within new marine farming initiatives. Our own observations at such gatherings show that such meetings can be very useful in a number of ways (for example, discussions of experiences of different production technologies) but also that the actors who meet look very positively on their own and their group’s abilities and future prospects. And importantly, there are few critical voices – and those who are critical are met with scepticism and soon forgotten. In this way, a milieu is created where positive illusions will flourish. © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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Can Failures because of Positive Illusions be Reduced without Killing Initiative? Positive illusions are important because they lead to many start-ups. But at the same time, the erroneous beliefs in opportunities and overconfidence explain many failures, which prompts the following question: ‘Can failure rates because of positive illusions be reduced without killing initiative?’. Adjusting over-optimistic perceptions of opportunities and abilities to better fit with reality requires that individuals develop new understanding, that is, that they learn. An important aspect of learning is unlearning, which involves questioning and changing established beliefs (Hedberg, 1981). This seems particularly relevant to entrepreneurs who base their actions on more or less erroneous grounds. However, unlearning is inherently difficult and may benefit from inputs from outside. For example, Lovallo and Kahneman (2003) argue that the only way to avoid cognitive biases and to get some realism into planning is to take ‘the outside view’. More specifically, the authors suggest that planners identify a reference class of analogous past initiatives, determine the outcomes of these and compare them with their current project. The authors then suggest five specific steps in organizing this. We agree with Lovallo and Kahneman (2003) that this is probably the only way to dramatically reduce cognitive biases, but because of the high failure rate displayed in most new (comparable) areas, we may question whether this strategy represents too strong a reality check as it might simply kill initiative. We believe that initiative-takers can adjust or calibrate their initial misperceptions, for example about market opportunities and their own abilities in several other ways. For example, in a study of new companies in the emerging Norwegian blue mussel industry, Ottesen and Grønhaug (2004) found that blue mussel farmers with little or no sales and market experience perceived market opportunities in a much more naïve and positive way than was the case for the more experienced actors. The experienced managers also reported that objectives and activities had been adjusted substantially to fit the new ‘reality’. This indicates that the more experienced farmers had acquired new insights regarding opportunities and their own abilities. The more experienced mussel farmers claimed that they soon discovered that it was not easy to sell their products at the sort of prices they had expected when they started. They also explained that direct
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personal contact with customers had been useful in terms of gaining new insights about the market. This indicates that, through experience and listening carefully to outsiders with complementary knowledge, new and seemingly more useful interpretations of reality can be adopted. It also indicates a willingness to scrutinize one’s own beliefs, an ability that is regarded as crucial for adjusting erroneous perceptions (Mezias & Starbuck, 2003). Various ‘experts’ offering advice and raising critical voices often surround entrepreneurs entering new areas. They may be other managers operating in the same or unrelated industries, researchers, consultants, trade organizations, public authorities, venture capitalists and others involved in industry creation. When such experts hold complementary insights their advice can be valuable. Gaining from such inputs is, however, challenging. As noted above, groups of entrepreneurs can be susceptible to group thinking, which implies that critical voices offering alternative interpretations of reality are often ignored (Janis, 1972). In addition, because entrepreneurs are often strongly committed to their new ideas and ventures (cf. Staw, 1981), and because they tend to be overconfident, their efforts are likely to be based on strong beliefs, which are difficult to change. Because of their high stakes and strong beliefs, they might, if their thinking and behaviour are challenged, become charged with emotion (Wilder & Simon, 1996). This tendency can be strengthened by the relatively ‘cold’ assessments often provided by outsiders (Weigelt & Camerer, 1988). This collision between hot and cold represents a substantial learning barrier (Fiol & O’Connor, 2002). An important step in overcoming these learning barriers relates to how both entrepreneurs and experts ‘frame’ their viewpoints. ‘“Framing” refers to the way people construct their argument or viewpoint, regardless of its content’ (Fiol, 1994, p. 405). In particular, the rigidity or degree of certainty conveyed in communication indicates how fixed a position is. Degree of certainty sends a strong signal about how open a person is to change (Fiol, 1994). Entrepreneurs are often overconfident, which may lead to rigid framing of communication. This does not invite an open dialogue where alternative interpretations can be scrutinized. This can, however, be achieved if they can express their plans and viewpoints with less certainty, so as to indicate a less-fixed position and openness to alternative interpretations. Similarly, outside experts enhance their chances of being heard if they are less rigid and ‘cold’ in their advice. Thus, if both parties are less rigid in their framing, this paves the
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way for achieving good communication in which new interpretations of reality can be scrutinized in a positive learning atmosphere, without killing initiatives. But this also requires that both parties adopt a learning orientation, that is, a willingness to question and change established beliefs (Baker & Sinkula, 1999; Sinkula, Baker & Noordewier, 1997). A learning orientation could, for instance, be reflected in a willingness to invite outside experts to give advice and to seriously consider what they have to say.
Conclusion Our discussion leads to the somewhat controversial conclusion that positive illusions are required for the pursuit and exploitation of new ideas and innovations leading to development of new ventures and industries. This is controversial because the normative implication is that public authorities and others that have an interest in industry creation should actively try to create positive illusions among entrepreneurs, venture capitalists and others involved – with the very likely consequence that many of these will fail. Because venturing into new business areas is highly uncertain, failure rates cannot be reduced to zero and positive illusions are, we believe, required to exploit new innovations. In our opinion, it is necessary to preserve optimism and go-ahead spirit, but still be open to objections and critical voices. In this way, one can hopefully preserve much of the optimism and at the same time reduce ‘headless’ venturing. We believe that much can be gained if entrepreneurs, public authorities and others involved in industry creation understand the nature and consequences of positive illusions for business venturing, including how they themselves both influence and are influenced by such illusions. This paper aims to contribute to such an understanding by explaining the nature and role of positive illusions for entrepreneurial activity in new areas. Authorities and others can use their understanding of positive illusions to promote or create optimism and confident entrepreneurs willing to embark on new ventures within new and uncertain business areas. At the same time, understanding positive illusions will also make it easier for entrepreneurs to challenge over-optimistic perceptions about opportunities and their own abilities to get a more balanced view of reality. We also believe that much can be accomplished by creating opportunities for initiativetakers and outsiders with complementary insights to meet in a climate that contributes to © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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productive and open dialogue to discuss ideas and plans for new ventures. Instead of focusing on cold realities only, and thus acting as initiative-killers, outsiders should take part in creative teams with initiative-takers where the goal should be to refine business venturing ideas, develop action plans, and improve the realization of ventures. In sum, we believe that environments and opportunities that bring together people with common interests and complementary knowledge are important because different insights and opinions can be brought into the open in order to hinder group thinking and to develop new and successful ventures – in the interests of entrepreneurs and other actors involved – and wealth creation in society.
Reference Aldrich, H. and Fiol, M.C. (1994) Fools rush in? The institutional context of industry creation. Academy of Management Review, 19(4), 645–70. Baker, W.E. and Sinkula, J.M. (1999) The synergistic effect of market orientation and learning orientation on organizational performance. Journal of the Academy of Marketing Science, 27(4), 411–27. Baron, R.A. (2004) Editorial: Potential benefits of the cognitive perspective: expanding entrepreneurship’s array of conceptual tools. Journal of Business Venturing, 19(2), 1–4. Bazerman, M.H. (1998) Judgement in Managerial Decision Making. John Wiley & Sons, New York. Bunderson, J.S. and Sutcliffe, K.M. (1995) Work history and selective perception: fine-tuning what we know. Academy of Management: Best Paper Proceedings, 459–63. Busenitz, L.W. and Barney, J.B. (1997) Differences between entrepreneurs and managers in large organizations: biases and heuristics in strategic decision-making. Journal of Business Venturing, 12(1), 9–30. Camerer, C. and Lovallo, D. (1999) Overconfidence and excess entry: an experimental approach. American Economic Review, 89(1), 306–18. Clapham, S.E. and Schwenk, C.R. (1991) Selfserving attributions, managerial cognition, and company performance. Strategic Management Journal, 12(3), 219–29. Dutton, J.E. (1993) The making of organizational opportunities: an interpretive pathway to organizational change. Research in Organizational Behavior, 15, 195–226. Fiol, M. (1994) Consensus, diversity, and learning in organizations. Organization Science, 5(3), 403– 19. Fiol, M.C. and O’Connor, E.J. (2002) When hot and cold collide in radical change processes: lessons from community development. Organization Science, 13(5), 532–46. Fiske, S.T. and Taylor, S.E. (1991). Social Cognition. McGraw-Hill, New York. Hedberg, B. (1981) How organizations learn and unlearn. In Nystrom, P.C. and Starbuck, W.H. © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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(eds.) Handbook of Organizational Design. Oxford University Press, Oxford pp. 3–27. Herbig, P. (1996) Market signalling: a review. Management Decision, 34(1), 35–45. Hilgartner, S. and Bosk, C.L. (1988) The rise and fall of social problems: a public arenas model. American Journal of Sociology, 94(1), 53–78. Janis, I.L. (1972) Victims of Groupthink: A Psychological Study of Foreign-Policy Decisions and Fiascoes. Houghton Mifflin, Boston. Lovallo, D. and Kahneman, D. (2003) Delusions of success: how optimism undermines executives’ decisions. Harvard Business Review, 81(7), 56–63. Mezias, J.M. and Starbuck, W.H. (2003) What do managers know, anyway? A lot less than they think. But now, the good news. Harvard Business Review, 81(5), 16–17. NFR (2000) Det maringe eventyret. Del 1: Veien til visjonen. Oslo: Norges forskningsråd. Ottesen, G.G. and Grønhaug, K. (2004) Perceived opportunities and pursued strategies in an emerging industry: the case of Norwegian blue mussel farming. Aquaculture Economics and Management, 8(1/2), 19–40. Palich, L.E. and Bagby, D.R. (1995) Using cognitive theory to explain entrepreneurial risk-taking: challenging conventional wisdom. Journal of Business Venturing, 10(6), 425–38. Pinfold, J.F. (2001) The expectations of new business founders: the New Zealand case. Journal of Small Business Management, 39(3), 279–85. Porter, M.E. (1980) Competitive Strategy. The Free Press, New York. Prochaska, F.J. (1984) Principal types of uncertainty in seafood processing and marketing. Marine Resource Economics, 1(1), 51–66. Rindova, V.P. and Fombrun, C.J. (1999) Constructing competitive advantage: the role of firm – constituent interactions. Strategic Management Journal, 20(8), 691–710. Shapiro, C. and Varian, H.R. (1999) Information Rules. Harvard Business School Press, Boston. Simon, H.A. (1957) Models of Man: Social and Rational. Wiley, New York. Sinkula, J.M., Baker, W.E. and Noordewier, T. (1997) A framework for market-based organizational learning: linking values, knowledge, and behaviour. Journal of the Academy of Marketing Science, 25(4), 305–18. Staw, B.M. (1981) The escalation of commitment to a course of action. Academy of Management Review, 6(4), 577–87. Sutcliffe, K.M. and Zaheer, A. (1998) Uncertainty in the transaction environment: an empirical test. Strategic Management Journal, 19(1), 1–23. Taylor, S.E. (1989) Positive Illusions: Creative SelfDeception and the Healthy Mind. Basic Books, New York. Taylor, S.E. and Brown, J.D. (1988) Illusion and well-being: a social psychological perspective on mental health. Psychological Bulletin, 103(2), 193– 210. Tversky, A. and Kahneman, D. (1974) Judgement under uncertainty: heuristics and biases. Science, 27, 1124–31. Utterback, J.M. (1994) Mastering the Dynamics of Innovation. Harvard University Press, Boston.
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Weigelt, K. and Camerer, C. (1988) Reputation and corporate strategy: a review of recent theory and applications. Strategic Management Journal, 9(5), 443–54. Wilcox, D.L. (1997) Public Relations Writing and Media Techniques. Longman, New York. Wilder, D.A. and Simon, A.F. (1996) Incidental and integral affect as triggers of stereotyping. In Sorrentino, R.M. and Higgins, E.T. (eds.), Handbook of Motivation and Cognition: The Interpersonal Context. Guilford Press, New York pp. 397–419. Zacharakis, A.L. and Shepherd, D.A. (2001) The nature of information and overconfidence on venture capitalists’ decision making. Journal of Business Venturing, 16(4), 311–32. Zimmerman, M.A. and Zeitz, G.J. (2002) Beyond survival: achieving new venture growth by building legitimacy. Academy of Management Review, 27(3), 414–31.
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Geir Ottesen is Senior Researcher at the Department of Strategy, Economics and Marketing at the Norwegian Institute of Fisheries and Aquaculture Research, Norway. He received his doctorate from the University of Tromsø. His research interests include market orientation, marketing knowledge development and use, and new product development. His work has been published in a number of journals. Kjell Gronhaug is Professor of Business Administration at the Norwegian School of Economics and Business Administration. His present research interests relate to knowledge creation and use, marketing strategies in emergent industries and turbulent markets, and methodological issues. His publications include more than 200 articles in leading European and American journals, multiple contributions in conference proceedings, and 17 authored and coauthored books.
