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An empirical study of university spin-off development

University spin-off development

Manuel H. Gu¨beli DTI Management AG, Zurich, Switzerland, and

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David Doloreux Universite´ du Que´bec a` Rimouski, Rimouski, Que´bec, Canada Abstract Purpose – The paper is concerned with spin-off firms and the process by which a new firm is created and formed from a university. The objectives are to examine characteristics of firms generated by this process, and the intensity of the spin-off firms’ network activity with the parent organisation and the local environment during this process. Design/methodology/approach – The findings are based on a case-study consisting out of three firms spun-off from a research centre at Linko¨ping University in the area of visualisation and computer graphics. The source data are gathered from semi-structured interviews. No generalisation should be drawn from this study due to the small number of firms interviewed and the scope of the technological area addressed. Findings – The results show the importance of collaboration between the university spin-off, with both the parental organisation and outside organisms, to acquire external competencies in the technological area. The parental organisation plays a pivotal role in the spin-off process, especially in its early stage where its catalyses the emergence of the business idea by supporting the spin-off firm with infrastructure and expertise in a specific field of mentorship. However, as the spin-off evolves, this pre-incubation service complements yet more support services of municipality and region, which stand to be more important in the technological and business development of the spin-off. Originality/value – University spin-offs have an important place in the innovation process, but their promotion must be part of a wider policy package encouraging networking not only with the host university, but with industry and the public sector as well. For universities and public research organisations, it is advisable to take a more active role in the spin-off process beyond the pre-incubation stage. Keywords Universities, Organizations, Parent companies Paper type Research paper

Generally, few empirical studies have been drawn of high-technology spin-offs and of the supportive environment conducive to their development and growth. There have been studies dealing with entrepreneurship and firm formation in a broad sense (Lindholm, 1997); the development of university spin-offs (Perez and Sanchez, 2003; Rogers and Steffensen, 1999; Virtanen and Laukkanen, 2001) and other firms or organisations (Feldman and Klofsten, 2000; Stankiewicz, 1994); the growth and inventiveness of spin-offs (Lindholm, 1997; Rickne, 2000); and the extent to which they engage in networking (Yli-Renko and Autio, 1998). From a more theoretical point-of-view, efforts have been made using various models, to translate academic research results into economic value (Ndonzuau et al., 2002), and entrepreneurial activity (Radosevich, 1995), while other researchers have proposed criteria to classify and understand spin-offs (Pirnay et al., 2003).

European Journal of Innovation Management Vol. 8 No. 3, 2005 pp. 269-282 q Emerald Group Publishing Limited 1460-1060 DOI 10.1108/14601060510610153

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This paper strives to understand the spin-off phenomenon whereby a new firm is created and formed from a parent organisation. The objectives of this article are to examine the evolution of the spin-off process, the characteristics of the firms created, and the intensity of networking among spin-off firms, the parent organisation and the local environment. In the following sections, the conceptual basis for the analysis of the case studies, research methodology, and empirical results are presented, followed lastly by concluding remarks. University spin-offs According to Callan (2001), the term “spin-off” is loosely-used (where?) and generally refers to a small, new, high-technology company whose intellectual capital has its origins in a university or public research institution. A spin-off is created when one or more employees leave an existing organisation, taking with them knowledge and intellectual capital to initiate a new company. Spin-off occurrence necessarily implies that individuals formerly employed by a parent organisation and core technology are transferred from the parent organisation to a company (Rogers and Steffensen, 1999). Spin-offs can be categorised depending on the organisation they derive from, and on the source of the entrepreneur’s experience. Spin-off firms may stem from different organisations, such as R&D laboratories, private companies, or research institutes (Perez and Sanchez, 2003). Lindholm’s (1997) classification subdivides spin-offs into university spin-offs and corporate spin-offs. Although these two kinds of spin-offs have much in common, university spin-offs are more active in technology transfer than corporate spin-offs, which often try to keep the research and technology within the firm. In a comprehensive review of spin-offs, Pirnay et al. (2003) generically defines the university spin-off as a particular type of spin-off company that is created for the purpose of commercially exploiting knowledge, technology, or research results developed within a university. In order to be classified as a university spin-off, the company founder or founders must come from the university; the activity of the company must be based on technical ideas generated in the university environment; and the transfer from university to company must be direct and not via intermediate employment of the technology. Roberts and Malone (1996) identify four principal entities involved in a spin-off process: (1) The technology originator, the person or organisation that nurtures technology from basic research through the stages of innovation-development to the point where the transfer of technology can begin. (2) The parent organisation, where R&D is conducted by the technology originator, assists or restricts the spin-off process by controlling the intellectual property rights to the technology. (3) The entrepreneur, who attempts to craft a new business venture based on the technology designed by the originator. (4) The venture investor, who provides financial in return for partial equity ownership in the new company.

Stankiewicz (1994) discussed the university spin-off phenomenon, underpinning the essential factors required for its creation. He observed that the frequency of these firms forming is influenced by the parent university’s “R&D strength” and the presence of an “entrepreneurial culture” within the university and its immediate environment. He claims that entrepreneurial culture can be fostered both through education and various incubating organisations; for instance, the parent organisation and external supports.

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University spin-offs and networks Networking has received little attention in the literature on academic spin-off companies (Grandi and Grimaldi, 2003), even though the significance of networks to small innovative firms, in particular, is well documented (Doloreux, 2004a; Koschatzky et al., 2001). Additionally, the relations that develop between a spin-off and its environment during the various stages of its development is something that has only been analysed to a limited extent in the literature (Clarysse et al., 2001; Ndonzuau et al., 2002). The underlying rationale behind networking with the outside environment is the acquisition of additional, often complementary, expertise and knowledge that are not available within the firm, but necessary to develop and commercialise their products further (Koschatzky et al., 2001). Among the key external partners, we can identify local companies interested in collaborative relationships with innovation and production centres; venture capitalists; business angels; banks and other financial organisations seeking high return on investment; and local public institutions; such as government, development agencies, science parks, innovation centres and incubators, interested in starting a process of technological innovation in their territories. Networks protect firms from isolation, and permit a company to view the technological landscape so that they may control the development of innovative technology more efficiently (Hakansson, 1989). Networks represent a complementary response to insecurity arising from advancement and use of new technologies, while reducing uncertainties in innovation and development (Diez, 2000), by means of access to opportunities, resources and legitimacy (Elfring and Hulsink, 2003). Thus, networking is seen as a key feature in explaining the nature of newly established companies and in predicting their success. In order to explore our initial research question, which asks how the environment influences the spin-off process, it is necessary to look into the kinds of relations that the spin-off forms with the entrepreneurial environment during the different phases of its business creation in greater detail. In its early configuration, the spin-off is largely influenced by the entrepreneurial attitude toward defining and detecting a business idea, initiating ventures and managing them throughout their development (Virtanen and Laukkanen, 2001). This exercise is performed by individuals capable of drawing connections between specific knowledge and commercial ideas that are influenced by the local environment (Fischer, 2001). The significance of the university in technology transfer during the founding of the spin-off has already been demonstrated (Perez and Sanchez, 2003; Roberts, 1991) because it can provide knowledge, and therefore new learning opportunities, further to supporting the firm with physical assets. Thus, university networks offer the opportunity for knowledge creation and access to expertise. For example, Feldman and

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Klofsten (2000) argued that the university provides “a low cost platform for the founders to accumulate knowledge about designs, customers and direct applications” and was an “important source of R&D and exposure to cutting edge technology” for university spin-offs. In addition, Tesfaye (1997) explained that the spin-off can benefit from the university’s local network, which can be seen as an important gateway to external contacts, including government offices, professionals, investors and customers. Likewise, the spin-off firms become more embedded in ongoing social and economic relations, including personal and professional ties, non-equity partnership (with venture capitalist organisations), and other networks, all of which affect the way firms develop (Elfring and Hulsink, 2003). The spin-off still relies heavily on the supportive programme and incubation services offered by its host university and the local environment. Later, during its post-founding stages, the spin-off will slowly distance itself from the host university and develop stronger links with external contacts (Clarysse et al., 2001). Networks are then cultivated for firms to gain access to cutting edge technology and competencies, in order to improve the products/services and the technology to market them. Establishing close links with various agents is a key element to the survival and development of a spin-off, particularly with customers (Perez and Sanchez, 2003). At this stage, resources and complementary assets must be acquired for successful commercialisation of an innovation. These resources can be obtained by entering into relationships with other actors from outside, which are not directly mediated through the host university (Benneworth and Charles, 2004). In the remainder of this study, we examine the spin-off process and characteristics, and survey how actively spin-offs widen networks during the different stages of their development. Before describing the empirical results, the next section presents research methodology. Methodology We investigated the spin-off process of new companies from a research institute at Linko¨ping University specialising in visualisation and computer graphics in the East-Gothia region. The present investigation focuses on three companies[1], each operating in high-technology industries, but distinctive in the spin-off process through which they were created. Table I provides basic company profiles. Employee and founding year data indicate that companies are both very small; which is quite common among university spin-offs, and quite young; they all began activities in 2002. Firms are mainly engineering-based; they broaden visualisation applications and transform scientific knowledge into basic technologies within this area of visualisation. However, the area of specialisation of these firms vary: case A specialises in designing a software development kit and general consulting services, such as technical support, education and business consulting in the area of game development and diverse industrial simulation; case B specialises exclusively in modular platforms supporting a range of video games; case C concentrates mainly in services related to establishing full consulting services in visualisation applications for the private and public market. The next section contains survey results. The source data come from semi-structured interviews held in May-June of 2003. The authors conducted

Case A

Case B

Case C

General information Founding date Employees

2002 4

2002 2

2002 3

Type of firms Science-based type Engineering-based type

No Yes

No Yes

Partly Partly

Partly Yes No

No Yes No

Yes No No

Type of activities carried out inside the firm Consultancy and R&D contracting Product oriented mode Technological asset orientation mode

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Table I. Characteristics of spin-off firms

interviews with the founders of three companies, in addition to individual interviews with the directors and employees of the parent organisation. The authors conducted 90 minute interviews, using detailed questionnaires, gathered data from each company about general corporate characteristics, its development process, and its relationship with the parental organisation and other organisations in the region. Case studies In order to examine the process through which a new firm is created and formed, and to investigate the networking capacities of the spin-off with the parent organisation and the local supportive environment, this section reveals results of analyses of three case studies of university spin-offs. Each case is considered in two steps: the first investigates the foundation and development of the spin-off, and its network activities with the parental organisation, the second examines the role of the infra-structural and local support environment in the spin-off process. Case A Foundation and development. Firm A was founded by two researchers in September of 2002 (Figure 1). The founders have known one another for a long time, the acquaintance began prior to their university studies together. The idea of “making