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Organizational Design for Enhancing the Impact of Incremental Innovations: A Qualitative Analysis of Innovative Cases in the Context of a Developing Economy Mathew J. Manimala, P.D. Jose and K. Raju Thomas Research literature on innovation in established firms has made a useful distinction between radical innovation and incremental innovation and identified the organizational features associated with each. An implied assumption of many such studies is that radical innovations (compared to incremental) would have a greater impact on the organization as well as the economy. While this is generally true, it is incorrect to assume that all incremental innovations could be uniformly categorized as low-impact innovations. In a study of 31 cases of innovation implemented in large corporations in India, it was observed that though all of them could be classified as ‘incremental’, their impact varied considerably. A combined index for assessing the impact based on the novelty of the idea, revenues generated/costs saved, dissemination within and outside the organization, extent of commercialization and patentability, was used to categorize the innovations into high impact (HI) and low impact (LI) groups. The analysis of the two groups was qualitative and was based on the detailed case studies prepared through extensive interviews of people involved in the projects. Inferences from the comparative analysis are explained under six sub-themes that emerged as important in differentiating between low and high impact innovations, namely: individual versus team action; the top management support; the role of the immediate supervisor; rewards, recognition and incentives; focus on core versus non core areas; and documenting and patenting practices. An important factor that enhances the impact of innovations is that organizations should have a deliberate innovation strategy and corresponding organizational structures and processes. Coupled with the innovation strategy, organizations should also develop and implement a value appropriation strategy.
Introduction he concept of innovation has established itself in the business literature for over seven decades, starting with Schumpeter (1934), who first proposed that firms survive and grow through innovations – the creation of temporary monopolies by creating new products and processes, creating/finding new markets, new supply sources and new types of industry organization. This was later extended to include other areas of innovation such as finance innovation, organizational innovation and boundary management innovation
T
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(Manimala, 1992). Following Schumpeter – who also distinguished between continuous and discontinuous changes and linked economic development only to discontinuous changes – other researchers have generally operated from the paradigm that radical innovations drive economic development. Radical innovations are said to involve revolutionary departures from existing technologies and practices (Duchesneau, Cohn & Dutton, 1979; Hage, 1980) and often alter industry structure by replacing incumbent firms (Henderson, 1993). In contrast incremental innovations involve minor changes in current technology,
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leading to increased process efficiencies and customer responsiveness. Radical innovations are appropriately called ‘competence destroying’ innovations as opposed to the ‘competence-enhancing’ nature of incremental innovations (Tushman & Anderson, 1986). Research literature on innovation in established firms has made a useful distinction between radical innovation and incremental innovation and identified the organizational features associated with each (see for example, McDermott & O’Connor, 2002; O’Connor & McDermott, 2004) even while others have challenged the distinction between radical and incremental innovation as hard and fast categories as flawed (Dewar & Dutton, 1986; Henderson & Clark, 1990). Recent research indicates that: (1) many established organizations achieve improved performance through continuous, small, incremental innovations (Gluck, 1985) and that incremental innovations are preferred by most established organizations as these are easier to implement within the operational constraints of the organization (Mezias & Glynn, 1993); (2) incremental innovations can substantially reduce the risks involved in innovations and often can cumulatively achieve the impact of a radical or breakthrough innovation (Palmer & Brookes, 2002); and (3) incremental innovations bring more than incremental returns and large market share when the firm is prepared to be the leader in those innovations (Banbury & Mitchell, 1995). Some themes in incremental innovation that have been explored recently include: environmental, organizational and process factors affecting incremental and radical innovations (Koberg, Detienne & Heppard, 2003); the focus of organizations on process management leading to efficiency improvements through incremental innovations (Benner & Tushman, 2002); differential impact of interdepartmental collaboration on radical and incremental innovations (Song & Swink, 2002); radical innovations being driven more by the technology champions and the environment as opposed to incremental innovations being driven more by customers (Veryzer, 1998); factors increasing the speed of radical innovations (e.g.: concept clarity, presence of champion and colocation) having the opposite effect on incremental innovations (Kessler & Chakrabarti, 1999); differential impact of contextual and structural factors (size of organization, environmental uncertainty, specialization, decentralization of decision-making and so on) on radical and incremental innovations (Germain, 1996); organizations’ criteria for choosing a radical or incremental product development strategy (Ali, Kalwani &
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Kovenock, 1993); factors facilitating innovations related to technology and processes involving a high degree of new knowledge versus social services innovations with a low degree of new knowledge (Dewar & Dutton, 1986); strategy and structure differences for radical and incremental innovations (Ettlie, Bridges & O’Keefe, 1984); organizational interventions like search methods, communities of practice and so on, and their differential impact on radical and incremental innovations (Kieser, 1974; Swan, Scarborough & Robertson 2002). The aim of this paper is to develop a deeper understanding of incremental innovations, especially in the context of a developing economy. The paradigm of this research rests on three key assumptions: (1) incremental innovations are an important source of change in organizations in developing economies as such innovations are easier to implement within the resource as well as operational constraints they face, (2) innovation is itself the cause of further innovations and the accumulated impact of incremental innovations would eventually develop a culture of innovation, generate access to key resources and create a competitive orientation, which would in turn lead to the creation of radical innovations, and (3) it is possible to design organizational structures and processes that will promote innovation cultures.
Methodology Given the exploratory nature of the present study, a case-study design was chosen for this research. The cases were selected from a single sector to control for extra-organizational factors. The petroleum sector in India became a convenient choice as they have a practice of documenting their innovations for the purpose of applying for external awards. While this documentation was inadequate for detailed organizational analysis, it gave an almost complete listing of innovations carried out in the sector in the last few years. The turnover of the firms studied ranged from US$ 730 million to US$ 27 billion, with the exception of a project consulting firm in the sector that had a turnover of about US$ 250 million. The core activity areas of these firms covered most steps along the petrochemical value chain from exploration to refining, marketing and project consulting. For this study, incremental innovations were defined as those that involved relatively low levels of uncertainty and involved modifying existing technology, focused on cost reduction or feature improvements in existing © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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production processes, products or management processes, and involved relatively low level of resource commitments when compared to the scale of the activities of the firm. In contrast, innovations that result in the creation of new lines of business, products or process improvements with unprecedented performance features; or those which fundamentally alter the industry structure and the basis of competition, are referred to as radical innovations. The case-sample was drawn from a list of successful innovations provided by the participating companies. A successful innovation was defined as a completed project, implemented in at least one location in the firm. These had also been identified as successful by the local managements who had forwarded them for inclusion in industry-level competitions. There were in all 165 such innovations carried out in six companies over a three-year time span. Of these, 31 projects – including 5 product, 23 process and 3 functional area innovations – were selected for further analysis. Data collection was carried out through structured interviews. The researchers visited innovation sites and interviewed three categories of respondents, namely: team members directly involved in the implementation of the projects; personnel from supporting/service departments; and members of the top management at the respective sites of the projects. In all, 400 people from over 20 locations were interviewed around a variety of themes and issues, as listed in Exhibit 1. The interview data were supplemented by secondary data from the internal documents and records. A qualitative analysis of the data indicated that there were considerable differences in the organizational, market-related and financial impacts in the selected cases. The sample was therefore suitable for investigating the organizational characteristics associated with highimpact and low-impact innovations. The overall impact of each innovation was then evaluated using a combined index based on five factors identified using a Delphi method. The factors used for evaluation were; the novelty of the idea, financial impact in terms of revenues generated/costs saved, level of dissemination within and outside the organization, degree of commercialization, and patenting potential. The final scores ranged from 5 to 33 out of a possible maximum of 50 points. In order to sharpen the contrast between the groups the sample was divided into three subgroups of approximately equal sizes, whereby a low impact group (LI) comprising 11 cases with scores less than 11 and a high impact group (HI) comprising 10 cases with scores © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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greater than 20 were identified. The middle group with scores ranging from 11 to 20 was excluded from the analysis.
Findings Our analysis of cases showed that all innovations under consideration were incremental, that is, they modified existing technology, focused on cost reduction or feature improvements in existing processes, products or functional areas, and employed low resources compared to the overall activities of the firm. Given that all the innovations in this study are incremental, all references to innovations in the following sections of this paper in fact refer to incremental innovations. The cases were further analysed in order to identify the organizational characteristics associated with highimpact and low-impact innovations. The two categories revealed some distinct characteristic features. A frequency count of such features and issues is given in Table 1. As with any similar research design using multiple case studies, the issues identified are representative only to the extent that they provide adequate inputs for developing organizational structures and systems, which in turn would help foster an innovation culture and increase the frequency and impact of innovations. As may be expected in a frequency count based on qualitative analysis, there were some overlaps among the items in Table 1. Similar items were therefore combined to create six dominant themes as basis for further discussion. In selecting these themes we were guided not only by the conceptual logic, but also by our experience of having intensely interacted with more than 400 employees. The six themes were: (1) individual versus team action, (2) top management support, (3) role of the immediate supervisor, (4) rewards, incentives and recognition, (5) focus on core versus non-core areas, and (6) documenting and patenting practices.
Individual versus Team Action A significant finding of the study related to the role played by individuals and teams in the innovation process. In the high impact group there were no cases of individual innovations, and the source of idea and the idea champion were clearly identifiable only in 30 percent of these cases. In contrast most innovations in the low-impact group were attributable to an individual or an idea champion. It appears that a team approach is a strongly facilitating condition for high-impact innovations, and determines the impact of an innovation
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Exhibit 1. Sub-themes and Issues Investigated in the Structured Interviews
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Source of the original idea
∑
Context of the original idea
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Champion(s) of idea development
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Time frame for implementation
∑
Stages in the implementation process
∑
Problems experienced at various stages
∑
Details of the project team
∑
Support from various levels of management
∑
Support from other departments in the organization
∑
Support from external agencies
∑
Adequacy of company infrastructure for innovation
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General response of the management to new ideas including the failed ideas
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Motivation for innovation
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Suitability of organizational structure, systems, processes, culture, etc. for innovation
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Dissemination of innovation within and outside the organization
∑
Recognition and rewards for innovators
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Organizational and individual resistance to innovation
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Documentation and reporting for internal/external dissemination
∑
Major facilitating factors and barriers to innovation
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Key lessons learnt from the experience
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Table 1. Salient Features/Characteristics of HI and LI Innovations: A Comparative Analysis Item
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21
HI (N = 10)
Characteristics/Features
Innovations in teams Direct involvement of top management Technology/process innovation Core area innovations Adequacy of rewards and recognition Dissemination in areas other than the area of origin. Cases from R&D divisions Adequacy of financial resources Documentation completed with easy traceability High investment (More than US$ 8,000) Top management driven Patented/applied/in the process Idea champion identifiable Failures adversely affecting innovators Innovations affected by lack of proper succession mechanism for carrying over Commercialized innovations with sustained new revenue generation. Procedural delays affecting innovation (bureaucracy) Role of immediate supervisor as a determining factor Individual innovations Management innovations (marketing) Innovation helping career growth
LI (N = 11)
Number
%
Number
%
10 10 10 10 9 9
100% 100% 100% 100% 90% 90%
5 2 6 5 4 2
45% 18% 55% 45% 36% 18%
9 8 8 7 7 6 3 3 2
90% 80% 80% 70% 70% 60% 30% 30% 20%
0 10 5 3 2 0 11 7 5
0% 91% 45% 27% 18% 0% 100% 64% 45%
2
20%
0
0%
2
20%
7
64%
1
10%
8
73%
0 0 0
0% 0% 0%
6 5 9
55% 45% 82%
HI – High Impact; LI – Low Impact
within as well as outside the organization. One respondent noted that ‘the innovation team is like a deck of playing cards; each one has a role to play and team work is crucial for transforming a raw idea through experiments towards implementation; the team should be a combination of people who are interested in basic research and people who can think commercially’. While team formation was considered essential, many participants also opined that small teams facilitated the innovation process better as a result of greater cohesiveness and reduced interpersonal conflicts among members. In the case of projects that required implementation support from other departments, some project leaders created multi-disciplinary teams drawing employees from different departments. In one instance, a team was constituted at the idea conceptualization stage © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
drawing representatives from marketing, sales, finance, projects, engineering, human resources, corporate communications and other support services. Each team member was expected to function as a bridge to his department and improve inter-departmental co-ordination. While team formation increases the probability of the innovation becoming successful it also aggravates issues related to credit attribution and lead to a noted lack of effort to recognize or award key contributors appropriately. The strong hierarchical culture in the firms also meant that formal lists of team members were prepared after the conclusion of the project, in many cases with the intention of including the names of senior managers. In the process the original contributors got sidelined, with names being added by virtue of their organizational position rather than contri-
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bution to the project. In most cases the contribution of service departments also went unacknowledged. Such instances caused heartburn among managers and demoralized the service departments, leading to their gradual disinterest in innovation projects as well as increased problems in inter-departmental collaboration. Paradoxically, the pain-points in team formation, namely including the names of senior managers, who did not contribute to the project, in the final team list or the inclusion of minor contributors as equal partners, were also mentioned as critical for enhancing the impact of innovations. The formally acknowledged presence of bosses as partners in innovation projects broad-based and enhanced internal acceptance, brought in influential supporters, and eliminated the ‘gate-keeping problems’ associated with the bosses. One respondent noted that, “while we should recognize the principal innovator’s role in developing the new product, we should also realize that he does not have any ‘window of influence’ to take it forward; such opportunities are available to bosses and hence their inclusion is critical for enhancing the impact of these innovations”.