Figure 1. The spin-off process of firm A

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more realistic virtual environments” had been considered since the onset of their university education. In this sense, the business idea pre-dates the university’s influence as one of the founders attested. Yet, university lectures and projects gave founders the opportunity to further explore their idea and gain insights into use of visualisation and computer graphic tools and equipment. University training fostered new concepts to create virtual environments, i.e. by applying physics. The prospect of working in parental organisation’s laboratory, i.e. with devices, gave them novel ideas regarding the true nature of virtual reality and where it will likely develop in future, signalling potential new markets to explore. A first prototype of a physics engine to simulate rigid body interaction was developed in the final thesis. The parental organisation provided office space and supervision. As the thesis deadline was not firm; the founders could take the time they needed; and had the infrastructure to develop core technology in the form of a prototype. The first formal contact between the founders and the parental organisation was in 2000 via courses the two founders chose for their final year’s specialisation. The founders attended lectures over a one-year period at the parent institution until 2001. One year after the first contact with the parental organisation, the founders decided that the final thesis would be done under its auspices, providing them with mentorship and office space. The final thesis gave founders the chance to develop a physic engine prototype. According to one founder, this engine, or the basic idea behind it, are still used in the firm’s product. Both founding members worked at a local company as programmers while completing their education. According to one of them, this work experience was an important factor in deciding to start a company. He said not only did they gain “developing experience”, but, they learned that it “is possible” to start something from scratch. They stopped working just prior to launching the firm. Before opening the firm, they attended the ENP-Program[2] and moved into the Startup Building of ProNova Science Park in 2002. Since the establishment of the firm, two former schoolmates were hired to work on product development. The network activities of the spin-off with the parental organisation. The founders of case A were poised to establish a range of contacts through courses and projects conducted at the parental organisation. One of the founders described the situation by saying, “people know each other”. Some of these relationships have since dissolved; some are still intact and have developed even further over time, i.e. a researcher at the parental organisation who was involved in the final thesis, has become a shareholder in the firm. This person assists the entrepreneurs with managerial issues, i.e. setting up contracts or organisational advice. This researcher stated that he tries to bring the firm in contact with other organisations within his personal network. However, he specified that he offers assistance not as a representative of the parental organisation, but rather as a duty of acting shareholder and board member of the new firm. Furthermore, the founders seem to hold informal meetings with other researchers at the parental organisation to discuss technical problems. Overall it can be said that the firm has a relationship with the parental organisation at a more personal, informal level. One of the founders described the situation saying he/she felt “close to the university” in the sense that faculty can be called on as needed

to meet. Yet, the new firm has “nothing professional in common” with the parental organisation, in the sense that they do not have joint projects nor does the university use the firm’s products. Moreover, the founder assumed that even when they no longer engage in formal collaboration with the parental organisation, contact will not be lost due to its close proximity. Case B Foundation and development. Firm B was established by two individuals in 2002 (Figure 2), as they worked towards their MSc degrees. The two entrepreneurs were in the same program at university and were well-acquainted. In the third grade they did a project together, which ultimately inspired the business idea for their firm. Although the founders had previous experiences with founding a firm, they went through the ENP-program in order to learn more about “how to get started”. After the ENP-program and while launching the firm, they moved into the Startup Building of ProNova Science Park. The business idea emerged during a university course project to develop a flight simulator. The assignment provided them with both insight into burgeoning technological fields, and the realisation that these technologies offer opportunities to develop games more efficiently. Besides their university education, the two founders were employed at a local company in the area of system software development. This experience was essential to developing a business platform of game support and designing software solutions in general. The founders said that most of the knowledge and skills needed to develop their product stemmed from their university education and work experience. More precisely, the game development was influenced by the knowledge and skills (i.e. computer graphics and certain tools for game development) learned at university, while the idea for the business came from work experiences. The decision to develop games first and the platform later was influenced by a previous employer. Although the founders of firm B were familiar with the parental organisation, the first contact occurred only once the firm was founded. The organisation providing the new firm with support does not strictly subscribe to the definition of a “parental organisation” in this case. However, the business idea did emerge from a course project carried out at the university. The founder came into

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Figure 2. The spin-off process of firm B

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contact with the helper organisation in autumn of 2002 where lectures for their final year of the MSc program were conducted. Spin-off network activities with the parental organisation. Interviews conducted with firm B showed that contacts with the parental organisation do not exist in the context of the firm’s business operations. This is explained by the fact that the firm does not directly originate from parental organisation activities. The first contact with the parental organisation occurred only after the firm became based out of the research institute. Further, no evidence was found indicating that the founders are interested in collaborating with the parental organisation. The reason for this finding might be that the founders see the future of the firm as uncertain; or, as the founders indicate, the research conducted at the parental organisation “is too scientific” to apply to the firm’s products. On the other hand, the founders do not seem to maintain contact with individuals originally involved with the project which first gave rise to the business idea. Case C Foundation and development. Case C was set up by two persons in January of 2003 (Figure 3). The two founders attended the same university classes. The business idea emerged gradually, materialising with the final thesis and developing further through employment at the parental organisation. During the final thesis research, the founders encountered a company that was interested in approaching their data and findings in new ways and with new technologies. In this sense, firm creators could identify niche markets and a demand for their concepts. While founders worked at the parental organisation, the company founders were involved in different projects carried out with partners from diverse sectors and areas in the field of scientific visualisation. This firm’s main asset was its opportunity to work closely with the parental organisation on the latest technology in the area of visualisation and computer graphics. Through a course in autumn of 2000, company founders first encountered individuals from the parental organisation, who supervised their final thesis. The thesis dealt with simulation of weather situations, i.e. snow and visualisation of climate changes, and the Swedish Meteorological and Hydrological Institute[3] provided them with data. Following the final thesis, both founders were hired by the parental organisation. Since then, they have remained at the parental organisation as research engineers on different projects; one founder is employed on a project-to-project basis and the other

Figure 3. The spin-off process of firm C

obtained a permanent work contract. After starting the firm, a master’s student taking courses at the parental organisation joined the two founders. They subsequently visited and completed the ENP-program. Spin-off network activities with the parental organisation. In case C, the relationship between the founders and the parental organisation was closely knit over the entire spin-off process. This is based on the fact that the founders did courses and their final thesis at the parental organisation and directly afterwards, began working there, where they continue to be employed. The new firm runs in parallel to work at the parental organisation. Since the founders are based at the parental organisation, they are in a position to update the necessary problem-solving capabilities constantly in order to offer their best service. Work at the parental organisation and the firm are congruent. Discussion of the cases In all three cases, the final thesis or course projects played a major role in the emergence and creation of the firms. The projects offered the chance to develop an initial prototype with the potential for application to the future firm’s product. This finding demonstrates the significance of brand-new firms having a “ready product” or one in an “advanced phase of development” allowing them to launch operations without delay. In most cases, projects were triggers for the actual business idea and the final university thesis in particular, helped the founders to develop their concept. Not only were thesis projects catalysts, but they also presented an opportunity for entrepreneurs to develop and elaborate the product of their future firm. By mentorship and monitoring, the university supported the development phase in addition to sharing infrastructures and expertise in the specific field. In this sense, we can reasonably argue that the university, in the case of the three spin-offs surveyed, played a major role in their pre-incubation. With respect to the relative importance of the parental organisation in the spin-off process, it can be said for all three cases that this relationship was rather important at the pre-founding stage, because during that time the business idea emerged from projects performed under the parental organisation’s supervision. The projects can be seen as a “pre-incubation service” as discussed in the previous section. According to interviews, the relations with the parental organisation, however, become more distant in the post-founding stage. It has been observed that the relationship in cases 1 and 2 lost intensity whereas case 3 maintained a close relationship to the parental organisation. One possible explanation is the fact that the first two cases are more active in networks, having initiated collaborative exchanges with other organisations, which are not directly related to the parental organisation. As a result, an important part of their knowledge acquisition has its source in other external partners, and therefore, the degree of technology transfer from the parental organisation decreased and contributes only indirectly to spin-off firms in the post-founding stage of their evolution. The role of the local and regional environment The recent literature on regional innovation system points to relations between innovative firms and their environment (Asheim and Gertler, 2004; Doloreux, 2004b) in particular, the key role played by local organisations in nurturing high-tech spin-offs (Romijn and Albaladejo, 2002).

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Figure 4. Local and regional support environment and spin-off firms

Within the region of East Gothia, there is a wide range of organisations and programs that provide a continuous flow of information and knowledge to support efforts of innovation and technology transfer (Doloreux et al., 2004; Reed, 2000). These organisations may be administered at municipal (ProNova Science Park), regional (ENP-program) or national levels with a regional character with ALMI, which is the Foundation for Small Business Development in Linko¨ping. Notably, Linko¨ping University supports entrepreneurial culture and new business formation, through the Centre for Innovation and Entrepreneurship, as it helps to: develop knowledge-intensive businesses (through GROWLINK-program); channel the growth of knowledge intensive firms (through involvement in several science parks); and encourage the expansion of existing companies through participation in industrial research centres as well as through education of a skilled labour force. Figure 4 depicts regional innovation support organisations which have influenced spin-off firms at different stages of their development. One observes that most services offered by these different organisations support the spin-off process, both when the firm is launched and in its early days. As a new spin-off firm evolves, ALMI, the ENP-program, University Holding, ProNova provide different business services; such as, business idea refinement, writing a business plan

(ENP-program), financing (ALMI and ProNova[4] with the Startup Building), mentorship (ENP-program), and consultancy in legal issues and intellectual property rights with various organisations. As the firm develops, the ProNova Science Park continues to offer support in real estate matters; Kunskapsfo¨retag i Norrko¨ping (KiN) tries to improve collaboration among firms, university and the public; and the Centre of Innovation and Entrepreneurship (CIE) offers programmes to enhance management skills and organises network activities. In the early stage of the spin-off process, almost none of ¨ stsam along with Ung these services are available. The exceptions being: O Fo¨retagsamhet[5] and Linko¨ping University. In this case study, none of the spin-off founders indicated having contact with Ung Fo¨retagsamhet; but all of them were involved with the university in the beginning of the process. That signifies that the university is the only innovation-supportive organisation that is directly involved in the embryonic stage of the spin-off process. Moreover, it appears that there is a concentration of local services in the spin-off process just around the time the firm becomes established and shows sign of further growth. In the pre-incubation of the spin-off, few support services are offered and the university is the only innovation organisation in this case study showing interest in the early life of the spin-off. The observed shortfall of other innovation-supportive services in the early stage of the spin-off process might also be explained by the fact that the organisation(s) promoting different services could not be found or identified in the parameters of the current study. That might point towards a lack of awareness about these organisation(s) because they were neither located or identified by the founders of the three spin-off firms. Concluding remarks The objectives of this study are to examine how the spin-off process evolves, the characteristics of the new firms, and how actively spin-off firms engage in network development with their parent organisation and the local environment. The research is based on a case-study consisting of three firms spun-off from a research centre at Linko¨ping University in the area of visualisation and computer graphics. However, the interpretation of the results should be put into perspective and therefore, no generalisation should be drawn from this study due to the small number of firms interviewed and the scope of the technological area addressed. Based on the results of studying university spin-offs, the following conclusion can be drawn with respect to the questions stated at the beginning of the paper: . For the questions of spin-off evolution and characteristics, it is clear that the parental organisation, or the host university, plays a pivotal role in the spin-off process, especially in its early development. As shown in this study, in all three cases, the business idea emerged from projects and research conducted at the university. The projects allowed founders to flesh out a preliminary prototype and strategise about the product’s commercialisation. This pre-incubation phase was supported mainly by the university with infrastructure and expertise in a specific field of mentorship. However, as the spin-off evolves, this pre-incubation service complements yet more support services of municipality and region, which stand to be more important in the technological and business development of the spin-off.

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Concerning spin-off networking intensity the most significant result of this study is the importance of collaboration between the university spin-off, with both the parental organisation and outside organisms, to acquire external competencies in the technological area. Another interesting result is that early stages of development draw mainly on internal networks, strengths and capabilities, while in the post-founding stage of the spin-off process, there is a move towards external networks, and infra-structural and regional support. Outside contacts then become a crucial determinant in spin-off growth and success because they assist in acquiring new information and knowledge and thus reinforce spin-off innovation and learning processes throughout the technological development of products and services. As this occurs, the flow of technology transfer with parental organisation diminishes. A variety of municipal and regional support services not only strengthen the spin-off’s competencies and address necessary internal skills which may be lacking, but also generate social networks. The ENP-program and the Startup Building, offer an important networking catapult to firms sharing similar interests. The current study suggests that these meeting places are significant for the spin-off firm to build its business network.

For policy makers, university spin-offs have an important place in the innovation process, but their promotion must be part of a wider policy package encouraging networking not only with the host university, but with industry and the public sector as well. For universities and public research organisations, it is advisable to take a more active role in the spin-off process beyond the pre-incubation stage. One approach is to dedicate activities and resources to the spin-off by assuming the role of a central network agency, thus facilitating interaction and company formation by using economies of scale in information gathering, processing and diffusion. This can also be achieved by giving spin-offs access to the parental organisation’s extensive network so that they can acquire a set of initial innovation users and suppliers as well as public organisations enabling spin-off firms to overcome technological problems. Notes 1. In order to respect the privacy of the surveyed firms, they will be referred to as: university spin-off firm case A, university spin-off firm case B, and university spin-off firm case C. 2. The entrepreneurship and new business development programme (ENP) is designed for persons intending to start a business or who have an idea for one; it is offered by the university and the local science park. 3. The Swedish Meteorological and Hydrological Institute is located in the three major cities of Sweden and in a city in the north of the country, but the head office is in Norrko¨ping. 4. By offering inexpensive office space. 5. Ung Fo¨retagsamhet tries to give high-school students a taste of entrepreneurship. References Asheim, B.T. and Gertler, M.S. (2004), “Regional innovation systems and the geographical foundations of innovation”, in Fagerberg, J., Mowery, D. and Nelson, R. (Eds), Oxford Handbook of Innovation, Oxford University Press, London.

Benneworth, P. and Charles, D. (2004), “University spin-off companies and the territorial knowledge pool: building regional innovation competencies”, paper presented at the Druid Summer Conference, Elsinore. Callan, B. (2001), “Generating spin-offs: evidence from across the OECD”, STI Review, Vol. 26, pp. 13-56. Clarysse, B., Heirman, A. and Degroof, J.J. (2001), “An institutional and resource-based explanation of growth patterns of research-based spin-offs in Europe”, STI Review, Vol. 26, pp. 75-96. Diez, J.R. (2000), “The importance of public research institutes in innovative networks – empirical results from the metropolitan innovation systems Barcelona, Stockholm and Vienna”, European Planning Studies, Vol. 8 No. 4, pp. 451-63. Doloreux, D. (2004a), “Innovation networks in core manufacturing firms: evidence from the metropolitan area of Ottawa”, European Planning Studies, Vol. 12 No. 2, pp. 173-89. Doloreux, D. (2004b), “Regional innovation systems in Canada: a comparative study”, Regional Studies, Vol. 38 No. 5, pp. 479-92. Doloreux, D., Hommen, L. and Edquist, C. (2004), “Nordic regional innovation systems: an analysis of the region of East-Gothia, Sweden”, Canadian Journal of Regional Science, Vol. 27 No. 1. Elfring, T. and Hulsink, W. (2003), “Networks in entrepreneurship: the case of high-technology firms”, Small Business Economics, Vol. 21, pp. 409-22. Feldman, J. and Klofsten, M. (2000), “Medium-sized firms and the limits to growth: a case study in the evolution of a spin-off firm”, European Planning Studies, Vol. 8 No. 5, pp. 631-50. Fischer, M. (2001), “Innovation, knowledge creation and systems of innovation”, The Annals of Regional Science, Vol. 35, pp. 199-216. Grandi, A. and Grimaldi, R. (2003), “Exploring the networking characteristics of new venture founding teams”, Small Business Economics, Vol. 21 No. 4, pp. 329-41. Hakansson, H. (1989), Corporate Technological Behaviour: Co-Operation and Networks, Routledge, London. Koschatzky, K., Kulicke, M. and Zenker, A. (2001), Innovation Networks: Concept and Challenges in the European Perspective, Physica-Verlag, Heidelberg. Lindholm, D.A. (1997), “Growth and incentiveness in technology based spin-off firms”, Research Policy, Vol. 26, pp. 331-44. Ndonzuau, F.N., Pirnay, F. and Surlemont, B. (2002), “A stage model of academic spin-off creation”, Technovation, Vol. 22 No. 5, pp. 281-9. Perez, M. and Sanchez, A.M. (2003), “The development of university spin-offs: early dynamics of technology transfer and networking”, Technovation, Vol. 23 No. 10, pp. 823-31. Pirnay, F., Surlemont, B. and Nlemvo, F. (2003), “Toward a typology of university spin-offs”, Small Business Economics, Vol. 21 No. 4, pp. 355-69. Radosevich, R. (1995), “A model for entrepreneurial spin-offs from public technology sources”, International Journal of Technology Management, Vol. 10 Nos 7/8, pp. 879-93. Reed, B. (2000), “Innovation support services – supply side analysis”, unpublished manuscript, Linko¨ping. Rickne, A. (2000), New Technology-based Firm and Industrial Dynamics: Evidence from the Technological System of Biomaterials in Sweden, Ohio and Massachussets, Chalmers University of Technology, Go¨teborg.

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Roberts, E.B. (1991), Entrepreneurs in High Technology: Lessons From MIT and Beyond, Oxford University Press, New York, NY. Roberts, E.B. and Malone, D.E. (1996), “Policies and structures for spinning off new companies from research and development organizations”, R&D Management, Vol. 26 No. 1, pp. 17-48. Rogers, E.B. and Steffensen, M. (1999), “Spin-offs”, in Dorf, R. (Ed.), Handbook of Technology Management, CRC Press, Boca Raton, FL. Romijn, H. and Albaladejo, M. (2002), “Determinants of innovation capability in small electronics and software firms in southeast England”, Research Policy, Vol. 31 No. 7, pp. 1053-67. Stankiewicz, R. (1994), “Spin-off companies from universities”, Science and Public Policy, Vol. 21 No. 2, pp. 99-107. Tesfaye, B. (1997), “Patterns of formation and development of high-technology entrepreneurs”, in Jones-Evans, D. and Klofsten, M. (Eds), Technology, Innovation and Enterprise: The European Experience, St Martin’s Press, New York, NY. Virtanen, M. and Laukkanen, M. (2001), “Towards HEI-based new venture generation: the business lab of university of Kuopio”, paper presented at the European Small Business Seminar, Dublin, September. Yli-Renko, H. and Autio, E. (1998), “The network embeddedness of new, technology-based firms: developing a systemic evolution model”, Small Business Economics, Vol. 11 No. 3, pp. 253-67. Further reading Carayannis, E.G., Rogers, E.M., Kurihara, K. and Allbritton, M.M. (1998), “High-technology spin-offs from government R&D laboratories and research universities”, Technovation, Vol. 18 No. 1, pp. 1-11. Ucbasaran, D., Westhead, P. and Wright, M. (2001), “The focus of entrepreneurial research: contextual and process issues”, Entrepreneurship Theory and Practice, Vol. 25 No. 4, pp. 57-80.

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Longitudinal evaluation of innovation implementation in SMEs

Innovation implementation in SMEs

Paul Humphreys, Rodney McAdam and Jonathon Leckey University of Ulster, Belfast, UK

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Abstract Purpose – The aim of this paper is to explore the application of a process of innovation within a small to medium-sized enterprise (SME) case study organisation over a six-year period, leading to improved understanding for further application and development. Design/methodology/approach – The development of the process of innovation at the case organisation is examined using a case study methodology combining quantitative and qualitative data gathered over the longitudinal period of the study. Findings – The findings show that innovation implementation in the SME requires ongoing effort, commitment and understanding beyond that of continuous improvement. Moreover, different groupings within the SME had differing perceptions of the value and effectiveness of the innovation process. The findings indicate that innovation must be implemented using a broad range of perspectives and interventions. Originality/value – There is a paucity of studies on the longitudinal implementation of innovation, especially amongst SMEs. In this context innovation is defined from a broad management perspective as distinct from being restricted to that of technical innovation. Keywords Small to medium-sized enterprises, Innovation Paper type Research paper

Introduction The ability to innovate is increasingly viewed as the single most important factor in developing and sustaining competitive advantage (Tidd et al., 2001). It is no longer adequate to do things better; its about “doing new and better things” (Slater and Narver, 1995). Much emphasis has been placed on building innovative organisations and the management of the innovation process, as essential elements of organisational survival (Brown, 1997). Davenport and Bibby (1999) state that small to medium-sized enterprises (SMEs) increasingly need to develop their innovation capabilities beyond that of technical innovation. This need comes from increased agility in larger organisations, which enables them to erode traditional SME niche markets. Furthermore, increased internationalisation has encouraged some SMEs to operate in more competitive global markets where continuous innovation is a prerequisite (Gunasekaran et al., 1996). Throughout this paper a broad managerial perspective is taken to innovation, as distinct from solely that of technical development. Thus, people process and product dimensions are included (Tidd et al., 2001). Porter and Stern (1999) stress that such innovation involves much more than just science and technology. Bessant and Francis (1998) suggest that effective innovation must involve all areas of an SME with the potential to affect every discipline and process (McAdam, 2000). Innovation can be transformational, radical or incremental depending on the effect and nature of the change. Afuah (1998) suggests that innovations do not have to be breakthroughs or paradigm shifting, however Kim and Mauborgne (1999) maintain that organisations should strive for the larger innovations.

European Journal of Innovation Management Vol. 8 No. 3, 2005 pp. 283-304 q Emerald Group Publishing Limited 1460-1060 DOI 10.1108/14601060510610162

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Although there are a number of studies on continuous improvement in SMEs (Gunasekaran et al., 1996; Bessant and Caffyn, 1997; Bessant and Francis, 1999), there is a relative paucity of in-depth studies of innovation implementation in SMEs (McAdam, 2000). It cannot be assumed that innovation implementation principles in large organisations are directly transferable to SMEs, where the SME is treated as a scaler version of the large organisation (Teece, 1996). Thus, there is a need for studies on how innovation is implemented within the constraints and characteristics of SMEs. Teece (1996) and Klein and Sorra (1996) conclude that there is a paucity of studies on the implementation of innovation in organisations, which is particularly noticeable in the area of SMEs and longitudinal studies. They stress the need for further innovation research in these areas, covering a broad approach to innovation. The aim of this paper is to explore the application of a process of innovation within an SME case study organisation over a six-year period, leading to improved understanding for further application and development. Firstly, there is a summary of the key literature outlining the process of innovation within SMEs and the key issues in regard to innovation implementation. Second, the research methodology and results and discussions are presented for the study. The process of innovation Referring to the “process of innovation” helps to focus the study of innovation implementation in SMEs. Raymond et al. (1998) shows that processual approaches to change implementation can be used with equal validity in SMEs and large organisations. Leonard-Barton (1995) states that the process of innovation requires ongoing maintenance and renewal because the capability to innovate is much easier lost than it is to acquire. Furthermore, the implementation of a process of innovation requires a supportive organisational structure. According to Meyer (1996) and Tidd et al. (2001), an organisation structure must be designed to support innovation. This structural issue is important in SMEs where an owner/manager may have an all-pervasive influence (Choueke and Armstrong, 1998). Tidd et al. (2001) suggests that the most innovative organisations tend to be those that develop the most suitable fit between structure, operating contingencies and flexibility. Innovation cannot be viewed as the sole brief of a research and development or technical department. The process of innovation in SMEs can incorporate both incremental and radical change. Incremental innovation produces small continual changes and is often visible in organisations in the form of continuous improvement (Bessant and Francis, 1999) or TQM (Bessant and Caffyn, 1997). Many SMEs have at some point undertaken some form of incremental innovative initiative, often supported by local authority grants. Some of these SMEs consider that the cumulative gains in efficiency are much greater over time than those, which come from occasional radical changes (Raymond et al., 1998). However, many of these short- and medium-term gains are quickly eroded and absorbed into the industry standard (Hamel, 2000) and therefore cannot be depended upon as a prerequisite for survival and growth. SME innovation pioneer Ken Lewis (Lewis and Lytton, 1997) suggests that his company, Dutton Engineering, practice both incremental and radical innovation. In this SME, periods of incremental innovation are interspersed when necessary with radical and transformational change. An SME version of the business excellence model has been developed to guide their process of innovation.