Top Management Support The analysis indicates that the probability of success and the level of impact are related to the degree of top management involvement in the innovation process. In the high-impact group, top management directly monitored progress in 70 percent of the cases, while the same was limited to less than 20 percent of the low-impact cases. As stated by the respondents, the top management attitude in the high-impact group was “let us go ahead” while in the low-impact cases it was one of “you go ahead and report back”. The lack of visible top-management support in the latter case led to a fear of being victimized if the innovation attempt failed, which in turn made employees risk-averse and dampened their enthusiasm in championing their innovation. Furthermore, the high attention from the top management speeded up decision-making and facilitated resource allocation in the highimpact group while organizational rules and procedures caused significant delays in the procurement of even small items needed by the projects in the low-impact group. Given the high levels of top management support, it was natural that the high-impact projects were well accepted in the organization and received greater levels of resource support and had a greater impact as compared to innovations in the low-impact group.
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Role of the Immediate Supervisor The critical role that supervisors play in facilitating the innovation process emerged from the interviews. There was total agreement among the respondents that the innovation culture of any unit largely depended on the attitudes of the supervisory personnel in that unit. In balancing the demands between routine work and innovations, most supervisors tend to give priority to routine work. Innovations, even those with expected positive results, are considered to be deviations from one’s normal work. With the performance of the supervisor also linked to achieving timebound production or marketing targets there is little incentive for innovation where the benefits are uncertain and are of a long-term nature. Interestingly, innovative/enterprising subordinates were often a cause of concern for their supervisors as they often neglected the short-term targets that the supervisors were required to achieve. Most respondents identified the lack of functional autonomy as a strong barrier to innovation. One innovator noted that “close supervision with too many directions is an infringement on my freedom and it is preposterous to expect day-to-day progress on an innovation project”. A second factor influencing supervisor support relates to credit sharing. Even in situations where the supervisor’s contribution to the project was low, innovators felt compelled to include the supervisor’s name in the project team because of a concern that organizational hurdles and gate-keeping problems were best overcome by sharing credit. This was especially true in the lowimpact cases where top management involvement was low. On the other hand, respondents in the high-impact group noted that while the immediate supervisors’ support was useful, it was not critical for the successful implementation or dissemination of innovation. This may be because high-impact innovations generally originated from the felt needs of the organization and were driven by the top management. In some instances the idea champion was informally relieved from routine work by the immediate supervisor (usually on instructions from the top management) for accelerating the implementation process. The role of the local management (at the innovation site) was also considered critical in facilitating the dissemination and scaling-up of the innovation. Some respondents attributed the absence of scale-up efforts to the overcautious attitudes of local managements in presenting their innovations at the corpo© 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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rate level and to the rigid organizational systems that prevented innovators from presenting their ideas directly to the top management.
Focus on Core vs. Non-Core Areas The comparative analysis of high-impact and low-impact cases also reveals that all the highimpact cases involved innovations in the core business areas of the firms – such as prospecting and production. In contrast, more than 50 percent of low-impact cases involved innovations in non-core areas, including sales and marketing. Interestingly the latter constituted all the cases of management innovations in the entire sample. Thus all management/marketing innovations got positioned at the lowest rung on the ‘impact scale’. This implies that the innovations in the core business areas have a natural advantage in getting selected and facilitated for further promotion, and thereby tend to create greater impact compared to innovations in non-core areas. On the other hand, despite the considerable potential of non-core innovations to positively influence sales and marketing outcomes, they are not adequately supported or encouraged by the management, leading to several missed opportunities. The operations-oriented mindset and exclusive focus on chemical engineering as the mainstay of refinery work mean that despite possessing a high degree of technical skills, supporting staff from electrical, mechanical and metallurgy departments did not have an equal opportunity for innovation. As a result, many employees from this group perceived themselves to be in a disadvantaged position and complained that top management support in promoting their projects was markedly lower compared to the projects in the core areas. This widely prevalent perception also made it difficult to mobilize resources and seek co-operation from service departments for facilitating innovations in the core-areas themselves. Subsequently, some innovation projects in core areas started sourcing key support activities from external agencies, further demoralizing the service departments. Regarding one such instance, a respondent noted that “in spite of having in-house facilities, they [the innovation team] engaged an external agency for fabrication work related to simulator development on the pretext that it would reduce delays”.
Rewards, Incentives and Recognition A persistent view among respondents in the low-impact group was that it was not rewarding enough to engage in innovative activities. © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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In fact, more than 70 percent of the respondents in this category were dissatisfied with the incentive system. While the innovators sought more recognition at the corporate headquarters and industry level, the existing award and recognition system was limited to local refinery or the innovation site. The reduced impact of at least some cases in the low-impact group could also be attributed to this. Corporate level recognition itself speeds up diffusion because of the increased attention and organizational acceptance gained by the project as a result. In the high-impact group, the involvement of the top management ensured high visibility within the firm for the innovating team and acted as a source of motivation in the short run. However, they also felt that innovationrelated achievements were not objectively evaluated during performance appraisals or appropriately linked to career opportunities in the organization. The respondents characterized the existing system of annual performance evaluation as opaque, influenced by supervisors’ biases and focusing on the achievement of annual targets. The decision to include innovation-related initiatives into an employee’s performance appraisal lay with the supervisor who could decide against the same. Interestingly the disconnect between innovation behaviour and career was more pronounced in the R&D divisions of the companies, which were in fact set up specifically to promote/accelerate creativity and innovation. The organizational processes that have been created to identify and reward innovators were also seen to be ineffective. Under the existing system, the innovator has to propose his own name, which makes some innovators (particularly individuals) feel inhibited. Furthermore, there are no formal organizational systems to spot the individual talent and recognize it at the organizational level. Even in the high-impact category, where some degree of corporate-level recognition exists, individual initiative is not appropriately rewarded, as there is no system to identify the idea champions or key participants in the innovative project. The study also highlights the need for designing different types of awards to match the varying employee aspirations. These motivations themselves may be intrinsic or extrinsic, depending on the status and level of the innovator in the organizational hierarchy. In one case, the idea champion, a worker, was felicitated and presented a certificate in a public function, but he was dissatisfied as there was no cash component to the award. On the other hand, several respondents in the management cadre did not consider financial
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incentives as a strong motivator as compared to corporate-level recognition and career advancement. One respondent, a three-time winner of the highest recognition for innovation at the unit level, noted that even though the innovations helped in his career growth, he was not motivated to innovate further in the absence of appropriate corporate-level recognition. An interesting finding of our study was the strong association of individual benefit oriented tangible rewards (such as cash prizes, promotions and so on) with lowimpact innovations and of group-focused nontangible rewards (such as public commendations, peer acceptance through seminars and workshops, publicity through internal or external outlets, close association and consultations by the top management) with highimpact innovations.
Documentation and Patenting Practices The degree of documentation varied greatly among high and low-impact groups. Eighty percent of the high-impact cases were well documented compared to less than 50 percent of the low-impact ones. The major reasons for poor documentation included, among others, the absence of a centralized knowledge management system and the reluctance of several innovators, particularly individuals, to share the details of their innovation with others. In many cases, all the relevant data/experiences were lost after the transfer or retirement of the individuals involved. In the case of individual innovations there was practically no documentation. The only exceptions to this were R&D centres, which had fairly good documentation systems. The problem of poor documentation is exacerbated by a lack of awareness about the patenting process or its advantages. While patent applications were filed in three highimpact cases and a few more in this category were under process, none of the innovations in either group had obtained any patent at the time of the study. Worse still, none of the cases in the low-impact group was even considered for patenting. In general, irrespective of the innovations’ potential impact, attempts to patent were absent. Most of the respondents felt that the process of patenting required specialized knowledge, which called for external expert inputs and strong support from the top management. In the absence of any mechanism to prevent competitors from copying their innovations and appropriating credit for them, the innovating firms surrendered substantial financial and competitive advantages to other players in the industry.
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Discussion and Conclusions This study highlights several aspects related to innovation in the context of large organizations in developing economies. First, almost all the innovations in the sample were incremental, even though a few of these had a significant financial and market impact. Second, while the potential of incremental innovations to drive economic growth is significant, organizational capacity to harness this opportunity is limited due to several mediating factors related to organizational structure, culture and management styles. It is obvious that a majority of the issues can be corrected to a significant degree by implementing appropriate changes in the design of these organizations.
Mediators of Innovation Processes and Outcomes Organizational and managerial biases significantly influence the innovation process and potential outcomes. Systematic organizational biases arise from emphasis on what is considered to be the core areas, and on maximizing production. As supervision is centred on routine-work and the supervisors’ performance is evaluated based on the achievement of routine production targets, supervisors are disinclined to accommodate innovation and creativity, which are usually unplanned or unrelated to routine work. Our study reinforces the assertions by Galbraith (1982) and Kanter (1985) that innovations are best facilitated by separating out the innovation efforts from the operating organization and its controls, as innovating and operating are fundamentally opposing logics and that in large organizations barriers to innovation arise from a failure to differentiate between the requirements of administrative and entrepreneurial management. Managerial biases and values, arising from managers’ prior experiences, professional training, attitudes towards risk and supervisory control, and beliefs about the capabilities of subordinates and supporting functions also mediated the innovation process in the firms studied. As was expected, our study reconfirmed that it may be possible to extract work by close supervision, but not an innovation. A natural corollary to this is the role of top management. The study shows that for increasing internal acceptance of innovative ideas and improving their implementation and dissemination efficiency, top management involvement in the project must be high and visible. Furthermore, organizational review processes also screened out or de-emphasized innovations in non-core areas, limiting the © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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potential impact of such innovations. For instance, the few marketing/management innovations reported here are placed in the low-impact group, probably because they were considered low priority areas.
counselling, build innovation-related performance goals other than the achievement of routine production targets into the performance management systems and de-layer the administrative bureaucracy.
Differential Impact of Innovations
Creating Innovation Policies
The differential impact of the innovations studied is possibly explained by the innovator characteristics, as well as the internal and external organizational factors. High-impact innovations in core business areas enjoyed significant top management buy-in and supervisory support, and often involved interdepartmental teams. Most significantly, the employees involved in such projects were also able to negotiate and secure sufficient flexibilities in their job descriptions. On the other hand, the low-impact innovations received nothing more than a ‘no-objection certificate’ from the top. They were generally individual driven, lacked top management involvement, and had low resource commitments, both financial and managerial. Fear of failure also made them risk-averse and hampered their ability to engage in the unscheduled, unsupported and uncertain activities required for developing and implementing innovations. An interesting finding from this research relates to the failure of high-potential innovations to create the expected levels of impact. Our research points to several reasons for this. First, the absence of organic linkages between the innovating team and the manufacturing/ marketing functions to increase implementation effectiveness and decrease transactional costs is a major reason for this. Second, the low emphasis on documenting, patenting and dissemination of innovations has resulted in consigning some high potential innovations to the low impact group or has led to the loss of both revenues and competitive advantage for the innovating firm. In general this may be related to the general strategy of the firm and the business environment in developing countries where despite considerable value creation by way of innovations, the corresponding value appropriation strategies are still not in place.
While the differing impacts of innovations could be attributed to managerial biases and organizational politics, the absence of a clearly spelt out organizational innovation policy allows these biases to operate freely. An innovation policy that spells out the priority areas for the organization and the norms for encouraging independent individual initiatives even if they are prima facie assessed as not having much synergy with the existing operations of the organization is essential. Clarifying such policies would substantially reduce the managerial biases in identifying and encouraging innovations
Implications for Organizational Design Our study has several implications for organizational design in the context of developing economies. In order to build an innovationoriented organizational culture, managements should create structures and systems that would ensure personal autonomy and role flexibility, offer opportunities for working in interdisciplinary teams, increase access to key resources, provide expert and managerial © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
Increasing Organizational Commitment An innovation-oriented design must also ensure deep organizational commitment to all innovative projects, irrespective of its source or the level of employees involved in that activity. A design intervention here could be to create ‘Innovation Cells’ within the firms to carry out evaluation of innovation proposals/ projects in terms of implementability and potential contribution, and grant formal recognition to them as (quasi-) organizational projects. When a formal mechanism for evaluating innovation projects exist, project requirements and expected resource commitments are likely to be well reasoned out prior to its commencement. Organizational commitment can also be reinforced by assigning a member of the top management team as a mentor for each project. When projects are formally facilitated by members of the top management team, the attitudes and actions of the immediate supervisor in supporting or restricting the project become less critical to the success of innovation efforts. Access to the top echelons also increases the internal visibility of the innovation effort and can help dissemination efforts outside the department. Leveraging Team Roles Our study shows team innovations to have distinctively greater impact compared to individual innovations. Another interesting observation relates to the role of informal and formal teams and intra-organizational networks during the various stages of the innovation and implementation process.