To develop an effective innovation process, SME managers need to focus not only on products, technology and processes, but also on the culture of the organisation, its norms, values and beliefs (Gunasekaran et al., 1996). There is a need to develop a climate that is conducive to creativity (Ahmed, 1998), with a strong external focus on multiple stakeholders (Cagliano et al., 2001). The need to understand user needs (Rothwell, 1992) and the importance of culture (Ekvall, 1999) are also consistent themes in the literature. The attention of practitioners and academics have for many years been preoccupied with the quality movement in SMEs, focusing on product and process improvements through an evolutionary incremental process (Ghobadian and Gallear, 1996). There is a need for more studies of innovation implementation, beyond that of continuous improvement (Raymond et al., 1998). Developing innovation capabilities In implementing and developing the process of innovation there is no definitive path that can be embarked upon (Bessant and Caffyn, 1997). However, there are similarities in the literature on the key elements that can affect the process. Based on a review of the literature, and the author’s collective experiences in innovation in SMEs, three key recurring themes are discussed as affecting the implementation of the process of innovation in SMEs. Innovation culture The fact that culture is difficult to define should not detract from the important role it plays in the success or failure of innovation management. It is important that managers understanding cultural implications in the innovation process. In order to bring about any kind of significant innovation implementation, managers must take account of cultural fit. Changing a culture is difficult and requires a great deal of time and effort. Beer et al. (1993) argued that the way to bring about innovation based change is to first change behaviour, which will consequently lead to desired changes in attitudes and values. Schmidt (1990) argues that culture and cultural fit are more important in SMEs than other organizations because an SME is likely to be entirely enveloped in a culture, rather than large organizations, where several cultures may be present. A study by McAdam and McClelland (2002) on the link between the culture of continuous improvement and that of innovation in SMEs found a strong correlation between the two factors. Francis (2000) argues that continuous improvement is a workplace innovation that should be concerned with seizing unexplored opportunities as much as solving existing problems. These studies would appear to suggest that a quality culture is a key enabler in the development of a process of innovation management. Any such culture must encourage empowerment (Vossen, 1999), where the owner/manager and managers assume the role of facilitators in encouraging employee participation (Culkin and Smith, 2000). Innovation technology Rycroft and Kash (1999) claim that innovation requires a process of co-evolution between technology and cultural perspectives. Technology exerts a significant influence on the ability to innovate and is viewed both as a major source of competitive advantage and of new product innovation (Gunasekaran et al., 1996; Porter, 1990). Often, SMEs experience problems in this area, which are caused by lack of capital

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expenditure on technology and insufficient expertise to use the technology to its maximum effectiveness (Alstrup, 2000). Hammer (1990) stresses that organisations should “obliterate rather than automate” believing that technology is often introduced for technology’s sake without contributing to the overall effectiveness of the operation. However, SME’s traditional lack of resources usually results in a compromise situation (Vossen, 1999). It is important to link technology to innovation in sustaining competitiveness. Organisations that can combine customer value innovation (Kim and Mauborgne, 1999) with technology innovation have an increased chance of enjoying sustainable growth and profit. Innovation and leadership Implementing and developing the innovation process requires energy to overcome the resistance to change. Therefore, it is essential that visionary and committed leadership provide the energy to overcome this resistance. Leaders in an innovative role must be competent and knowledgeable about their work, and must also excel at inspiring employees (Higgins, 1995). Kakabadse and Kakabadse’s (1998) studies revealed that the best leaders were those who were with the organisation in a senior position for a considerable number of years and were predominately outwardly looking in nature. This factor is important for SMEs with scarce management resources. Moreover, existing managers in SMEs are less likely to spend time benchmarking other organisations in regard to leadership and innovation (Raymond et al., 1998). In summary, there is a challenge for SMEs to effectively implement a process of innovation, where innovation has many different perspectives. These include key factors emerging from the literature, namely culture, technology, leadership, along with a range of other factors, which reflect a broad multifaceted view of innovation (Tidd et al., 2001). SMEs find this challenge particularly difficult as they have scarce resources (McAdam, 2000). Therefore, there is need to clarify innovation implementation in SMEs to maximise the effectiveness of innovation efforts. Research methodology The main research questions in relation to the aims of the paper are twofold. First, how can SMEs implement innovation? Second, in what way does innovation implementation develop over time, or longitudinally in SMEs? Yin (1994) suggests that “how” and “what” type research questions are suited to exploratory case based research methodologies. In addition, this approach can be used to track development of case characteristics over time (Remenyi et al., 1999). Thus, the research method chosen was that of a longitudinal and exploratory case study (Yin, 1994). The authors have worked with an SME in a university-industry research partnership over a period of seven years. The partnership has focussed on innovation implementation within the SME, beyond that of continuous improvement. Data collection and preparation Both qualitative and quantitative data were obtained and used throughout the study. Based on the recommendations of Easterby-Smith et al. (1993) and Remenyi et al. (1999) qualitative data included organisational information, archive data, artefacts and semi-structured interviews with the managing director (or equivalent title), the

management team and a cross section of employees (20 employees were found to be sufficient – there are 50 employees in total). This stratified sample of different levels in the SME (as suggested by Fowler, 1988) was used to check the homogeneity of innovation implementation throughout the organisation. Further research could examine other sub population groups such as functional or customer-supplier groupings. The use of interviews by different members of the university team, followed by cross checking of findings, as suggested by Remenyi et al. (1999), guarded against the danger of aggregation over time. These interviews and observations were carried out over a period of six years using four innovation audits and assessments, which were conducted at an the SME case organisation. Young et al. (1991) advocates the “special value of longitudinal data”. He states that cross-sectional studies do not explain why correlations exist and they have difficulty eliminating all external factors. Pettigrew (1985) suggests that longitudinal research can remedy these problems. The major disadvantage with this form of research is that it is time consuming and costly. Thus, the current study expended considerable effort and resources. Each interview candidate viewed the results and was invited to comment on the issues arising. To deepen the analysis of the last audit in relation to future current and developments, it was found necessary to conduct further interviews with two candidates, which were drawn from the team leaders, and two from the skilled operators. Two robot team members and one operator were also selected. The use of the CENTRIM G2 innovation audit based on the constructs shown in the appendix also enabled scaler quantifiable data to be obtained. All of those interviewed were also asked to complete the scaler questionnaire. Thus for each audit and assessment sample size consisted of the managing director (1 off), the management team (6 off) and the employee diagonal slice (20 off). The scores for each section were averaged across each layer in the organisation. Audit tool questionnaire The CENTRIM G2 innovation audit (Francis, 2000) was used for the research (appendix). The G2 audit is based on a broad definition of innovation covering direction, capability, culture, learning, structure and process and decision making aspects of innovation. These constructs were validated across a range of organisations by Francis (2000) and were used to guide the current study, including the direction of the interviews. This approach is consistent with that suggested by Remenyi et al. (1999). The audit is suited to a broad definition of innovation as used in this paper and covers the key areas addressed in the literature review. It was compared to other innovation audit models to determine which was best suited to the study. These included TIPPS (European Union), which was considered to be overly focussed on technology-based innovation. Also the London Business School and Department of Trade and Industry produced an innovation audit. However, the researchers concluded it was not as comprehensive as the CENTRIM G2 audit. Francis (2000) gives a comprehensive comparative analysis of a range of innovation audits. Overall, the authors decided to continue using the CENTRIM G2 audit as it provided consistency with past studies and was found to be the most broad based and comprehensive audit of innovation. One of the main researchers was employed as a senior manager throughout the period of the study and acted in the role of participant-observer (Easterby-Smith et al., 1993). Triangulation (Denzin, 1989) was obtained by comparing questionnaire feedback, interview data and participant observation. These different perspectives

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enabled the researchers to critique and collaborate evidence on key learning points throughout the study. Organisation background and innovation for the case study The organisation currently has 50 employees. It was founded in 1983 primarily as a job shop providing welding and fabrication services to meet local business requirements. In 1988 the company acquired the rights to manufacture a range of agricultural machinery. Initially the company focused on improving the content of the product portfolio. In 1993 the decision was taken to drop all general fabrication and steel sales and to concentrate on the farming equipment aspect of the business. A marketing initiative followed to help expand dealer coverage. By the end of 1996 the company had achieved sales of over £1 million and was in a strong profitable position. However, the company expansion had placed severe strains on the existing premises and more importantly, the management of the organisation was experiencing severe crises having changed little in either structure or form in the preceding ten years. A period of radical restructuring followed with team leaders replacing the traditional foreman system of supervision. A layer of management was removed and a policy of empowerment, training and education followed with almost everyone in the organisation receiving some form of job enrichment. A computerised management information system was put in place that provided most of the day-to-day information necessary to manage the business. Communication was seen as a priority with management and team leader meetings were introduced to encourage the flow of ideas and co-ordinate activities. The cross section of personnel involved in the strategic management process was expanded to include a representative from each department. The objective was to create an environment where everyone affected by a decision had some form of representation at the initial decision making stage. Decision making authority was devolved out through the company with positive encouragement given to idea generation. The goal was to maximise the potential that already existed in the employees with an incentive scheme (Cut Our Waste – COW) put in place to encourage initial participation. A company wide profit sharing scheme was implemented to ensure that financial, as well as motivational rewards, were evenly distributed. In the following four years 55 per cent of sales was generated through the development of new products, sales in 2001 reached £2.4 million with average annual growth in excess of 20 per cent (Figure 1). More importantly profit margins for 2001 were running at 12 per cent of turnover. In terms of facilities, a major expansion of manufacturing capability and the refurbishment of the existing plant has recently been completed. Further capacity enhancements have also been realised through the introduction of a robotic welding cell. Initially, there was much resistance to this new initiative, since skilled operators viewed this as a threat to job security. However, welding staff was encouraged at all stages of the implementation process to take ownership of the project. They viewed it as an opportunity for job enrichment rather than any threat. In the year 2000 the company achieved the Investor in People Award and retained this accreditation in the 2002 audit. The company has recently won Regional and National Training Awards. As an organisation the company has worked very hard at developing an innovation culture. It has embraced many important factors identified by the academic literature as critical to the process. There exists a belief that the growth, capital returns, profitability and level of motivation have all been greatly enhanced by this strategy.

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Figure 1. Case organisation sales revenue 1992-2002

Individual talent and experience at every level in the organisation is backed up by a strong commitment to job training and development. In terms of developing the innovation culture, four key development areas have been identified: (1) Improving closeness to the customer. (2) Using teams for production ideas. (3) Resolving the conflict between core products and more advanced products. (4) Improving disciplines of implementation. Within each of these areas a number of innovation initiatives are ongoing. For example, with regard to improving closeness to the customer the following typical initiatives are considered: .

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appointing a panel of “lead users” who test new products/product improvements and provide in-depth feedback to the firm; frequently inviting users to come to the factory and discuss the strengths and weaknesses of the products with a cross-section of employees; getting customers involved in the design process and to comment on provisional designs; and applying reverse engineering principles through the purchase of competitor equipment and getting employees to systematically evaluate their strengths and weaknesses.