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Remarkably, while the use of informal networks in the initial stages helps secure support from all departments, this leads to employee dissatisfaction in the post-innovation stage in the absence of a mechanism for sharing credit appropriately. Hence, while acknowledging the role of informal teams, it may be useful to facilitate the creation of formal teams to increase the internal acceptance, and formalise the project, which in turn would lead to greater impact and better dissemination. It would also reduce the con-
fusion about recognizing and rewarding the real contributors to the project and hence has implications for maintaining the motivation for innovation at high levels. Reworking Incentive Systems This study indicates that incentive systems must address innovators’ needs for selfesteem while simultaneously recognizing them as making a significant contribution to
Figure 1. A Hypothesized Model of Organizational Design for High Impact Innovations
Innovation strategy of the organization
Projects initiated by the organization
Projects initiated by individuals
Screening process for implementation
Organizational ownership of innovative projects Team formation and empowerment Work and time allocation Resource support Top management mentor Successful implementation of the project
Documentation and patenting
Individual rewards Gain-sharing systems Corporate level recognition Facilitation/dissemination of learning Opportunities for intrapreneurship/spin-offs
Note: ——Primary linkages -----Secondary linkages
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organizational goals. The existing structures and systems easily generate such a feeling among staff working in the core activity areas of the firm. For others, an organization can enhance the perceived significance of an area or activity by (a) specifying the non-core activities as important areas for innovation efforts; (b) specifying procedures for securing resource as well as top management support; and (c) creating commercialization and spinoff options. As revealed by the study, a combination of individual benefit oriented tangible rewards and group focused non-tangible rewards are the most appropriate for promoting innovation behaviour. The ideal system would be a combination of several types of incentives, such as: (a) cash prizes especially for the lower level staff; (b) inclusion of innovative work in the performance appraisal scheme as per the norms developed specifically for this purpose; (c) publicity for innovative work and public functions to recognize innovators, wherein there are built-in opportunities for disseminating the knowledge generated by innovations; (d) organizational initiatives and financial and non-financial support for patenting; (e) revenue-sharing arrangements between the organization and the individuals involved, both directly and indirectly; and (f) opportunities for venture capital support, where possible.
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project, especially from its top levels. In the light of our prior discussions, the linkages in the model are self-evident; one part is about how projects, even the individually initiated ones, may be folded into the organization while the other highlights the type of systems and processes that should emanate from this sense of ownership to help sustain innovative efforts and strengthen the organization’s innovation-base, in addition leading to regular review and modification of the innovation strategy itself. Summing up, this study was carried out in the context of large established firms operating in a regulated market, under a system of licences and administered prices, but one that is now under the process of liberalization. Traditionally, Indian companies in the oil and gas sector have not felt the strong need to innovate because of their reliance on bought-out technology, price controls and high entry barriers in place in the Indian market. They have also been constrained by a lack of innovation culture and low levels of access to resources compared to their Western counterparts. Such conditions are typical of developing country contexts, where facilitating conditions for radical innovations may not be easily available. A more appropriate strategy for development for them would be through the promotion of incremental innovations, whose cumulative impacts would in turn drive rapid economic growth.
Creating Value Appropriation Strategies Lastly, firms also need to strengthen their value appropriation strategies – which include documentation and patenting policies – by creating appropriate organizational structures. As noted earlier, the low priority accorded to documenting and patenting leads to loss of revenues as well as competitive advantage. While organizations should design and conduct programmes for raising employees’ awareness on patenting, the actual process of patenting should be initiated and carried out by the organization, in collaboration with the concerned individuals. In this too, the ‘Innovation Cell’ should play a catalytic role, and ensure equity and fairness in choosing developed ideas and products for patenting. The design features we have suggested above can be integrated into a hypothesized model as shown in Figure 2. It may be seen from the figure that at the heart of the entire process lies the ‘organizational ownership of the innovative projects’, implying that the most critical influence on enhancing the impact of incremental innovations is the level of internal commitment to the © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
References Ali, A., Kalwani, M.U. and Kovenock, D. (1993) Selecting product development projects: Pioneering versus incremental innovation strategies. Management Science, 39(3), 255–74. Banbury, C.M. and Mitchell, W. (1995) The effect of introducing important incremental innovations on market share and business survival. Strategic Management Journal, 16, Special Issue, Summer, 161–82. Benner, M.J. and Tushman, M. (2002) Process management and technological innovation: A longitudinal study of the photography and paint industries. Administrative Science Quarterly, 47(4), 676–706. Dewar, R.D. and Dutton, J.E. (1986) The adoption of radical and incremental innovations: An empirical analysis. Management Science, 32(11), 1422–33. Duchesneau, T.D., Cohn, S. and Dutton, J. (1979) A Study of Innovation in Manufacturing: Determination, Process and Methodological Issues, vol. I, Social Science Research Institute, University of Maine, Orono. Ettlie, J.E., Bridges, W.P. and O’Keefe, R.D. (1984) Organization strategy and structural differences
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for radical versus incremental innovations. Management Science, 30(6), 682–95. Galbraith, J.R. (1982) Designing the innovating organization, Organizational Dynamics, 10(3), 5– 25. Germain, R. (1996) The role of context and structure in radical and incremental logistics innovation adoption. Journal of Business Research, 35(2), 117– 27. Gluck, F.W. (1985) ‘Big-bang’ management: Creative innovation. The McKinsey Quarterly, Spring(1), 49–59. Hage, J. (1980) Theories of Organisation: Form, Process and Transformation. Wiley, New York. Henderson, R. (1993) Underinvestment and incompetence as responses to radical innovation: evidence from the photolithographic alignment equipment industry. RAND Journal of Economics, 24(2), Summer, 248–70. Henderson, R.M. and Clark, K.B. (1990) Architectural innovation: The reconfiguration of existing technologies and failure of established firms. Administrative Science Quarterly, 35(1), 9–30. Kanter, R. (1985) Supporting innovation and venture development in established companies. Journal of Business Venturing, 1(1), 47–60. Kessler, E.H. and Chakrabarti, A.K. (1999) Speeding up the pace of new product development. Journal of Product Innovation Management, 16(3), 231–47. Kieser, A. (1974) Management of product innovation: Strategy, planning and organization. Management International Review, 14(1), 3–22. Koberg, C.S., Detienne, D.R. and Heppard, K.A. (2003) An empirical test of environmental, organizational, and process factors affecting incremental and radical innovations. Journal of High Technology Management Research, 14(1), 21– 45. Manimala, M.J. (1992) Entrepreneurial innovation: Beyond Schumpeter. Creativity and Innovation Management, 1(1), 46–55. McDermott, C.M. and O’Connor, G.C. (2002) Managing radical innovation: an overview of emergent strategy issues. Journal of Product Innovation Management, 19(6), 424–38. Mezias, S.J. and Glynn, M.A. (1993) The three faces of corporate renewal: institution, revolution and evolution. Strategic Management Journal, 14(2), 77– 101. O’Connor, G.C. and McDermott, C.M. (2004) The human side of radical innovation. Journal of Engineering & Technology Management, 21(1/2), 11–30. Palmer, R. and Brookes, R. (2002) Incremental innovation: A case study analysis. Journal of Database Marketing, 10(1), 71–83. Schumpeter, J.A. (1934) The Theory of Economic Development, trans. Redvers Opie 1961. Harvard University Press, Cambridge, MA. Song, M. and Swink, M. (2002) Marketingmanufacturing joint involvement across stages of new product development: Effects on the success
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of radical Vs. incremental innovations. Academy of Management Proceedings, 131–36. Swan, J., Scarbrough, H. and Robertson, M. (2002) The construction of ‘communities of practice’ in the management of innovation. Management Learning, 33(4), 477–96. Tushman, M.L. and Anderson, P. (1986) Technological discontinuities and organizational environments. Administrative Science Quarterly, 31, 439–65. Veryzer, R.W. Jr. (1998). Discontinuous innovation and the new product development process. Journal of Product Innovation Management, 15(4), 304– 21.
Mathew J. Manimala (manimala@iimb. ernet.in) is Professor of Organization Behavior and the Jamuna Raghavan Chair Professor of Entrepreneurship at the Indian Institute of Management Bangalore, India. His research interests are in the areas of Entrepreneurship, Creativity and Innovation. He is also the editor of the South Asian Journal of Management. P. D. Jose (
[email protected]) is Associate Professor of Corporate Strategy and Policy at the Indian Institute of Management, Bangalore, India. His primary research interest is in the area of sustainability and innovation and its impact on firm-level competitive advantage. He also researches on corporate environmental strategies, environmental entrepreneurship and innovation in the context of emerging economies. K. Raju Thomas (rajuthomask@yahoo. com) is working as a project consultant with Professor Mathew J. Manimala for various research and consultancy projects at the Indian Institute of Management Bangalore, India. His research interests cover human resource and organizational issues of innovation management, technology transfer and knowledge work process. He is also active in the field of organizational development. The authors are grateful to the National Petroleum Management Programme (NPMP), New Delhi, India, for the financial and organizational support provided by them for carrying out the research reported in this paper.
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Minimizing Market Risks Through Customer Integration in New Product Development: Learning from Bad Practice Ellen Enkel, Javier Perez-Freije and Oliver Gassmann Customer integration into the innovation process is about to become a best practice. The leaduser approach has proven to be especially valuable when reducing discontinuous innovation’s market risk. Since the theory of customer integration still lacks a concept and processes, this article illustrates how companies can be helped from a practice perspective to implement customer integration and maximize market safety. Triggered by the results of an in-depth case study, we adapted Lettl’s explorative model of customers’ contribution to the new product development (NPD) process, which was originally developed for the medical technology industry, to engineering companies.
Introduction
O
ne of the greatest opportunities for companies wanting to improve their overall innovation capabilities and reduce discontinuous innovations’ market risk is to integrate their customers into the innovation process (Cooper, 1980; Kirschmann & Warschburger, 2003; Murphy & Kumar, 1997; Voss, 1985b). The resource dependency theory, relationship marketing and studies on successful new products provide the theoretical and empirical backgrounds that support this assumption (Lüthje & Herstatt, 2004). Customer integration into the NPD process leads to the identification of information on customer needs, disseminates the information throughout the critical functional areas within a company and translates this information into auspicious new products and services (Bruce & Biemans, 1995; Kohli & Jaworski, 1990). Discontinuous innovations pose a greater risk because they also involve more uncertainty in terms of the nature of the product itself, the organization’s capacity to effectively and efficiently produce the product, its market acceptance and ultimately, profitability (Deszca, Munro & Noori, 1999). In terms of forecasting product acceptance and adoption, radical innovation face particu© 2005 The Authors Journal compilation © 2005 Blackwell Publishing
lar difficulties (Noori et al., 1996). Traditional product-development best practices that are associated with incremental innovation are problematic, as both the product attributes and breakthrough innovations’ future environments are not known as yet (Lynn, Morone & Paulson, 1996). By comparison, the results of traditional approaches in forecasting customer needs and market potential, whether they are quantitative techniques or qualitative methods, are merely limited to insights in respect of product improvements (Gassmann, Kobe & Voit, 2001). However, the development of radical or discontinuous new products or services may contribute significantly to companies’ growth and profitability (Kleinschmidt & Cooper, 1991; Ozer, 1999). There have been some attempts at understanding the characteristics of discontinuous innovation better (Kleinschmidt & Cooper, 1991; O’Connor, 1998; Veryzer, 1998a, 1998b). Customer integration into the innovation process is an increasingly applied method that aims at reducing the risk of failure (Chesbrough, 2003; Gassmann & Enkel, 2004). Companies have, in fact, already started to leverage the advantages of customer integration into their new product development process.
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Trends and needs
Requesting customer
Identification of concepts Concept development Participation in development Prototype testing Feedback information
Market launch
First buyer
Pre-announcement
Reference customer
Concept evaluation
Lead user
Core concept and design
Launching customer
New product development process
Suggestions, complaints Idea generation
Production
Figure 1. Customer Types and their Contribution to the NPD Process Note: Adapted from Brockhoff (1998)
Customers’ contribution to the reduction of market risks varies according to the innovation process’s exact phase (Brockhoff, 1998; Koen et al., 2001; Quinn, 2000). Figure 1 provides a summary of how customer integration can differ in each individual phase of the innovation process, and which customers are best suited to achieve the expected input. Requesting customers, as they are termed, provide ideas for new products that follow from their needs. A requesting customer’s contribution depends on the company’s capability to capture customer knowledge, which is often expressed in the form of complaints and suggestions. As complaints are mostly anchored to current product uses and product characteristics, they are a rather limited source of new product information (Brockhoff, 2003). Conversely, the launching customer is integrated right from the development phase to stimulate, design or participate in development activities. The reference customer, on the other hand, supplies application experience. The highly productive role that customers can play in product and prototype testing has been revealed in various empirical studies (Dolan & Matthews, 1993). The first buyer, however, plays a more passive role in development. As described in diffusion models, a precursor that strongly influences market penetration may support market success. Lead users could therefore cover all stages of the NPD process, although the same customer does not necessarily always represent them. The lead user’s
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degree of involvement usually depends on the benefits to be obtained. In the light of the specified difficulties with conventional market research methods, leading companies such as 3M, Hilti, Johnson&Johnson Medical and Boeing are increasingly working with lead users to develop radical innovation (Condit, 1994; Coyne, 2000; Herstatt & von Hippel, 1992; Lilien et al., 2002; Lüthje & Herstatt, 2004; von Hippel, Thomke & Sonnack, 2000). Several empirical studies have, first of all, emphasized the novelty of innovation, the expected turnover, the market share and the strategic importance, all of which are significantly higher for innovation projects based on the lead-user method than for those based on traditional methods (Lilien et al., 2002). Second, the lead-user method’s multi-stage approach not only aims at generating new, innovative product concepts, but also at improving and enhancing the effectiveness of cross-functional product development teams (Lüthje & Herstatt, 2004). Furthermore, lead users differ from ordinary users. They face new needs significantly earlier than the majority of customers in the market and they profit from innovations that meet those needs (Lüthje & Herstatt, 2004; Urban & von Hippel, 1988; von Hippel, 1986). Although theory has widely recognized customer integration (see Table 1), the practice still needs help to apply the factors, processes and methods described in theory. © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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Table 1. Literature on Customer Integration into the Innovation Process Attributes of customer integration in NPD
Key issues
Authors
Roles of customer in NPD
Customer integration ranges from lead user to first orderer Activities in • Concept development • Product design • Performance testing and validation More new innovation and product success through customer integration Positive impact of customer integration on innovation process
(Brockhoff, 2003; Lettl, 2004; von Hippel, 1986; von Hippel, 1988)
Customer contribution to NPD
Enhancement of new product success Influence of customer integration on product success
Benefits of customer integration
Increase in innovation process’s effectiveness and efficiency
Customer integration in the case of radical innovation
Characteristics of customer contribution and profile, as well as the interaction and impact’s dimension
Success factors of customer integration
Proposals on team organization, development processes, knowledge generation, culture etc. Defining clear roles and objectives and key enabling figures
Prerequisites for customer integration
Empiric investigations on the importance of customer integration
Users constitute a major source of innovation
Consumer research Methodologies for methods for developing and opportunity introducing innovative identification in NPD products to market through customer integration Negative aspects of Illustration of negative side customer integration effects and inherent risks of customer involvement
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(Kleinschmidt & Cooper, 1991; Lengnick-Hall, 1996; Nambisan, 2002; Ulwick, 2002)
(Gruner & Homburg, 2000; Lilien et al., 2002) (Callahan & Lasry, 2004; Gales & Mansour-Cole, 1991; Kleinschmidt & Cooper, 1991; Salomo, Steinhoff & Trommsdorff, 2003; Souder, Sherman & Davies-Cooper, 1998) (Atuahene-Gima, 1995; Brown & Eisenhardt, 1995; Lengnick-Hall, 1996; Leonard-Barton & Sinha, 1993; Rigby & Zook, 2002) (Lettl, 2004; Lilien et al., 2002; Lynn, Morone & Paulson, 1996; O’Connor, 1998; Schoormans, Ortt & de Bont, 1995; Urban & von Hippel, 1988; Veryzer, 1998a, 1998b; von Hippel, Thomke & Sonnack, 2000) (Bruce & Biemans, 1995; Hutt & Stafford, 2000; Littler, Leverick & Bruce, 1995; Maron & VanBremen, 1999; Mohr & Spekman, 1996) (Biemans, 1992; Brockhoff, 1998; Bruce et al., 1995; Hauschildt & Kirchmann, 2001; Markham & Griffin, 1998; Riggs & von Hippel, 1994) (Herstatt & von Hippel, 1992; Lüthje, 2004; Morrison, Roberts & von Hippel, 2000; Slaugther, 1993; Urban & von Hippel, 1988; von Hippel, 1986; Voss, 1985a) (Deszca, Munro & Noori, 1999; Kleef, Trijp & Luning, 2005; Leonard-Barton & Sinha, 1993; Lynn, Morone & Paulson, 1996; Noori & Munro, 1999; Ulwick, 2002; Urban, Weinberg & Hauser, 1996) (Becker & Peters, 1998; Camagni, 1993; Enkel, Kausch & Gassmann, 2005; Pisano, 1990; Robertson & Langlois, 1995)
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While customer integration has been extensively analysed, some details on the application of the lead-user method need to be enhanced. The identification of the lead user is a particularly challenging task (Lüthje & Herstatt, 2004), as is his integration into the innovation process’s appropriate phase and the adaptation of the whole approach to company specifics. In order to illustrate this gap in the theory, we provide a real-life example of how an attempt at lead-user integration developed in practice through the use of existing theory. It demonstrates a machine manufacturing company’s approach to integrating a lead user into its discontinuous innovation development and its attempts to adapt and use the lead-user approach to minimize market risk.
Research Methodology and Data Sample The case study is based on data gathered at a Swiss engineering company (called Swiss Eng in this article) over a five-month period from the end of 2004 to the beginning of 2005. A variety of data collection methods was employed, including a series of interviews with the relevant engineers, management and marketing. Project documentation, customer interview transcripts and presentations as well as secondary literature were analysed and evaluated. We observed the customer integration project in a series of seven workshops, and in several bilateral meetings with individual team members who carried out the project. Field visits and interviews at Swiss Eng’s R&D centre facilitated the authors’ knowledge of the examined innovative project. As a research strategy, a single case study leads us to understand the dynamics present within a single setting and to examine the phenomenon in its natural environment (Yin, 1994). The case-study method is especially appropriate for research on new topic areas, and can contribute critical insights as well as identify important factors. The case outlined below might be exemplary of customer integration in engineering companies, as this industry has special requirements and challenges: not only does it experience an increasing exigency for a breakthrough product to improve competitiveness and gain market share, it is also caught in the crossfire of everincreasing requirements in order to offer costeffective and performance-improved systems. As the development of new machine generations in the machinery industry requires long and costly development times, the pressure to
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create successful products is exacerbated even further.
Customer Integration into Swiss Eng’s Prototype Development This case illustrates Swiss Eng’s attempts to involve one of its customers when it was looking for a method to reduce market uncertainties in respect of the development of a discontinuous innovation. The company operates in a very competitive and seminal market dominated by a competitor with a 70 percent market share. The company itself is ranked second in its industry worldwide, had approximately 4,000 employees and a turnover of €1.1 billion in 2004, doubling the turnover in the previous four years. A range of optimized products and innovative fittings was launched in 2003. The ‘Betty’ innovation (as the new machine generation was called) was meant to support the company’s development and lead to steady growth and increased profitability. A strong demand in the Eastern European, Middle Eastern, and, particularly, in the Asian markets, promised additional business. At the beginning of the observed customerintegration project, the company’s project team worked on the specification of a new machine generation’s core concept that promised to be the breakthrough innovation needed to increase the company’s market share substantially. The company management saw an acute need to involve additional development partners (like lead users) in the light of increasing doubt whether the concept would meet customer needs. This doubt was rooted in the company’s experience with the previous machine generation that had been developed to be a breakthrough product, but had caused enormous losses. Their customers had not accepted it, nor had the design exactly complied with the market requirements. Rather than improving the discontinuous innovation through adaptation to market needs, the management decided to divest. In the end, they could not muster the staying power to persist and learn from the experience, thus modifying the product and basing the exact assessment on that learning, and trying again. The management had furthermore realized that difficulties would occur if the new discontinuous innovation’s development were merely accompanied by conventional marketing research methods, as had been the case with the preceding, failed project. As scheduled first in the lead-user approach, the innovation field identification at the beginning of ‘Betty’s’ innovation was © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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solely defined according to general strategic requirements. Although the company was aware of user innovations’ conditions for success, no external knowledge source had been integrated as is recommended. In addition, Swiss Eng’s representatives had selected a mature product category, characterized by severe performance and price competition, for ‘Betty’. They hoped that the production of a next generation machine model in this category would allow the company to surmount its perilous financial situation. The objectives in respect of the innovation process’s outcome were defined as a radical degree of innovation and a contribution to company growth and profitability. A dedicated, interdisciplinary project team consisting of R&D, marketing and sales employees developed ideas by involving technological experts from engineering research institutions (e.g. universities). Finally, after several internal idea assessments, a concept found in a different market was selected as the best fit for the project’s needs. Based on observations and separate feasibility studies, an adapted core concept was accepted in combination with brand new upstream and downstream modules that were believed to meet the customers’ expectations best. A few months later, customers were first involved through market research analysis. Internal marketing experts carried out a market feasibility study by surveying international customers. Their focus was to determine if the concept complied with customer needs in terms of performance expectations, system features and technical requirements, and, where applicable, this was refined by means of modifications to the product. The survey was carried out by sales and marketing people, mainly through approximately 50 personal interviews with customers in Europe and Asia. The goal was to prioritize the functions that customers would most prefer in the new product and to abolish those features customers were not willing to pay for. The market research would therefore reduce the costs of the new machine’s development and production. However, the customer-attitude evaluation did not shed light on the market needs at all, because it became mired in suggestions and complaints. The findings therefore did no more than clarify the trends that the company had already detected. The customers selected to provide input data for the market analysis were, furthermore, unlikely to provide insight into new product needs and potential solutions that conflicted with what they knew. Afterwards, the project team was forced to use the lead-user approach that the manage© 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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ment had identified as a tool to reduce market risk, because the latter was still troubled by the market risk, and because the earlier failed project had also initially had positive market research results. The project team, however, did not fully comply with this advice. Their belief that customers could be useful when testing a machine or serving as first buyer, but could never be used as co-developers, was conveyed by the fact that they waited until the last phase of the innovation process (when the prototype had almost been completed) to start integrating customers into the project. Subsequently, Swiss Eng’s project team defined a sub-project for identifying and integrating customers who might support the last phase and reduce the market risks by being the new machine’s first buyers or reference customers, and thus employed a small research group experienced in customer integration projects. Swiss Eng’s decision to use the lead-user approach was also based on the management’s estimation that this method would be successful because the literature recommends it for dealing with radical innovation. In order to ascertain who the potential lead users of Swiss Eng were, a screening approach was used. The project team, now joined by two doctoral candidates who were experienced in customer integration, decided to search for customers who could judge the value of the new machine from a user’s point of view and from a development capability perspective. The screening approach consisted of two major steps. First the number of potential customers within the group of existing key customers needed to be reduced by ranking them according to specific criteria. Second, the research team would interview the small number of customers remaining. Such a preselection provides a more efficient approach to finding appropriate customers as the number of time-intensive interviews is reduced. Figure 2 illustrates the different steps of the selection process, including those of previous efforts. To select a small number of customers for interviews (between five and eight customers), a cluster analysis, based on lead-user indicators, was carried out (see step 1 in Figure 2). It was important that the customers actually did lead the trends in the product category on which ‘Betty’ was focused. A second indicator chosen was the customers’ dissatisfaction with the existing market offerings at the time and, therefore, the expected benefits from satisfying this need with the new machine. In order to identify customers capable of assisting with the product development and market launch, the project team had to find a subset of users
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Steps of the selection process Step 1 Start of customer integration process
Identification of participants in customer integration process
Step 2
c
Pre-selection
• Define goals of • Selection of most • Define elimination customer involvement attractive users criteria • Build interdisciplinary • Focus on key accounts • Scanning secondary team sources
Define choice criteria for remaining potential customers
Select customer
• Screening of • Interviews with requirements customer candidates • Define individual and • Evaluation in context characteristics interdisciplinary teams
Figure 2. Process of Customer Involvement who were therefore (1) motivated to innovate (e.g. dissatisfied with existing solutions, high benefits), (2) motivated to cooperate (e.g. cultural and strategic fit, need for the new machine), (3) qualified to innovate (e.g. operational know-how, skilled employees), and last but not least, (4) suitable for cooperation (e.g. confidential co-operation partner, topperformer). Each of the dimensions mentioned consisted of multiple criteria. In addition, a knockout criterion was defined. The potential lead users had to have at least one location that was exclusively equipped with Swiss Eng machines where prototype testing could take place without having competitors visiting this site. The research group decided to use secondary literature sources and the internal expertise of the service personnel, key account managers and marketing department to prioritize the list of customers. This was done by designing a matrix that contained the indicators described above as well as the list of customers. The innovation project’s marketing and project managers then used the matrix to select five candidates from the 28 customers (see Table 2). For the rating of the selected customers, a four-point Likert scale was used for each single indicator. The equally-weighted sum of the valuations defined the customers’ ranking. In the second step, one of the five candidates, who fitted the supplier’s requirements best and was best suited as a prototype codeveloper, had to be selected, which required more detailed information regarding customer demands. A variety of data-collection methods was therefore employed; the primary vehicle was a series of interviews to identify the possible lead user. As a security measure, the project team decided not to inform the five candidates that the supplier wanted to co-develop a discontinuous innovation, although the interview ques-
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tions outlined the new product specifications. Only the customer who would be integrated at the end of the selection process would know about the innovation. Another decision was to let the external research group conduct the interviews in order to prevent the customers from simply complaining about their Swiss Eng products instead of answering the questions. Swiss Eng’s key account managers selected the interviewees, as he was familiar with the interdisciplinary nature of the questions, knew the customers very well and could also link the interviewers with the customers to be selected. One plant from each identified customer was selected as best suited for the prototype testing and to limit the number of interviews. The interviews focused on this plant’s manager, technical managing director and key account manager. This approach limited the data on the customer to only one plant, which was expected to be representative or best suited. Swiss Eng decided to reduce the number of interviewees on the customer’s site to prevent his resources from being unnecessarily stretched and to keep him motivated for later co-operation. The interview questions covered all categories of customer needs and ‘Betty’s’ product specifications, operation and output requirements, cost perspective and operational and development capabilities. The importance of single categories was determined by ranking them in sequence by means of the analytical hierarchy process (Saaty, 1990). Three of the remaining customers were from Germany and two from Spain. The interviews were held in the customers’ native language, once even through the key account manager himself, in order to ease communication with the customers. The overall proxy used to evaluate the potential lead users consisted of a two-stage approach: (1) Whether the interviewees agreed that advances in the search field that © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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had been specified by the internal project team were in fact needed and important, and (2) whether they could describe at least some technically interesting ideas regarding these trends. In sum, a total of 16 interviews were conducted, which included the key account manager’s statements. Each interview took approximately two hours and was recorded as well as transliterated. In this second phase of the identification process (see Figure 2), the interviews and other materials were also analysed on a fivepoint Likert scale. Because the results gained in this second phase were much more detailed than in the first evaluation phase, the selection criteria were more detailed as well. Each category of the interview questions consisted of different selection criteria. For instance, the category ‘development capabilities’ contained © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
Customer 2
20% 20% 20% 20% 20% 100%
2 2 1 1 1 1.4
2 2 2 2 1 1.8
2 2 1 0 2 1.4
20% 20% 20% 20% 20% 100%
1 1 1 1 2 1.2
1 1 1 1 2 1.2
1 1 0 1 1 0.8
25% 25% 25% 25% 100%
1 1 1 1 1.0
1 1 1 1 1.0
1 1 1 1 1.0
20% 20% 20% 20% 20% 100%
2 2 2 1 1 1.6
2 2 2 1 1 1.6
1 1 2 1 1 1.2
.....