Results and discussion The 2002 audit results are discussed under each of the main sections of the CENTRIM G2 model (appendix) in conjunction with qualitative interviews as outlined in the

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Figure 2. Innovation audit results 2002

research methodology. Figure 2 shows the averaged innovation ratings for the 2002 audit based on the Likert scale shown in the appendix. Direction Ia Innovating leadership (4.3). This was a very satisfactory score that shows a strong commitment to innovation in the management of the organisation. There exists a bias towards innovation with a focused effort towards defining opportunities and encouraging “buy-in” and commitment to the process from employees. The management team had regular sessions with employees at which market and organisational changes were explained and discussed. The importance of providing visionary leadership that is competent and excels at inspiring people is critical to the process (Vossen, 1999). There was evidence of strong commitment to innovation implementation from the leaders. The team leaders stated that the team leader approach to managing the business had contributed positively to leadership development. Often there was no one best way to manage a situation, rather a contingent approach was adopted (Goleman, 2000) with each team leader and manager adopting a contingent approach to the decision making process. The stability of the management team, with an average service of 15 years each, was also regarded as an important factor. Studies undertaken by Kakabadse and Kakabadse (1998) support the view that the best leaders were those that were with the organisation in a senior position for a considerable number of years. Thus, the case organisation has a strong resource in this area.

Ib Provides strategic advantage (4.3). Innovation has become a key element in strategic planning at the organisation with greater emphases being placed on new technology, products and processes. The development of the process of innovation was viewed as a means of enhancing strategic advantage through a strong external focus, effective team working and visioning (McAdam and McClelland, 2002). For example, all employees were systematically exposed to external customers through meetings and company visits. The ability to quickly change and adapt (Bessant and Caffyn, 1997) is regarded as one of the essential strengths of a small organisation. In the case organisation multi-skilling enabled the organisation to quickly change operations to address unexpected customer changes. The audit score of 4.3 was evidence of this strength. The team leaders stated that strategic advantage had been enhanced by the introduction of 12 new products in the last three years, the doubling in size of production facilities, a new parts store and the introduction of robotic welding. In relation to improvement they indicated that more timely communication of pending initiatives would benefit understanding among workshop employees. This finding was verified by triangulating the data from the different levels in the organisation. Ic Prudent radicalism (4.5). Prudent radicalism has resulted in a good balance in the management decision-making process. The ability to identify the need and direction for change, coupled with an open-minded approach to adopting new ideas and effective change management, has resulted in the joint top score of the entire audit. Two examples in the move to innovative manufacturing techniques were: employing a team leader approach to managing the shop floor with consequent career opportunities for operatives to progress to these positions and the introduction of robotics in the manufacturing process in response to the appraisal of emerging technology (Gunasekaran et al., 1996). The latter project was the culmination of four years of planning and implementation, showing the organisation’s commitment to technological innovation. Capabilities IIa Exceptional individuals (3.4). This component yielded the lowest score of the entire audit. The recruitment policy that introduces young recruits into the workshop and enrols them on a three-year apprenticeship. Triangulation of the findings at different levels revealed that the contribution these employees make to the organisation is a slow process that may only produce benefits over a considerable period of time. Moreover, some of the apprentices left to go to larger organisations when trained. The triangulated data also showed that people from all levels in the organisation considered that the pace of growth over the past six years had a negative impact on this component. This is supported by the work of Mitchell (1989) who studied innovation at 3M and discovered what he called the need for “organisational slack”, which allowed key individuals to flourish. The fact that key staff turnover is almost zero and there is a strong commitment to team working also impacted on this score. IIb Full competencies portfolio (4.3). One problem affecting many organisations is that they focus on the product creation as the distinguishing measure of innovation (Amabile, 1998). Bessant and Francis (1998) and McAdam (2000) suggest, consistent with this paper, that to be effective, innovation must travel through the whole organisation, affecting every discipline, process and level. The company score of 4.3 is a reflection of its ability to identify and provide the necessary competencies needed to develop innovation capabilities. These include

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financial resources, time, facilities, technology skills, energy and support, consistent with a broad approach to innovation development (Tidd et al., 2001). IIc Capable implementation (3.9). The team leaders, the participant-observer researcher and the management team views were triangulated to show that innovation implementation also suffered because of production pressure, as found by Bessant and Francis (1999). The effective use of innovation initiatives and project management is key components of this element. Owing to the companies small size many initiatives require managerial input from the same key individuals. The pace of growth and change stretched managerial capabilities to the limit, as found by McAdam and McClelland (2002). A skilled operator cited several examples where initiatives were allowed to lapse. A member of the Robot team also felt that issues were not always acted on in an urgent manner. Although an acceptable score, the rating may also be a reflection of the problems associated with the allocation of scarce resources (both financial and personnel). Culture IIIa Selective empowerment (4.5). The small size of the case organisation made the policy of empowerment easier to implement and monitor (Thorlakson and Murray, 1996). The managing director and the participant-observer researcher noted that key employees were encouraged to take ownership of their role in the company. The company used job appraisals, information bulletins and informal discussions to communicate and involve employees within the innovation process. Personal development was enhanced by a strong commitment to training and tolerance towards prudent risk taking. IIIb Innovation demanded (4.1). The small number of employees at the case organisation made it possible to communicate the need for innovation in an informal manner as well as in a more structured fashion. Examples included one to one mentoring and formal meetings. This is the most likely reason for the increased score for this element. IIIc High enrolment (4). Commitment to the company, valued contributions and an absence of a blame culture was identified, as the main characteristics needed to achieve high enrolment in the process of innovation. Team leaders stated that recruitment difficulties coupled with increased production pressures had a negative influence on this component. Learning IVa Continuous learning (3.95). Given the time and resources the company has invested in training and development this score was viewed as slightly disappointing. The company has allocated major funding to staff training and development (including the university links) in the past and the most recent company development plan continued with this trend (Figure 3). The interview data revealed that employees who used to be employed by large companies had unrealistic expectations of SME resources for training and development, as was the case in Martin’s (1999) study. The audit research data suggests that “continuous learning” may require enabling learning, competency development, training in team-working and problem-solving, knowledge management, exploratory dialogue and experimental initiatives. IVb Acquiring multiple perspectives (4). Different levels within the organisation had a wide and varied opinion on this topic. Although close customer contact helped to

Innovation implementation in SMEs 293 Figure 3. The case organisation training expenditure 1998-2002

form a broad range of perspectives to innovation, effect was limited by the small number of employees. IVc Fruitful linkages (3.6). This aspect recorded the second worst score in the audit and was consistent with Rothwell and Dodgson (1993), who found that, although innovative organisations acquired diverse and extensive external linkages, the management of these linkages can be difficult, consuming their limited technical and managerial resources. Sustained external linkages were formed and developed only by a few key members of staff. Structure and process Va Apt organisational form (3.9). After the 1997 audit a layer of management was removed with team leaders replacing the existing foremen and managers. The reason for removing this level was to enable innovative employee views to travel upwards more effectively and to improve the implementation of strategy throughout the organisation, consistent with the views of Gadenne (1999). This principle of team working and flat structure enabled ad hoc teams to form quickly as needed to manage innovation (Francis, 2000). Other requirements identified included organisational design with structures and processes being put in place to support key individuals including the use of organisation development methodologies. The organisation doubled its turnover in the last two years and this may have had a bearing on the suitability of organisational design. For example, the integration of the new stores department into the operating systems has resulted in some confusion and adjustment. Communication problems took considerable time to resolve after the introduction of a night shift. The increasing emphases on product presentation necessitated an additional team leader assigned to the finishing room. This required the formulation of new boundaries of responsibility and careful negotiation in implementation. Vb Supported champions (4). The perception among employees that they are given the resources and recognition for their efforts was encouraging, reflecting the organisation’s efforts at involving all employees in innovation implementation. Team leaders suggested that “production pressure” and “managerial resources” had also influenced this component in a negative manner. The employee of the year award lapsed last year because of a managerial oversight, reflecting the danger of relying on past performance as a measure of current state of innovation (Culkin and Smith, 2000).

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Vc High performing (4.4). This was a very satisfying score with little variation reflecting that all those involved in the audit and interviews attest to the commitment and effort of the company in new product and process development. The company has invested heavily in new products and processes, new factory and equipment and improved process technology. This investment demonstrates its commitment to overcoming transitional problems in innovation implementation.

294 Decision making VIa Guiding mental maps (4.2). The management team invested considerable time searching for new and novel approaches to work and management thinking. This included benchmarking with other SMEs and developing the organisation-university partnership. A respondent from the robotic team considered that communicating the need for innovation in a more structured fashion would improve this component score. He stated that his involvement in the robotic project gave him a better understanding of how the decision making process worked within the company. Furthermore, the company has established a quarterly magazine, weekly team leader meetings, regular planning meetings and encourages in-formal communication, as suggested by Bessant and Caffyn (1997). VIb Sound decision making (4.45). This score reflected the consistency and quality of the management decision-making process in the company as verified by the interviews. The audit analysis tool identified the investment in management information systems and use of innovation measures as key elements, vindicating the time and effort the management team has invested in such a system. VIc Sustained commitment (3.95). Sustained senior management commitment enabled the process of innovation implementation to be maintained despite setbacks related to the innate volatility of SME markets (Vossen, 1999). A score of 3.95, although adequate, is not particular satisfactory. Interviewees from all levels listed inconsistencies in management behaviour caused by production pressure as the greatest threat to innovation implementation. Longitudinal comparisons The audit and qualitative data were compared with the data available from the previous three audits and assessments as shown in Figure 4. The discussion on the longitudinal data focuses on key innovation learning and development issues that have occurred over the past six years. Interview, observation and questionnaire data are used to triangulate the data and findings. The most prominent feature of the data is the significant improvement in the last three audits compared to the 1997 audit. The average score for audit one (1997) was 3.36, whereas each of the subsequent three scored above 4. These results reflect the sustained effort expended by the organisation in implementing the process of innovation. In particular, the managing director referred to the need to persevere and overcome early difficulties and lack of early payback, as suggested by McAdam and McClelland (2002). There is concern over the apparent plateau reached in the company’s overall ability to innovate. Although different domains have fluctuated between 2000 and 2002, the overall results have remained just above 4. Each of the six domains was further compared longitudinally using the combined component scores in each of the four audits (Figure 5). However, the management team have recognised the need for consolidation and sustaining innovation achievements. Raymond et al. (1998) suggests

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Figure 4. Longitudinal results comparisons

that this period of sustaining can act as a platform for further and more radical innovation. For clarity each domain was compared with the average component scores in previous audits. Significant deviations from the average within domain components are discussed and interpreted based on the interview analysis. The discussion is based under key headings that emerged from the longitudinal data. Towards innovation The combined scores for direction have risen steadily over the four audits. Senior managers considered this to be a direct result of a strategy of innovation. The largest fluctuation was in providing strategic advantage (Ib). An excellent score of 4.8 in 1997 dipped to 3.8 in 2000 and 2001, recovering to 4.3 in 2002. The qualitative data

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Figure 5. Longitudinal innovation domain comparison