Customer 1
Criteria 1. Qualification as pilot customer a) Right machine type b) Right machine volume c) Top-performer d) Confidential cooperation e) Independent, self-managed company Result 2. Motivation to cooperate a) Actual need for new machine b) Tangible benefit for customer c) Good cooperation through cultural fit d) Good cooperation through geographical fit e) Good cooperation through strategic fit Result 3. Motivation to innovate a) Innovative customer, early adaptor of new technologies b) Dissatisfied with existing solutions c) Engagement in improvements d) Tangible benefit from new technology Result 4. Qualification to innovate a) Professional know-how about operation b) Professional know-how about function c) Professional market know-how, trend-setter d) Sufficiently skilled employees e) Feasibility of quality control Result
Weighting
Evaluation of indicators: -1 no (bad) 0 maybe, don't know 1 yes (good) 2 yes (very good) Weighting of criteria: total: 100%
Customer 28
Table 2. Matrix used to Evaluate Potential Customers to Co-develop ‘Betty’
the criteria: integration in development, support for prototyping and testing, opportunities for quality control and innovativeness. The selection criteria themselves included several questions for the interviewees. The evaluation of each single participant’s categories was weighted according to the results of an analytical hierarchy process. The weighted sum of the valuations defined the customers’ ranking. The analysis of the data revealed a surprising fact: none of the interviewed customers prioritized ‘Betty’s’ features as crucial, but demanded functions that were not included. It not only meant that none of the selected customer would be willing to serve as a reference customer or first buyer, but that the new machine’s market launch had to be postponed in order to make crucial changes to gain
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market acceptance. At this stage, Swiss Eng terminated its search for a customer able and willing to co-develop the prototype and serve as a reference customer because of the anticipated additional development time the changes would cost. Simultaneously, Swiss Eng also realized that the market search, although conducted appropriately, did not reveal the most important needs of its customers in respect of disruptive innovation. The company has not yet decided if it wants to integrate one of the interviewed customers in order to redesign the concept and prototype (as a real lead user would be able to do), or if it will continue its search for a launching customer when the future path is defined after the company has adapted the customers’ machine concept internally.
Discussion of Customer Integration Approach Although Swiss Eng followed all the steps that the theory recommends, the project failed. In analysing Swiss Eng customer integration attempt, the case study illustrates that the market research did not embrace Betty’s challenges (Deszca, Munro & Noori, 1999; O’Connor, 1998; Urban & von Hippel, 1988; Urban, Weinberg & Hauser, 1996; von Hippel, 1986). The market survey simply confirmed obvious trends in the market place, but did not reveal latent and unarticulated customer needs. This phenomenon is quite common, as specific observations have revealed that traditional market-research studies do not provide valuable input for the creation of promising ideas in respect of discontinuous innovation, because they focus more on future business and market demands (Lüthje & Herstatt, 2004; Noori et al., 1996). Predicted customer needs are the trigger for many projects. However, at the fuzzy front end, technology is considered the key source of uncertainty. Issues regarding market uncertainty are not prominent in the early phase, but increase as the innovation moves further along in the development process and efforts to capture the customers’ voice become crucial (O’Connor, 1998). In the outlined case, similar observations were made. Only the fact that Swiss Eng’s management wanted to define the product features and to base specification uncertainties on the customer’s needs and requirements in order to not fail again, forced the project team to capture the customers’ voice. However, identifying the customers’ value is hardly a simple or straightforward process (Thomke & von Hippel, 2002). The value of customer involvement is co-
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determined by the capability for innovation, the customers’ motivation and the degree of involvement (Brockhoff, 2003; von Hippel, 1986). In the case of Swiss Eng, the customers’ innovation capability was not judged as high as that of the company’s own engineers, which is why the project team only started thinking of customer integration at a very late stage (when the prototype was already defined). At this stage, customers’ input is reduced to mere incremental improvements of the prototype and can no longer be radical ones. Furthermore, by eventually making the marketing division responsible for finding a co-development partner, the success of such a co-development was limited from the very beginning. Swiss Eng did not truly realize the advantages of integrating lead users in radical innovation projects. Von Hippel (1986) was aware of the characteristics of discontinuous innovation, which is why he developed the frequently cited lead-user approach. Lead users face new, strong needs that will only become general in a marketplace in future and will benefit the company significantly if it can obtain a solution to these needs. Lead users are at the leading edge and are both sufficiently well qualified and motivated to make significant contributions to the development of new products and services (Lilien et al., 2002; Lüthje & Herstatt, 2004; Urban & von Hippel, 1988; von Hippel, 1986). Obviously, the project team’s marketing head focused more on involving a reference customer or first buyer, instead of a co-developer like a lead user, because he did not believe that a customer contribution in product development could be valuable. By analysing the data from the in-depth interviews, we identified three alternative levels of professional participation for the concept development and design phase. An understanding of the specific form in which customer involvement should occur is crucial for the prospects of success, as time and effort spent on coordinating and managing the process involvement vary depending on its intensity. Key influencing factors are the time and intensity of involvement and the form of governance. Customers’ technological contributions are likely to increase the project uncertainty, and new mechanisms may be needed to monitor and control the development quality and efficiency (Lengnick-Hall, 1996). By integrating customers into the NPD process, they participate in or take over activities that constitute manufacturers’ classic functions. As the case study supports, users exhibit a profile that at the very least allows a passive © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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professional contribution to the NPD process. This is not surprising, as customers also wish for opportunities to compete in times of increasing competitiveness. By obtaining the benefits of new products delivered to them first, the customers may therefore increase the company’s value. This effect is even more distinctive if the customer can negotiate a limited exclusive utilization of an innovation. If customers were to take a step forward and accept a role as active development contributors, they need a challenging context and individual characteristics, such as professional competency, amphibological tolerance, research resources and interdisciplinary know-how to adopt this role (Lettl, 2004). Furthermore, customers’ willingness to participate strongly depends on the original inventor of the concept, their professional and technological expertise and the locus of development (Lettl, 2004). Because a prototype had already been defined at Swiss Eng’s research department, the integration of technological knowledge was crucial for further development at this stage – but none of the interviewed customers possessed the technological expertise that would allow them to contribute an active role in the concept development’s technological domain. Conversely, the leaduser concept definitely implies having the skill to build quasi prototypes (Lüthje & Herstatt, 2004; Urban & von Hippel, 1988; von Hippel, Thomke & Sonnack, 2000). Obviously, selecting the right collaboration partner is difficult. The prospect of success and, eventually, the reduction of market risks depend on the identification of the right customer. In assessing Swiss Eng’s selected customers, it becomes clear that they were not lead users who could contribute to the prototype development. In the company’s search for real lead users, it would have been a more productive approach to search for them in analogue markets (von Hippel, 1986). More engineering-focused companies from other industries might have possessed the valuable engineering knowledge that could have helped with ‘Betty’s’ technical details, although this would not have led to identifying the needs of Swiss Eng’s customers in order to reduce market risks. The selected customers could have contributed their current and future needs regarding a new machinery generation of which Swiss Eng was unaware. This very important fact should be highlighted more closely. However, Swiss Eng’s intention (perhaps based on their limited knowledge of customer integration approaches) was to find co-developers in terms of customers being able to improve their prototype with the technological knowledge © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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that was required at that stage of the project. ‘Betty’s’ innovation project could have benefited much more from an earlier integration of the customers’ requirements and needs (not technological knowledge that they do not possess) and not by being analysed at a stage when the required integration subsequently led to the postponing of the product launch. It all comes back to an erroneous understanding of customers’ contribution. In discussing Swiss Eng’s selected customers as reference customers or first buyers and not as lead users, it seems that all the customers were ready to invest in cooperation (testing the prototype) with the supplier. This is not surprising, as the efforts required are closer to their daily work. Three of the five customers pointed out that their activities are limited to operational ones. The analyses of the interview data also showed that these customers did not want to be involved in co-development because of their lack of technological knowledge or engineering personnel. The higher the innovation-related benefits on the customer’s side, the greater the willingness to participate in the development of innovation. Individual customers develop specific expectations concerning the benefits and costs of their innovating activities, and these beliefs drive some to innovate, while others remain passive (Brockhoff, 2003). The innovation’s value for the involved user affects the motivation to co-operate significantly. Users may, however, demand executive rights for the usage of the new product for a certain period to ascertain its competitive advantages. Empirical research into the factors that motivate or discourage users from openly revealing their leading-edge information and to participate is, unfortunately, just beginning to evolve (Brockhoff, 2003; Harhoff, Henkel & von Hippel, 2003; Lüthje & Herstatt, 2004). In the NPD process, the customer is a source of innovation and might participate in product design and development, as well as in product testing and product support (Nambisan, 2002). Given the multi-dimensional nature of new product development, successful customers may contribute insights regarding innovative solutions that are a response to their needs. However, this requires a selective procedure as customers’ ability to participate differ (Henard & Szymanski, 2001). The selection in respect of discontinuous innovation, especially if customer involvement is needed in the development and concept phase as well as in the testing phase, can be managed by the multitude of choice criteria. Based on Lettl’s (2004) explorative model of customers’ contribution to the NPD process, subject to its profile as designed for the medical technology industry
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Concept development and design 1 Passive non-professional contribution • Market know-how
Testing
2
3
Passive professional contribution
Active professional contribution
• Extrinsic motivation • Open-minded towards new technologies • Imagination
• Extrinsic motivation • Open-minded towards new technologies • Imagination
• Extrinsic motivation • Open-minded towards new technologies • Imagination
• Open-minded towards new technologies • Attendance to experience
• Professional competency
• Professional competency
• Testing capacity
• Amphibological tolerance • Research resources • Interdisciplinary know-how
• Amphibological tolerance • Research resources • Interdisciplinary know-how
Technological contribution
Prototype testing
• Technological competency
Market Research
Lead User
Requesting Customer
Reference Customer
Launching Customer
Launching Customer
Figure 3. Required Customer Profile for Participation in NPD Process Note: Adapted from Lettl (2004)
and combined with the knowledge gained from the Swiss Eng case, we have adapted this model for engineering companies. We therefore provide an overview of the customer profile’s coherence and customers’ contribution to the NPD process (see Figure 3).
Conclusion As illustrated in this article, customer integration, and specially the integration of lead users in practice, is far from being perfect. This is because companies still do not understand when and how the lead-user approach should be used to reduce radical innovation’s market risk. The company’s project team did indeed do its best to identify the appropriate customer, but such activities become obsolete when the customer is not given the opportunity to integrate his knowledge. Setting the stage for such integration involves: • finding the right customer who possesses the knowledge and capabilities necessary for the current stage of the innovation project (in this case, technical knowledge); • choosing the right customer category in keeping with the expected benefits for the innovation project (in this case, reference customers or first buyers instead of lead users);
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• identifying and integrating customer needs in an early phase of the innovation project (much earlier than in prototype development, although market research results are limited in respect of radical innovations); and • paying attention to both the project team and management’s motivation for integrating customers (overcoming ‘Betty’s’ project team’s not-invented-here syndrome, or the management’s mistaken expectations). Looking back at the initial goal of Swiss Eng’s customer integration project, it is clear that the company wanted to reduce the market risk for its radical innovation by identifying its customers’ needs. The results turned out to be very different to what was expected. At the end of the project, the company had reached its goal of knowing more about its customer needs and was able to deduce the functions expected from a new machine from the interview findings, but these functions turned out to be very different from what was offered by the ‘Betty’ prototype. Swiss Eng’s approach had been correct – it was only presented at the wrong moment in the innovation project process as a result of an erroneous understanding of customers’ contribution. The failures described in this case study also illustrate that there is much left to do in respect of research into customer integration. First of © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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all, companies need to know what contribution a specific customer can provide. The reference framework (Figure 3) might help to clarify this. Second, companies need much more detailed help in selecting and applying customer integration approaches for their needs – help which science does not as yet provide (e.g. research into selection criteria for lead users or other customer categories, stage descriptions, work on motivating customers to participate etc.). We initiate such help by providing a stage-gate process for the identification of customer (Figure 2 and Table 2) and profile requirements needed for a specific customer contribution to the NPD process (Figure 3).
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Coyne, W. (2000) Lead User: A Conversation with William Coyne. Health Forum Journal, 43(4), 28–29. Deszca, G., Munro, H. and Noori, H. (1999) Developing breakthrough products: challenges and options for market assessment. Journal of Operations Management, 17(6), 613–30. Dolan, R.J. and Matthews, J.M. (1993) Maximizing the Utility of Customer Product Testing: Beta Test Design and Management. Journal of Product Innovation Management, 10(4), 318–30. Enkel, E., Kausch, C. and Gassmann, O. (2005) Managing the Risk of Customer Integration. European Management Journal, 23(2), 203–13. Gales, L. and Mansour-Cole, D. (1991) User involvement in innovation projects: A reassessment using information processing. Academy of Management Proceedings, 347–51. Gassmann, O. and Enkel, E. (2004) Towards a Theory of Open Innovation: Three Core Process Archetypes. Proceedings of the R&D Management Conference. Gassmann, O., Kobe, C. and Voit, E. (2001) HighRisk-Projekte. Springer-Verlag, Berlin, Heidelberg, New York. Gruner, K.E. and Homburg, C. (2000) Does Customer Interaction Enhance New Product Success? Journal of Business Research, 49(1), 1–14. Harhoff, D., Henkel, J. and von Hippel, E. (2003) Profiting from voluntary information spillovers: how users benefit by freely revealing their innovations. Research Policy, 32(10), 1753–69. Hauschildt, J. and Kirchmann, E. (2001) Teamwork for innovation – the ‘troika’ of promotors. R&D Management, 31(1), 41–49. Henard, D.H. and Szymanski, D.M. (2001) Why Some New Products Are More Successful Than Others. Journal of Marketing Research (JMR), 38(3), 362–75. Herstatt, C. and von Hippel, E. (1992) From Experience: Developing New Product Concepts Via the Lead User Method: A Case Study in a ‘LowTech’ Field. Journal of Product Innovation Management, 9(3), 213–21. Hutt, M.D. and Stafford, E.R. (2000) Defining the Social Network of a Strategic Alliance. Sloan Management Review, 41(2), 51–62. Kirschmann, E.M.W. and Warschburger, V. (2003) Gemeinsam sind wir stärker. io new management, 11(3), 42–49. Kleef, E.V., Trijp, H.C.M.V. and Luning, P. (2005) Consumer research in the early stages of new product development: a critical review of methods and techniques. Food Quality and Preference, 16(3), 181–201. Kleinschmidt, E.J. and Cooper, R.G. (1991) The Impact of Product Innovativeness on Performance. Journal of Product Innovation Management, 8(4), 240–51. Koen, P., Ajamian, G., Burkart, R., 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(2), 46–55. Kohli, A.K. and Jaworski, B.J. (1990) Market Orientation: The Construct, Research Propositions,
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and Managerial Implications. Journal of Marketing, 54(2), 1–18. Lengnick-Hall, C.A. (1996) Customer contributions to quality: A different view of the customeroriented firm. Academy of Management Review, 21(3), 791–824. Leonard-Barton, D. and Sinha, D.K. (1993) Developer-user interaction and user satisfaction in internal technology transfer. Academy of Management Journal, 36(5), 1125–39. Lettl, C. (2004) Die Rolle von Anwendern bei hochgradigen Innovationen. Gabler Edition Wissenschaft, Wiesbaden. Lilien, G.L., Morrison, P.D., Searls, K., Sonnack, M. and von Hippel, E. (2002) Performance Assessment of the Lead User Idea-Generation Process for New Product Development. Management Science, 48(8), 1042–59. Littler, D., Leverick, F. and Bruce, M. (1995) Factors Affecting the Process of Collaborative Product Development: A Study of UK Manufacturers of Information and Communications Technology Products. Journal of Product Innovation Management, 12(1), 16–32. Lüthje, C. (2004) Characteristics of innovating users in a consumer goods field: An empirical study of sport-related product consumers. Technovation, 24(9), 683–95. Lüthje, C. and Herstatt, C. (2004) The Lead User method: an outline of empirical findings and issues for future research. R & D Management, 34(5), 553–68. Lynn, G.S., Morone, J.G. and Paulson, A.S. (1996) Marketing and discontinuous innovation: The probe and learn process. California Management Review, 38(3), 8–37. Markham, S.K. and Griffin, A. (1998) The Breakfast of Champions: Associations Between Champions and Product Development Environments, Practices and Performance. Journal of Product Innovation Management, 15(5), 436–54. Maron, R.M. and VanBremen, L. (1999) The Influence of Organizational Culture on Strategic Alliances. Association Management, 51(4), 86–92. Mohr, J.J. and Spekman, R.E. (1996) Perfecting partnerships. Marketing Management, 4(4), 34–43. Morrison, P.D., Roberts, J.H. and von Hippel, E. (2000) Determinants of User Innovation and Innovation Sharing in a Local Market. Management Science, 46(12), 1513–27. Murphy, S.A. and Kumar, V. (1997) The front end of new product development: A Canadian survey. R & D Management, 27(1), 5–15. Nambisan, S. (2002) Designing Virtual Customer Environments for New Product Development: Toward a Theory. Academy of Management Review, 27(3), 392–413. Noori, H. and Munro, H. (1999) Developing the ‘right’ breakthrough product/service: an umbrella methodology – Part A. International Journal of Technology Management, 17(5), 544– 62. Noori, H., Munro, H., Deszca, G. and Cohen, M. (1996) Methodologies for developing breakthrough products and services: what we know and don’t know. Laurier Business School, Wilfried Laurier University, Waterloo, Ontario, Canada.
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O’Connor, G.C. (1998) Market Learning and Radical Innovation: A Cross Case Comparison of Eight Radical Innovation Projects. Journal of Product Innovation Management, 15(2), 151–66. Ozer, M. (1999) A Survey of New Product Evaluation Models. Journal of Product Innovation Management, 16(1), 77–94. Pisano, G.P. (1990) The R&D Boundaries of the Firm: An Empirical Analysis. Administrative Science Quarterly, 35(1), 153–76. Quinn, J.B. (2000) Outsourcing Innovation: The New Engine of Growth. Sloan Management Review, 41(4), 13–28. Rigby, D. and Zook, C. (2002) Open-Market Innovation. Harvard Business Review, 80(10), 80– 89. Riggs, W. and von Hippel, E. (1994) Incentives to innovate and the sources of innovation: The case of scientific instruments. Research Policy, 23(4), 459–69. Robertson, P.L. and Langlois, R.N. (1995) Innovation, networks and vertical integration. Research Policy, 24(4), 543–62. Saaty, T.L. (1990) How to make a decision: The Analytic Hierachy Process. European Journal of Operational Research, 48(1), 9–26. Salomo, S., Steinhoff, F. and Trommsdorff, V. (2003) Customer orientation in innovation projects and new product development success – the moderating effect of product innovativeness. International Journal of Technology Management, 26(5/6), 442–63. Schoormans, J.P.L., Ortt, R.J. and de Bont, C.J.P.M. (1995) Enhancing Concept Test Validity by Using Expert Consumers. Journal of Product Innovation Management, 12(2), 153–62. Slaugther, S. (1993) Innovation and learning during implementation: A comparison of user and manufacturer innovations. Research Policy, 22(1), 81– 95. Souder, W.E., Sherman, J.D. and Davies-Cooper, R. (1998) Environmental Uncertainty, Organizational Integration, and New Product Development Effectiveness: A Test of Contingency Theory. Journal of Product Innovation Management, 15(6), 520–33. Thomke, S. and von Hippel, E. (2002) Customers as Innovators: A New Way to Create Value. Harvard Business Review, 80(4), 74–81. Ulwick, A.W. (2002) Turn Customer Input into Innovation. Harvard Business Review, 80(1), 91– 97. Urban, G.L. and von Hippel, E. (1988) Lead User Analyses for the Development of New Industrial Products. Management Science, 34(5), 569– 82. Urban, G.L., Weinberg, B.D. and Hauser, J.R. (1996) Premarket forecasting of really-new products. Journal of Marketing, 60(1), 47–60. Veryzer, R.W. (1998a) Key Factors Affecting Customer Evaluation of Discontinuous New Products. Journal of Product Innovation Management, 15(2), 136–50. Veryzer, R.W. (1998b) Discontinuous Innovation and the New Product Development Process. Journal of Product Innovation Management, 15(4), 304– 21. © 2005 The Authors Journal compilation © 2005 Blackwell Publishing
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von Hippel, E. (1986) Lead User: A Source of Novel Product Concepts. Management Science, 32(7), 791–805. von Hippel, E. (1988) The sources of innovation. McKinsey Quarterly, (1), 72–79. von Hippel, E., Thomke, S. and Sonnack, M. (2000) Creating Breakthroughs at 3M. Health Forum Journal, 43(4), 20–27. Voss, C.A. (1985a) The Role of Users in the Development of Applications Software. Journal of Product Innovation Management, 2(2), 113–21. Voss, C.A. (1985b) Determinants of Success in the Development of Applications Software. Journal of Product Innovation Management, 2(2), 122–29. Yin, R.K. (1994) Case Study Research: Design and methods. Sage Publications, Thousand Oaks, CA.
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Ellen Enkel is head of the competence centre Open Innovation at the Institute of Technology Management (ITEM) at the University of St. Gallen. Her research interest focuses on co-operative innovation processes and innovation networks within and across companies. Previously she worked in the field of strategic management and information management as leader of the research centre Knowledge Source at the University of St. Gallen. She received her PhD summa cum laude on the topic of knowledge networking concepts at the University of Bielefeld (Germany), and has published four books and several articles in the area of knowledge and innovation management. Javier Perez-Freije is a doctoral candidate and research associate at the University of St. Gallen’s Institute of Technology Management (ITEM). His research focuses on early innovation processes. He studied MBA & Engineering at the University of Siegen (Germany) and subsequently worked in the product controlling and product management department of the BMW Group in Munich for three years. Oliver Gassmann is Professor for Technology Management at the University of St. Gallen and Director at the Institute of Technology Management ITEM. After his PhD in 1996, he worked for Schindler Corporation, headquartered in Ebikon (Switzerland). From 1998–2002 he was Vice President Technology Management responsible for corporate research worldwide. In addition, he is member of several boards, e.g. economiesuisse’s Board for Science and Research and R&D Management’s Editorial Board. He has published 10 books as author, co-author and editor, and over 130 publications in the area of technology and innovation management.