(semi-structured interviews) revealed that these results were an accurate reflection of the managerial transformation that had taken place. This transformation included the dismissal of managers who would not adopt to the new innovation climate. Team leaders stated that the difficulties encountered during the introduction of a night shift, and more significantly, the organisational upheaval caused during a two-year expansion of facilities and process development, had effected the 2000 and 2001 scores. Prior to 1997 the company had operated in a quasi-stable environment employing a traditional control based style of management. When the company embarked on a more innovative approach, the degree of stability in strategic planning was reduced (Kim and Mauborgne, 1999). Thus, persistence with innovation implementation is a journey rather than a destination, involving complex business problems. External factors also influenced the results. The twin agricultural crises of foot and mouth and BSE made formal planning difficult in relation to manufacturing agri-products. However, the company prospered through this period by capitalising on

what Vossen (1999) recognised as one of the greatest strengths of a small business, namely the ability to change and adapt quickly. The innovation implementation increased this strength. For example, increased empowerment of the workforce resulted in improved responsiveness to customer requested changes. The empowerment included involvement in suggesting innovative ideas, participation on implementation teams and visiting customers, as suggested by Choueke and Armstrong (1998). Capability considerations Organisational capability scores showed a major improvement between audit one and audit two. Combined scores dipped in 2001 but recovered to 2000 levels in 2002. Exceptional individuals (IIa) was scored lowest over the four audits. Team leaders considered these results were an accurate “reflection of the company recruitment policy”, whereby school leavers offering little in the way of experience are enrolled on a three year training program. Martin (1999) indicates that SMEs have difficulties in attracting and keeping gifted and motivated individuals, in comparison to larger organisations with more resources. More wages and security often attract these people away from SMEs. The disappointing score for capable implementation (IIc) and the significant dip recorded in 2001 was attributed to the difficulties encountered during expansion and reorganisation. Management regarded these issues as unavoidable transitional factors, however it appears they impacted much more on the attitudes and perceptions of employees. Thus, there is a challenge to the organisation to recognise that their current success has come from effective innovation implementation and that this hard won success should not be undermined by production pressures. Hence, innovation implementation is an ongoing process, as distinct from a passing phase. Overall, the interview analysis suggested that the company had concentrated too intensely on innovations relating to factory facilities, new equipment and technology. Consequently innovations such as culture, climate and motivation for innovation did not receive sufficient attention. Rycroft and Kash (1999) stress that organisational strategy for innovation must address all of these issues in adopting a broad definition of the process of innovation. Initiative fatigue The combined culture scores recorded the least significant improvement over the period. However, within the domain very contrasting trends emerged. Both selective empowerment (IIIa) and innovation demanded (IIIb) improved with some degree of fluctuation. However, high enrolment (IIIc) ended the period a full point lower than the 1997 score of 5, where high enrolment includes open communication, positive regard for the staff and commitment to the company (appendix). The interviews revealed that the lower score was caused by new employees not being quickly enrolled on the change initiatives. The managing director, team leaders and the participant-observer researcher agreed that the company was suffering from initiative fatigue, the question: “where do we see ourselves going from here”, being asked on several occasions. They also stated that as time progressed the buy-in to company values required ever more attention and reinforcement. Thus, value-based change was seen as sustaining innovation efforts. There is a need for the organisation to ensure its scarce resources are not diluted by attempting to apply business improvement initiatives that

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are popular, but which do not contribute to the long-term benefit of innovation implementation. Knowledge management Learning was identified as the weakest domain in the 1997 audit. It increased to the top score in 2000, then dropped considerably in 2001 before recovering in 2002. It ended the period with the lowest combined average of 3.85. The interviewees generally regarded this trend as an accurate reflection of organisational activity over the period. This activity, with its highs and lows, is reflected in the employee’s perceptions and scores as discussed above. From a philosophical standpoint the interviewees agreed that such “turbulence” must be accepted in pursuing the longitudinal implementation of innovation, especially in SMEs (Vossen, 1999). Between 1997 and 2001 the company formed many linkages and learning opportunities through alliances at all levels. Senior management was involved in a pioneering innovation network involving discussion groups and visitations. Middle managers and supervisors took part in several courses including management and information systems training. In 2000 every employee not holding a current NVQ was assessed and trained to NVQ Level II with the company achieving Investors in People accreditation. Suppliers and customers were invited into the company to talk directly to employees on equipment, process and product issues and to share knowledge from within and without the organisation. As pressure grew through 2001 for increased product volumes and variety, several initiatives lapsed, especially those based on employee emancipation. External linkages have suffered because of customer pressure that focused attention on unit production. Company attention through 2001 was centred on the factory extension and in 2002 robotics was the central focus. Maintaining momentum Domain results for structure and process ended the period significantly improved on the 1997 levels. Combined scores peaked in 2000, slipping slightly in 2001 and again in 2002. Several respondents considered that the major managerial challenge to future prosperity was how to continue to stimulate and maintain the “feel good” factor. The most significant fluctuation occurred in apt organisational form (Va), rising to a high of 4.5 in 2000 from 3.4 in 1997, only to slip back to 3.9 in 2002. It was suggested that production pressure had resulted in a drop in supporting champions (Vb). The Cut Our Waste (COS) scheme had been discontinued in 2001. The employee of the year should have been announced in July 2002 but had not yet been announced. A team leader stated: “It was proving difficult to allocate scarce managerial time to such activities”. This view reflects the danger of extrapolating past performance and assumptions when applying innovation (Hamel, 2000). The major expansion of facilities and substantial investment in new machinery in 2001 would appear to have had a major impact on attitudes reflected in a NP-PD score in that year of 4.7. The introduction of robotics in 2002 would not appear to have impacted as significantly returning a score of 4.4. From a management viewpoint the complexity of the Robot cell was much more challenging than the relative simplicity of a new premises. However, from an employee perspective the improvement in working conditions was much more appealing than the opportunities presented by technology.

Conclusions and recommendations There is a need for SMEs to increasingly innovate to survive and compete in global and niche markets. In practice many SMEs focus on project and product development aspects of innovation. However, the findings show that SMEs must adopt a broader approach to innovation to include people and cultural issues in addition to technological innovation. Furthermore, innovation must not be seen as a quick fix, rather, it should be recognised as a longitudinal development programme. The findings indicate that several relevant factors were identified in the research impacting to a greater or lesser extent on managerial considerations in the process of innovation. These factors are listed below with the learning opportunities and managerial considerations highlighted: . Leadership: innovation driven organisations must have innovative and committed leaders. There is a risk of losing touch with the core workforce if communication issues are left unresolved. The organisation must continually show commitment to the process of innovation. It is much more difficult to maintain momentum than set the process in motion. There is an attendant danger of relying on past performance. . Empowerment: this factor is a valuable contributor to innovation but not sufficient on its own to ensure success. Empowerment was found to have an upper limit to its usefulness as a key enabler in owner/manager SMEs. Production pressure can negatively influence empowerment in relation to innovation. . Culture: even in small organisations, sub cultures can impact on the process of innovation. From this research it would appear that skilled operators are the most difficult to manage in a changing environment. Culture development needs constant attention and careful maintenance if it is to keep pace with innovation. Otherwise enrolment in the process may suffer. However, the development of an innovative culture in SMEs is ultimately a source of competitive advantage (Culkin and Smith, 2000). . Technology: different groupings within SMEs may have very contrasting opinions technology and innovation. However, there is a need to constantly appraise emerging technology in the context of innovation as evidenced by the Robot Cell development. This study would seem to imply that more visible and direct initiatives like new or extending premises have a greater influence on people’s perceptions. These initiatives encourage intrinsic motivation and commitment within those involved. . Learning: there is a need for implicit learning and tacit knowledge to be better managed to contribute to the innovation process, in addition to explicit learning and knowledge programmes. Improved apprenticeship schemes can make a positive contribution to this issue. Furthermore learning from external contacts such as other companies in other sectors and the university can be improved and developed to incorporate the current and emerging innovation practices. . Structure: the team leader approach was regarded as a positive contribution to innovation in enabling lower levels of employees to give innovation inputs to the decision making process within the case and thus to have some element of empowerment. Clear and open, two-way channels of communication were vital to the process.

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.

Management: all managers must play a role in leading the process of innovation. The company must maintain a state of constant flux to incorporate innovation; this process is not for those who need fixed order and structures. Conflict and resistance (“creative abrasion” – Rickards, 1999) must be anticipated and can arise from unexpected avenues and for unexpected reasons. New motivational tools are needed at different stages of developing the innovation process. Prudent allocation of scarce managerial resources to support innovation is critical in entrepreneurial SMEs (Vossen, 1999). There is a dichotomy to manage in that SMEs experiencing rapid and sustained growth can endanger the long-term ability to innovate through managerial overload.

Implementing the process of innovation involves addressing many facets of organisational activity. The dynamics of innovation result in the need for continual hands-on management to achieve long-term results (Bessant and Francis, 1999). Further research could include focused examination of contrasting attitudes towards innovation within individual groups in SMEs. Moreover, further case analysis on technologically defined innovation projects in other SMEs would be useful to compare with the research findings.

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Appendix

Ia

Components

Elements

Innovating leadership

Personalness of leader Bias towards innovation Focused efforts towards opportunities Enrolling leadership style External focus (sensing) Coherent – emerging strategy/vision Effective top teamwork Innovation goals in business plans Performance measures assess innovation prowess Innovation policies deployed Comprehensive analysis of change needs Openness to new mind-sets Effective change management Restructuring of assets Analysis of needs for critical skills Proactive HR policies (recruitment and retention) Able people in innovation intensive roles Analysis of competencies needed Co-ordinated competency development Effective transfer to routine organisation Capable programme and project management Management style supports empowerment Personal potential developed Can-do ethos High expectations from opinion leaders Innovation goals set Innovation recognised Kaizen institutionalised Open two way communication Positive regard for staff/employees Commitment to the company Enabling learning Competencies developed Training in teamwork and problem solving Knowledge management Exploratory dialogue Experimental initiatives Hearing specialists Hearing out of field agents Hearing in business agents Gaining from external relationships Close customer relationships Innovation-enabling organisational design Use of OD methodologies Use of teams and ad hoc groups Inter-team co-operation (continued)

Ib

Provides strategic advantage

Ic

Prudent radicalism

IIa

Exceptional individuals

IIb

Full competencies portfolio

IIc

Capable implementation

IIIa Selective empowerment IIIb Innovation demanded

IIIc High enrolment IVa Continuous learning

IVb Acquiring multiple perspectives IVc Fruitful linkages Va

Apt organisational form

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Table AI.

Components Vb

Supported champions

Elements

Legitimacy of the champion role Intrapreneuring attitudes and skills Effective sponsorship Vc High performing new products and product Managed NP-PD development (NP-PD) Creative approaches to NP-PD VIa Guiding mental maps Tracking possible relevant maps Map selection and development VIb Sound decision processes Fast/full information systems Reliable decision making processes VIc Sustained commitment Sustained senior management attention Roadblock removal

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Enabling intrapreneurship: the case of a knowledge-intensive industrial company Karina Skovvang Christensen

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Department of Organisation and Management, The Aarhus School of Business, Aarhus, Denmark Abstract Purpose – The aim of the paper is to provide an understanding of the various factors that enable intrapreneurship in established firms. The paper reports on a case study of intrapreneurship in a large knowledge-intensive industrial firm. Design/methodology/approach – Based on the existing literature, it is suggested that the use of different factors can either enable or inhibit intrapreneurship and five enabling factors that are identified. Based on interviews, on-site observations and documents and reports the five factors with a potential influence on intrapreneurship are examined and alternative factors considered. Findings – The five enabling factors that are identified in the literature are not sufficient to enable intrapreneurship in knowledge-intensive companies, and it is concluded that three additional factors enabling intrapreneurship in established firms should also be taken into account. Practical implications – The knowledge of what makes factors either enablers or inhibitors are incomplete and to enhance the intrapreneurial ability of an organisation, managers must learn which factors to use in different situations. Originality/value – Only very few papers have studied intrapreneurship in specific organisations. This paper contributes with a synthesis of the literature in the area and with a suggestion of a model that is used in the empirical analysis and augmented based on that. The paper furthermore contributes to the body of literature on the factors enabling intrapreneurship in general. Keywords Communication, Entrepreneurialism, Culture Paper type Case study

1. Introduction Job creation has become a hot topic in most old industrialised countries, where production is increasingly moving to the newly industrialised countries. Typically, in many European countries, the underlying assumption in the public debate is that new jobs should mainly be created in small- and medium-sized firms (SMEs). However, studies have shown that job creation in SMEs has almost come to a standstill, and that, overall, these firms lose almost as many jobs as they create (see, for example, Hisrich, 1990; Sathe, 2003). Other authors, e.g. Pinchot (1985) and Morris and Kuratko (2002), have suggested that there is a potential for job creation in both large and small companies, though they say little about the kind of industrial structure best suited to achieving this or about the best way to ensure job creation and growth. In any event, we have to take a starting point in the existing structure with both large and small companies. Much research has The author gratefully acknowledges the helpful comments made by Per Nikolaj Bukh, Anders Drejer and John Parm Ulhøi on an earlier version of this paper.

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been done within the field of entrepreneurship, focusing on the entrepreneur’s characteristics and the process of starting up a new independent company (Gartner, 1988), although it is also necessary to improve innovation in large companies. But is corporate entrepreneurship the solution, or is it just another passing fad? Corporate venturing has often been mentioned in relation to corporate entrepreneurship (e.g. Sathe, 2003), and it has both good and bad points. Sometimes management faces new strategic dilemmas – especially if the new ventures are not closely related to the mother company’s core competencies and markets. But, as noted by Guth and Ginsberg (1990) and Sharma and Chrisman (1999) among others, corporate entrepreneurship is more than corporate venturing, and, to be more intrapreneurial, companies therefore need to take the whole organisation into account. As has often been pointed out in the literature on organisational design, different corporate structures support different organisational needs (e.g. Hisrich, 1990). Corporate structure is thus a good starting point as regards enabling intrapreneurship. In other words, well-established and mature companies need to experiment with new ways of organising and organisational structures that are known to enable innovation to take place, e.g. networks, loosely coupled organisations, and project organisations, as a supplement to the classic hierarchy. Notwithstanding, managers also need to recognise that innovation and renewal cannot be planned and managed in the same way as operational activities. Another reason why innovation in large, well-established companies is important is that such companies possess more resources (both human, financial and structural) than small companies, and are therefore faced by less overall uncertainty. Often, they only expose themselves to one kind of uncertainty at a time, while entrepreneurs typically have to cope with several simultaneously, e.g. technology, markets, financial capital and branding. The transition to the knowledge society may thus be very difficult to achieve through small companies alone, which makes the focus on innovation in large companies even more important. This in turn implies directing more attention towards the key factors that enable and improve innovation within companies. In this paper, I examine how companies can encourage intrapreneurship by means of five different enablers derived from the literature: rewards, management support, resources, organisational structure, and risk. Based on a case study of a large knowledge-intensive industrial firm, it is concluded that the factors are not of equal importance, and that in this specific organisation, other important factors also enable intrapreneurship. This leads to a proposed model consisting of eight enablers. This paper is organised as follows. Section 2, which draws on the literature in the field, suggests a classification of corporate entrepreneurship based on four organisational perspectives, each with different motivations for engaging in entrepreneurial activities. Section 3 presents the methodology, and discusses the advantages and disadvantages of a single case study. Section 4 briefly describes the case company, while section 5 presents a detailed analysis of the factors from a single case. Section 6 discusses the findings and suggests how intrapreneurship can be enabled, while section 7 presents the conclusion and implications. 2. Corporate entrepreneurship The ideas behind corporate entrepreneurship can be traced back to the mid-1970s (e.g. Peterson and Berger, 1972; Hanan, 1976), but it was not until Pinchot’s (1985) book on

intrapreneuring in the mid-1980s that it became a separate research topic. However, it still seems to be a concept in search of a clear definition. Various broader or narrower definitions have been proposed by different authors, some, as observed by Sharma and Chrisman (1999), using the same definition for different phenomena and others using different definitions for the same phenomenon. A sufficiently broad definition of corporate entrepreneurship is thus crucial in order to avoid prematurely excluding important issues. One approach to the field is to regard corporate entrepreneurship as the overall concept, covering everything to do with entrepreneurship in a company (Christensen, 2004), such as intrapreneurship (Pinchot, 1985), exopreneurship (Chang, 1998), and corporate venturing (Burgelman, 1983). Common to these topics is that corporate entrepreneurship refers to “a multidimensional process with many forces acting in concert that lead to the implementation of an innovative idea” (Hornsby et al., 1993, p. 30). Jeffrey Hornsby and Donald Kuratko, together with different co-authors, have reviewed the literature from the late-1980s onward, and have found five internal enablers of corporate entrepreneurship, consistent with the main literature: rewards, management support, resources (including time), organisational structure, and risk-taking (Kuratko et al., 1990; Hornsby et al., 2002). However, based on an empirical analysis, Kuratko et al. (1990) only find management support, organisational structure, resources and rewards significant. In Hornsby et al. (1993), the authors further develop their work from 1990, resulting in the following enablers: management support, autonomy/work discretion, rewards/reinforcement, time availability and organisational boundaries. However, in their paper from 2002 they return to the five enablers from 1990, but test those from 1993. Hornsby et al. (1993) also point out that individual characteristics such as risk-taking propensity, desire for autonomy, need for achievement, goal orientation, and internal locus of control have a significant influence on corporate entrepreneurship. Other researchers have explored different enablers, e.g. from the external environment. According to Antoncic and Hisrich (2004), both organisational factors such as organisational support, formal controls and numbers of alliances, and environmental conditions such as dynamism, technological opportunities, industry growth and demand for new products, are important in relation to corporate entrepreneurship. In an earlier study, Zahra (1991) suggested that, in addition to internal organisational factors, the intensity of corporate entrepreneurship is also influenced by corporate strategy and factors from the external environment, such as dynamism, hostility and heterogeneity. Covin and Slevin (1991) developed an integrative model including both external factors, such as technological sophistication, dynamism, hostility, and industry life cycle stage, together with such strategic variables as mission strategy, and internal enablers such as top management values and philosophies, organisational resources and competencies, organisational culture and organisational structure. Zahra (1993) further developed Covin and Slevin’s (1991) integrative model eliminating technological sophistication on the ground that it is part of environmental dynamism and adding munificence, by which is meant the abundance of opportunities for innovation in an industry. Zahra also questions the inclusion of

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industry life cycle stage, because it relates to another level than dynamism, hostility and munificence. Zahra (1993) also argues for a narrower classification of the internal enablers, claiming that the suggested changes would make the model more complete. Although corporate entrepreneurship is influenced by a number of both internal and external factors, this paper will focus only on those internal factors that the company has a possibility to influence directly.

308 3. Methodology A division of Danfoss, a major Danish industrial company, was chosen as a case study to help determine which factors enable intrapreneurship. Being one of Denmark’s largest industrial companies, Danfoss might well have suffered from a lack of intrapreneurship, but despite its industrial roots, the company is generally regarded as both very knowledge-intensive and innovative. Furthermore, the company’s CEO is well-known in the public debate in Denmark for his promotion of entrepreneurship as a policy agenda and innovativeness in Danish firms. This managerial focus on intrapreneurship thus made Danfoss ideal for studying the enablers of intrapreneurship, at least in this particular firm. A major problem of large firms’ innovative activities is how they can be fitted into day-to-day routines without compromising efficiency. As a starting point, interviews were carried out with employees on this issue. The method chosen was the so-called embedded case study design (see also Yin, 2003, p. 43), involving three levels of analysis: (1) The firm (its strategy and performance). (2) Employees (their interaction). (3) The use of factors (tracing different enablers). It is generally argued that embedded case design provides richness and multiple perspectives in explaining behaviour. The intrapreneurial enablers – rewards, top management support, resources, organisational structures and risk – which were derived from the literature in advance, had already been found consistently throughout the literature by others. The empirical material includes four interviews, the aim of which was to identify the enablers (respondents were selected from three different organisational positions in order to obtain a broader perspective on the same issues: a project manager, two functional managers, and an engineer), two days of on-site observations (including two meetings), where various employees were informally questioned about their research themes, and a wide range of documents and reports. Each interview was conducted in tandem (two researchers), one researcher being primarily responsible for the interview and the other for taking notes and filling in gaps in the questioning. The interviewees were asked to tell the story of the company, how they perceive innovation, why the firm needs to be innovative, where in the organisation the innovations are created, how they are organised, and how and which different enablers encourage and support them to be innovative. The interviews, which lasted for an average of about one-and-a-half hours, they were recorded and transcribed for later use. At the end of each day, field notes were written by each researcher individually, reflected on, and afterwards discussed by both researchers.

The interviewees were chosen from different positions in order to get a broader perspective on the same themes, and the formal interviews were supported and validated or categorised as a single opinion by small-talking to a number of other employees and through observations. General statements will be presented as “Danfoss Drives says”. The interviewees provided several insights and a variety and breadth of data, which allowed the exploration of different settings and breakdown into categories that were grounded more empirically in a knowledge-intensive company than would have been possible from solely using the five factors from the literature. The analytical process was mainly concerned with coding the interviews and classifying the text into categories for content analysis (see, for example, Weber, 1985), based on predetermined categories, which is the main difference from grounded theory (Glaser and Straus, 1967). Several researchers (e.g. Glaser, 1978; Miles and Huberman, 1994) have suggested that coding provides a basis for the interpretation of data. The coded data from the interviews were triangulated with observations and written documents. 4. Danfoss Drives Danfoss Group is an international engineering company with approximately 17,000 employees and a total turnover of almost DKK 15 billion, of which the Motion Control Unit share is approximately 3,400 employees and almost DKK 3.5 billion respectively, with customers all over the world. Danfoss Drives is the largest division in the Motion Control Unit. The Motion Control Unit was established ultimo 2000, and apart from Danfoss Drives also includes three other divisions: Gear motors, Marine Systems and Flow. The activities in Danfoss Drives can be dated back to 1968, which saw the introduction of the first mass-produced frequency converter for speed control of motors. The heating, ventilation and air-condition applications (HVAC) were introduced in 1990, and since the acquisition of Bauer, a gear motor producer, in 1999, Motion Controls has been marketed as a one-stop shop for the industry. Through acquisitions in the US and the founding of a company in Germany, Danfoss Drives now has two production sites, in addition to its headquarter in Graasten, Denmark, and, via Danfoss sales companies, is able to serve a wide range of customers in different industries throughout the world, including chemicals and consumer goods, metals and mining, pulp and paper, and the refrigeration and automotive industries. 4.1 Strategy and the organisation Danfoss Drives pursues a dual strategy, the aim of which is both to maintain its leading global position in the food, beverage, HVAC and water industries through volume and growth and to retain its position as a component supplier, providing ready-to-install solutions for (niche) customers. The continuous introduction of new and improved products means that Danfoss Drives attaches a lot of importance to technological innovation, and its efforts to gain a competitive advantage owe a lot to close cooperation with customers. In 1998, the development process in Danfoss Drives was organised into a matrix structure, involving technology centres serving the different projects, project leaders, and projects organised into a “core team” and a number of “sub-teams”. The product leader,