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Book Review Huber, G.P. The Necessary Nature of Future Firms. Attributes of Survivors in a Changing world, 2004, Sage Publications ISBN 0-7619-3036-1
Under the intriguing title The Necessary Nature of Future Firms, George Huber develops a framework for managers to evaluate their own situation, routines and practices from a perspective of survival and future success. The author challenges managers to rethink their habits, their mental models and taken for granted interpretations of their business environment, of events that may happen and of their decisions and interventions. Many more or less fundamental question marks arise along common lines of reasoning. The book is a next step after Huber’s prize-winning 1984 article ‘The Nature and Design of Postindustrial Organisations’, and his 1993 book, Organisational Change and Redesign, co-edited with Bill Glick, in that it now explicitly acknowledges that in the future, environmental dynamism will be greater, and it will be increasing (p. 3), and that it deals with the changes in the nature of the organizations that are able to survive. The title of this book is intriguing in the sense that one might expect that Huber positively contributes to determining what the nature of firms must be if they are to survive in future. However, the book cannot be this normative, for Huber also argues that the future environment with which the firm should attain and maintain congruence is not just changing continuously or incrementally as if it were in a transition. Rather, the rate with which environments change accelerates fast and changes are more fundamental and radical, and therefore it would not be possible to actually predict the ‘right’ form for the successful firm of the future, apart from the notion that its abilities to change and adapt should be extremely well developed. Reading the book, I often felt this paradoxical position. Despite this fundamental tension in the message and in the design of the book the author is in many respects convincing regarding the direction in which firms should develop. He offers a huge number of characteristics of surviving firms and their environmental conditions. Most of them are worthwhile to read and can be very well understood also practi-
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cally, given his arguments and sometimes extensive references and comments in the footnotes. Some of the future design features and management practices Huber predicts and suggests are self-evident or even trivial, others may be disputable. Given the rich, nuanced and well-argued way in which the author describes the business environment it is not possible to give more than a partial impression of the nine chapters the book comprises. The ninth chapter is a quite useful summary of the overall book. My discussion of each of the chapters follows below. The book starts with addressing popular business press for its lack of a sound analysis of what changes in the business environment and what the most adequate answers by the management should be in terms of organizational attributes and managerial practices. Future success can not be predicted on the basis of actual experiences of high-performing firms alone. Past experience is less useful than ever before, according to the author. With his focus, in the beginning of the book, on future environments of business organizations the author stresses on the need for a dynamic ‘congruence’ (which term is synonymous with ‘fit’ or ‘alignment’) between the firm and its environment. In Chapter 2 Huber explains how future environments will be different and significantly more challenging compared with recent decennia. Business environments will be characterized by more and increasing scientific knowledge, technologies, complexity, dynamism and competitiveness. These five characteristics, in combination, are elaborated and explained. The growth of knowledge accelerates from within the knowledge development itself as well as because of the increasing capabilities of the communication technologies. During the whole book the author mentions the decisive importance of communication, information and transportation. It is not only in these areas that developments in technology are accelerating. The same counts for developments in manufacturing technology such as computer-aided engineering and man© 2005 The Author Journal compilation © 2005 Blackwell Publishing
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ufacturing and the use of computer simulations and virtual reality technologies in design and development. Increasing scientific knowledge and effectiveness of technology causes increased environmental complexity, dynamism and competitiveness. With ample argumentation and examples the author explains, amongst others, how in the future the number of products, markets and firms in the business environments will be greater and growing at an increasing rate. Firms will be forced to include within their makeup a greater variety and/or number of sensors or they have to move to simpler environments. In the same way firms are forced to cope with an increased interdependence because of the increase of outsourcing and inter-organizational relationships. Chapter 3 deals with ‘sensing and interpreting the environment’. In this chapter the author argues that environmental sensing is a critical organizational function. Preparing for the future implies dedicated, systematic efforts of all members of the organization. He explains and illustrates with a lot of examples how difficult it is, and how disciplined and well organized these efforts have to be. Future firms will be more active in supporting and encouraging their members in their sensor roles. He expects, amongst others, that more attention will be directed to non-financial measures as leading indicators of environmental change and of firm performance. One of the topics the author extensively discusses in this chapter is the need for the development of rich and accurate mental models and managers’ cross-understanding of each other’s mental models. Under the title ‘Organizational decision making’ in Chapter 4 the author explores the decision-making function of future firms. He argues that decision situations will be more complicated in the future and that future firms will make decisions more rapidly. Future firms will necessarily have to direct more effort toward selecting, developing and supporting decision-makers. In future firms, managers will use more vigilant decision-making processes, truly intuitive decision making will be rare. Managers as well as review committees, project teams and crisis management teams will posses a broader range of knowledge, or are readily able to access a broader range of knowledge, or both. Next to the professional skills and capabilities of managers the author stresses on the expectation that in future firms decision making is a highly professionalized, well-organized, systematic process. In Chapters 5, 6 and 7, the key words are learning, knowledge and innovation. Learning and knowledge management are primary © 2005 The Author Journal compilation © 2005 Blackwell Publishing
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tasks for future firms. ‘How to learn, by experiments, by action probes, by in-depth analyses?’ is an important question in Chapter 5. A theme that is discussed extensively regards the acquisition of knowledge by learning and by enhancing the learning capacity. Accordingly, for instance, the future firm will be more active in providing formal job-related learning opportunities. A main point is also the need to learn from others, which can be done for example by the temporary employment of experts and by temporary technology-transfer alliances. Chapter 6 starts with the explanation that knowledge in organizations is held in four repositories: (1) the minds of its members, (2) firm’s documents and data files, (3) knowledge embedded in its products and (4) the work flows, office layouts, operating equipment, decision-support systems, business practices and processes. In order to manage knowledge in an adequate way, given future environments, the author stresses on the importance of the organizational culture, which should support free and full knowledge sharing. One of the different topics the author elaborates on regards the planned knowledge sharing amongst teams. He concludes that future firms will more frequently institutionalize the practice of having their teams create and deliver ‘lessons learned’ documents. The title of Chapter 7 indicates the message of the author: innovation requires a new integration of knowledge. In order to reach this new integration, he states amongst other things that future firms will more frequently include networks of teams, that they will more intensely employ high-telepresence communication technologies and that they will more frequently bring specially qualified experts deep into the intellectual operations of the firm. Chapter 8 deals with the conflicting needs for change, efficiency, flexibility and employee commitment. One of the huge dilemmas regards the tension between, on the one hand the need to be prepared to react very fast on unexpected, changing circumstances, and on the other hand, the need to develop structures and processes that enable the firm to exploit existing experiences and routines. Also in this chapter, the issue of the organizational culture is extensively discussed. After reading the book I had the feeling that the time and effort invested were more than worthwhile. In fact, it is not really an effort because the book is very easily accessible. It is very well structured and systematically written. The author puts essentials in italics, he summarizes regularly and gives schematic representations of his lines of reasoning. From a content point of view it has real addedvalue. Reading the book I also experienced
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how the author’s impressive practical as well as theoretical background come together. Yet, it is a pity that most of the theoretical background is referred to in the footnotes only. Perhaps Huber underestimates managers somewhat by saying that embedding organizational science theories into the full text would slow the flow and be of little service to managers who care very little about scientific abstractions of what they observe. At the same time he might be overrating academics when he argues that calling attention to the theories, and citing the well-known works, would not be of real service to academics, who he considers to be already familiar with these matters. As a scholar myself I can still find added value in this. It is also really praiseworthy that the author has an open mind towards different theoretical approaches and positions. To give an example: where the author deals with the relation environment–firm he not only refers to the contingency theory but implicitly or explicitly also to, amongst others, the resource dependence theory and the population ecology. One interesting – methodological – point that comes up when reading the book regards the status of the statements about future environments and future firms. Relating back to my remarks made at the beginning of the book review regarding determinism and extent to which Huber’s statements regarding future firms are normative, one should keep wonder-
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ing whether the statements (mostly in italics) are of a descriptive (reflecting expectations: future firms ‘will’ . . .) or rather a prescriptive nature (which would be grasped in words like ‘necessary’ or ‘need’). And: when speaking of future firms, does not he in many cases mean future successful firms (which would bring in the normative element)? A good example of such a normative position is the following statement: ‘future firms will more actively engage in intelligence gathering. Not to do so would be foolish. Foolish firms will not survive’. A more explicit reflection on this essentially methodological issue would have been appreciated. Altogether I would like to conclude very positively about the book, its content, its structure and its potential added value for future success in business. Both for managers and organizational scientists it is worthwhile to read! Olaf Fisscher University of Twente
Huber, G.P. (1984) The nature and design of postindustrial organisations. Management Science, 30(8), 928–51. Huber, G.P. and Glick, W.H. (1993) Organisational Change and Redesign: Ideas and Insights for Improving Organisational Performance. New York: Oxford University Press.
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Index to Volume 14 (e.g. 2/191 = number 2, page 191)
ARTICLES ABETTI, Pier A. Case Study: The Creative Evolution of Steria: From French Venture to European Leader without Loss of Entrepreneurial Spirit and Control (1969–2004) 2/191 AMES, Michael and RUNCO, Mark A. Predicting Entrepreneurship From Ideation and Divergent Thinking 3/311 ANDRIOPOULOS, Constantine and GOTSI, Manto. The Virtues of ‘Blue Sky’ Projects: How Lunar Design Taps into the Power of Imagination
3/316
BASSETT-JONES, Nigel. The Paradox of Diversity Management, Creativity and Innovation 2/169
GASSMANN, Oliver and REEPMEYER, Gerrit. Organizing Pharmaceutical Innovation: From Science-Based Knowledge Creators to Drug-oriented Knowledge Brokers 3/233 HANER, Udo-Ernst. Spaces for Creativity and Innovation in Two Established Organizations 3/288 HATCHUEL, Armand, LE MASSON, Pascal and WEIL, Benoit. The Development of Science-Based Products: Managing by Design Spaces 4/345 HILL, Bernd. Goal Setting Through Contradiction Analysis in the Bionics-Oriented Construction Process
1/59
BONDAROUK, Tanya and LOOISE, Jan Kees. HR Contribution to IT Innovation Implementation: Results of Three Case Studies 2/160
HIPPLE, Jack. The Integration of TRIZ with Other Ideation Tools and Processes as well as with Psychological Assessment Tools 1/22
CESARONI, Fabrizio, MININ, Alberto Di and PICCALUGA, Andrea. Exploration and Exploitation Strategies in Industrial R&D 3/222
HURMELINNA, Pia, BLOMQVIST, Kirsmarja, PUUMALAINEN, Kaisu and SAARENKETO, Sami. Striving Towards R&D Collaboration Performance: The Effect of Assymetry, Trust and Contracting 4/374
CHRISTIANSEN, John, HANSEN, Allan, VARNES, Claus and MIKKOLA, Juliana. Competence Strategies in Organizing for Product Development 4/384 DAWSON, Kelly, LARSEN, Povl, CAWOOD, Gavin and LEWIS, Alan. National Product Design Identities 4/393 DE LEEDE, Jan and LOOISE, Jan Kees. Innovation and HRM: Towards an Integrated Framework 2/108 DORENBOSCH, Luc, VAN ENGEN, Marloes and VERHAGEN, Marinus. On-the-job Innovation: The Impact of Job Design and Human Resource Management through Production Ownership 2/129 ENKEL, Ellen, PEREZ-FREIJE, Javier and GASSMANN, Oliver. Minimizing Market Risks Through Customer Integration in New Product Development: Learning from Bad Practice 4/425
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KONERS, Ursula and GOFFIN, Keith. Learning from New Product Development Projects: An Exploratory Study 4/334 LEDWITH, Ann and COUGHLAN, Paul. Splendid Isolation: Does Networking Really Increase New Product Success 4/366 LEWIS, Michael and MOULTRIE, James. The Organizational Innovation Laboratory
1/73
MANIMALA, Mathew J., JOSE, P.D. and THOMAS, K. Raju. Organizational Design for Enhancing the Impact of Incremental Innovations: A Qualitative Analysis of Innovative Cases in the Context of a Developing Economy 4/413 MANN, Darrell. New and Emerging Contradiction Elimination Tools
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MEDINA, Carmen Cabello, LAVADO, Antonio Carmona and CABRERA, Ramón Valle. Characteristics of Innovative Companies: A Case Study of Companies in Different Sectors 3/272
VANHAVERBEKE, Wim and PEETERS, Nico. Embracing Innovation as Strategy: Corporate Venturing, Competence Building and Corporate Strategy Making 3/246
MOEHRLE, Martin G. What is TRIZ? From Conceptual Basics to a Framework for Research 1/3
VARELA, José Antonio, FERNÁNDEZ, Pilar, RÍO, M. Luisa Del and BANDE, Belén. Cross-Functional Conflict, Conflict Handling Behaviours and New Product Performance in Spanish Firms 4/355
MUELLER, Sandra. The TRIZ Resource Analysis Tool for Solving Management Tasks: Previous Classifications and their Modification 1/43 OTTESEN, Geir Grundvåg and GRØNHAUG, Kjell. Positive Illusions and New Venture Creation: Conceptual Issues and an Empirical Illustration 4/405 RAMAMOORTHY, Nagarajan, FLOOD, Patrick C., SLATTERY, Tracy and SARDESSAI, Ron. Determinants of Innovative Work Behaviour: Development and Test of an Integrated Model 2/142 SHIPTON, Helen, FAY, Doris, WEST, Michael, PATTERSON, Malcolm and BIRDI, Kamal. Managing People to Promote Innovation 2/118 SOOSAY, Claudine A. An Empirical Study of Individual Competencies in Distribution Centres to Enable Continuous Innovation 3/299 STEIJN, Bram and TIJDENS, Kea. Workers and Their Willingness to Learn: Will ICTImplementation Strategies and HRM Practices Contribute to Innovation? 2/151 SUNDGREN, Mats, SELART, Marcus, INGELGÅRD, Anders and BENGTSON, Curt. Dialogue-Based Evaluation as a Creative Climate Indicator: Evidence from the Pharmaceutical Industry 1/84 UITTENBOGAARD, Boaz, BROENS, Lute and GROEN, Aard J. Towards a Guideline for Design of a Corporate Entrepreneurship Function for Business Development in Medium-Sized Technology-Based Companies 3/258 VAN LOOY, Bart, MARTENS, Thierry and DEBACKERE, Koenraad. Organizing for Continuous Innovation: On the Sustainability of Ambidextrous Organizations 3/208
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VINCENT, Julian F.V., BOGATYREVA, Olga, PAHL, Anja-Karina, BOGATYREV, Nikolay and BOWYER, Adrian. Putting Biology into TRIZ: A Database of Biological Effects 1/66 YAP, Chee-Meng, CHAI, Kah-Hin and LEMAIRE, Patrick. An Empirical Study on Functional Diversity and Innovation in SMEs 2/176 ZHANG, Jun, CHAI, Kah-Hin and TAN, Kay-Chuan. Applying TRIZ to Service Conceptual Design: An Exploratory Study 1/34 BOOK REVIEWS FISSCHER, Olaf. The Necessary Nature of Future Firms. Attributes of Survivors in a Changing World by Huber, G.P. 4/438 GERITZ, Anja. Jan Verloop, Insight in Innovation: Managing Innovation by Understanding the Laws of Innovation 1/99 HUNCK-MEISWINKEL, Astrid. Cross-functional Innovation Management: Perspectives from Different Disciplines by Albers, Sönke 3/325 VAN DER LUGT, Remko. Creative Knowledge Environments: The Influences On Creativity In Research And Innovation by Hemlin, Sven, Allwood, Carl Martin and Martin, Ben R. 3/328 VAN DER MEER, Han. The Art of Innovation Lessons in Creativity from IDEO America’s Leading Design Firm by Kelley, Tom (with Jonathan Littman) 3/327 WALTER, Lothar. Stefan H. Thomke, Experimentation Matters: Unlocking the Potential of New Technologies for Innovation 1/102
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