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who is responsible for the development of new products and managing the development process, is assisted by a “core team”, which consists of members from each key area: marketing, production, finance and IT. Danfoss Drives’ management acknowledges that the company’s commercial success depends on employees’ competencies, and that employees are therefore its most important resource. Here, we describe how Danfoss Drives enables intrapreneurship by means of many different forces acting together. 5. Corporate entrepreneurship at Danfoss Drives Without having any distinct corporate entrepreneurship strategy, Danfoss Drives has actively used the organisational structure to enable intrapreneurship in the form of corporate ventures, internationalisation and formal networks, and the internal organisation has been organised to encourage innovation, knowledge creation and dissemination. But using the organisational structure is not the only way Danfoss Drives encourages intrapreneurship. This section describes how various means are applied and perceived by the employees at Danfoss Drives. This paper examines how the above-mentioned five enablers in Kuratko et al. (1990) influence intrapreneurship at Danfoss Drives. 5.1 Rewards Some authors (e.g. Fry, 1987; Morris and Kuratko, 2002; Sathe, 2003) stress that entrepreneurial behaviour can be encouraged by effective reward systems that must consider clear goals, feedback, individual influence and rewards based on results (Kuratko et al., 1990; Hornsby et al., 1993, 2002), or it could be related to the performance of the team (Hisrich and Peters, 1986). Designing a reward system that reflects the behaviour the company wishes to encourage is therefore crucial. According to Sathe (2003), people are motivated by different things. Entrepreneurs may seek rewards such as the pride that comes from starting their own business and the prospect of financial gains, whereas intrapreneurs value other incentives, which are not always clear (Sathe, 2003). Morris and Kuratko (2002, p. 245) note that intrapreneurs are motivated by controllable rewards such as “regular pay, bonuses, profit share, equity or shares in the company, expense accounts, job security, promotions, expanded job responsibilities, autonomy, public or private recognition, free time to work on pet projects, money for research or trips to conferences”. Morris and Kuratko (2002) also argue that intrapreneurs should share some of the downside risk, but this financial risk and incentive is exactly what Sathe (2003) identifies as the difference between entrepreneurs and intrapreneurs. In practice it can be more difficult to differentiate between entrepreneurial and intrapreneurial incentives, as not all entrepreneurs or intrapreneurs are motivated in the same way. At Danfoss Drives, the reward structure reflects the fact that they are an international player, and incentives change across cultures and countries, financial rewards (bonus) are highly motivating in the USA, whereas “in Denmark financial rewards are generally less appreciated than promotion, prestige, and recognition from colleagues, as the Danish Internal Revenue Service (IRS) destroys all possibilities for financial rewards”. It is not uncommon (Sathe, 2003), and very Danish, that if some employees get a financial reward then it influences other employees negatively. Flexibility in relation to an assignment and working hours is highly appreciated by

Danes, and this, together with recognition from colleagues, is the most common reward. Prestige related to the completion of an assignment is also valued. 5.2 Management support The second factor is management support that, in the literature, is often synonymous with top management support and governance (Hitt et al., 2002; Hornsby et al., 1993; Kuratko et al., 1990). It is crucial for management to support intrapreneurial activities (Hisrich and Peters, 1986; Stevenson and Jarillo, 1990) even if they do not fully understand them (Hornsby et al., 2002; Kuratko et al., 1990). As pointed out by Kuratko et al. (1990) and Hornsby et al. (1993), the basic idea of management support is to encourage employees to believe that innovation is embedded in the role of all employees. And this is precisely the case at Danfoss Drives; everyone is encouraged to be innovative and consequently innovation happens everywhere. Employees view a supportive management as one that does not work against new initiatives from employees and acts as a sponsor for intrapreneurs, which basically means giving them access to resources. This agrees with Fry (1987). One of the employees put it as follows: What my manager does is provide me with resources that make it possible to explore new opportunities.

Otherwise, employees agree that support from other colleagues is more important. They not only use each other to discuss and test new ideas, but groups of employees cooperate to develop new products and new ideas. Other employees, e.g. clerks and technical assistants, can also support a project group by, from an engineer’s point-of-view, doing more mundane things such as office work, getting the right computer programs for the job, etc. As one of the managers said: “it is easy to get people together in workshops on new themes and problems, even though they are busy”, which indicates that, generally, support among employees is high. But, supporting (top) managers are important as “sponsors”. 5.3 Resources In addition to the support of top management, projects also need financial resources to get off the ground (see, for example, Hisrich and Peters, 1986; Hornsby et al., 2002; Sathe, 2003; Stevenson and Jarillo, 1990; Stopford and Baden-Fuller, 1994). On the other hand, the speed and success of a project is not proportional with funding; encouragement, inspiration and perspiration are also necessary (Fry, 1987). Getting access to the company’s facilities and resources is not always sufficient – it is important to make employees feel confident and encouraged to experiment (Burgelman and Sayles, 1986). The well-known 3M case illustrates that this kind of support and freedom automatically generates another important resource (time). Employees at 3M are encouraged to spend 15 per cent of their time on their own projects. However, according to Fry (1987), this 15 per cent is often spent after hours or at weekends. Some scholars (e.g. Drucker, 1993; Nonaka and Takeuchi, 1995; Bukh et al., 2005) have argued that the most important resource in the knowledge society is knowledge itself, and knowledge is not just the fundamental driver of innovation, but also an important part of the company’s competitive advantage.

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The most important intrapreneurial resource at Danfoss Drives is human resources, i.e. the knowledge and skills of the employees. However, other resources are important too, especially time and financial support, which to some extent the company sees as a prerequisite for employees to act in an intrapreneurial way. Although, as Danfoss Drives says: . . . time and money have to be earned, which means you have to finish your assigned project before you can play”.

And continues: . . . we would explore different directions that are not directly related to the core of our product, simply to broaden the horizon and knowledge about what is going on. Probably there is something out there, which in combination with other things could be very innovative, e.g. in relation to regulation techniques, something interesting could be found in relation to how the body regulates the absorption of medicine. However, the resources are limited and therefore we have to focus on the most important, adjacent areas.

The use of resources is a matter of priority, and long-term innovation is vulnerable compared with short-term business pressure (Hisrich, 1990). Lack of resources and time is thus also a barrier to long-term innovation at Danfoss Drives. As the company points out, even though daily or weekly slack time for innovation would be preferable, employees are “. . . in periods very tied up with projects, and in other periods we breathe and have time to run innovative projects to broaden the horizon and knowledge of the employees and to motivate them.” Being part of a large company also brings bureaucratic obstacles, e.g. the engineers are employed on flextime terms, which is highly popular, but current thinking at Danfoss Group headquarters is whether all employees should be on “job salary” instead, to which one of the employees retorts: . . . that will be rubbish, then I will only focus on my assigned projects and nothing more.

On the other hand, being part of a large company can also mean greater flexibility and more choices. As one of the managers says: . . . 10 per cent of 1 billion creates more financial flexibility than 10 per cent of 1 million . . . and exploring ideas costs money.

The availability of financial resources thus plays an important role in intrapreneurship or the utilisation and implementation of ideas. One of the employees explains that “I try to look at the company’s purse as if it was my own”, and if some employees believe so strongly in an idea that they are willing to pay for its implementation themselves, then the company always considers it again. 5.4 Organisational structure Organisational structure has been found very important for innovative activities in several ways (see, for example, Burgelman, 1983; Guth and Ginsberg, 1990; Hornsby et al., 1993; Sathe, 2003). According to Davis and Lawrence (1991), external pressure for dual focus, pressures for high information-processing capacity and pressures for shared resources require a matrix organisation. Sathe (2003), on the other hand, argues that matrix and functional, or “silo”, organisations can inhibit

corporate entrepreneurship with respect to new business creation. Instead, he recommends collaboration and the pooling of competencies in cross-functional business units, so that competencies in technology, product development, marketing, sales, and other functions will be available for new business. This is precisely how Danfoss Drives pools different knowledge resources in each project within a matrix structure. The reorganisation, in 1998, into a matrix structure focused on a project organisation with strong project leaders was positively received by employees, since it clarified the chain of command. As one of the employees put it: Before, you were more like a specialist, and you could easily work on four different projects, and that was not always easy. Because who did you refer to? Who pushed you the most? And which project did you better like yourself?

Basically, the new organisational structure made it possible for employees to focus on the project and their jobs. The importance of the project groups was emphasised by a physical reorganisation, where all project members are now located together. Previously, employees were located with “similar” people, e.g. marketing people sat together with other marketing people in a marketing department. Both ways have advantages and disadvantages, but at Danfoss Drives gathering together employees with different backgrounds has become the preferred way of doing things. If Danfoss Drives believes strongly in new ideas, a group of employees may get the chance to turn them into a new business unit. One of the managers says that: Instead of imposing it [the new ideas] into the existing organisation, we have started a small group, a small project outside the traditional rules of the established organisation.

This is, in essence, what corporate ventures are all about (see, for example, Biggadike, 1979; Guth and Ginsberg, 1990). Another manager reflected that: Our ventures have been started based on a specific idea or idea area and then it has been isolated and nurtured. This basically means that they [the ventures] have got some peace and resources to work on a new area.

What this means in practice is that the ventures do not have to strictly follow standard operating procedures, which gives them a flexibility and agility that the existing organisation does not possess (Ellis and Taylor, 1987). Internationalisation is the third strategy Danfoss Drives employs to encourage intrapreneurship (Lu and Beamish, 2001). The company sees a clear distinction between networks and internationalisation, because: . . . when we speak about internationalisation, it is within the legal boundaries of the organisation, which means that you have colleagues all around the world, with whom you have to communicate . . . They are an integrated part of the company and, therefore, information can flow freely, whereas within a network there are some restrictions on the information you can pass on.

Furthermore, Danfoss Drives thinks it is necessary to be present, i.e. represented by plants, sales offices, ventures, etc. (see, for example, Hitt and Ireland, 2000), in their main markets to ensure strong relations with customers, and with it to learn from them and get access to their knowledge and sets of values.

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If intrapreneurship is expanded to corporate entrepreneurship, there is a fourth way to enable entrepreneurial activities, which is to deliberately make use of formal networks, i.e. universities, customers, suppliers and ERFA groups (experience exchanging groups) – by comparison, the use of informal networks is difficult to plan and control. Danfoss Drives creates networks to get access to knowledge resources that the organisation needs but does not itself possess (see also Hitt et al., 2000), saying: The network to the universities is primarily to get access to basic research, whereas relationships to other companies or ERFA groups may be because they do something different, from which we can learn.

Danfoss Drives also participates in ERFA groups to test new ideas on people who have not yet adapted to the Danfoss way of thinking. This, says the company, will ensure that “two developers with the same background gradually become uniform.” Another way to test ideas is on customers. Danfoss Drives not only visits their customers, they “camp out” at particular customers for a month at a time, because they believe in close cooperation, and, as they say: . . . we follow them in everything they are doing, which provides us with insight into problems that would be hard to get in other ways.

5.5 Risk The fifth and last factor that Kuratko et al. (1990) found consistently throughout the literature is risk. Morris and Kuratko (2002) described how both too little risk and too much risk can be fatal for a company. While too little risk becomes dangerous when a company ignores changing market conditions by making little or no innovation, at the other extreme, attempting to come up with a breakthrough innovation is highly risky. Therefore, focusing on lower-risk markets, i.e. new varieties of products, services, etc., makes risk management easier and creates more success. Fry (1987) notes that making intrapreneurs experiment without penalising them when an idea fails will encourage an intrapreneurial spirit, and the more experiments they carry out, the better they will be at determining what works and what does not work (Morris and Kuratko, 2002). Danfoss Drives address risk management from a Darwinistic approach, which, as one of the managers said, means “survival of the fittest”. The projects are very autonomous, so that if an idea is related to an ongoing project, it is up to the project leader and the core team to decide whether it will be implemented or not. If the idea relates to a new product, the employee has to make strong enough arguments to convince the product planning group that it is worth implementing. These interaction processes mean that employees feel relaxed about trying to implement new ideas. As one said: . . . you have to keep your word and be honest . . . then you can be flighty and take risks, but you have to be honest and acknowledge if you have overextended yourself, acknowledge that you have to go back one step. Then you can make a flop, and no one complains, because they know you did your best and in most cases you are likely to succeed.

At Danfoss Drives, most ideas are related to the planned projects, since they are planned four years ahead. The aim of such a long planning horizon is both to give employees an opportunity to deconstruct the project and come up with ideas, and to give them time to think differently and innovatively before the project starts. One of the employees said:

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And when employees have time to think about coming projects, says Danfoss Drives, the risk is lower compared to short-time planning. 6. Towards a more complete model The Danfoss Drives case is in line with Kuratko et al.’s (1990) findings as regards the factors that can help an organisation to enable intrapreneurship. However, the Danfoss case also makes it clear that a knowledge-intensive company is more complex than traditional industrial companies. The five factors identified by Kuratko et al. (1990) are thus not sufficient in themselves to understand intrapreneurial behaviour in such companies. The Danfoss case showed that basic factors such as (top) management support and financial resources are not sufficient for intrapreneurship to happen, while risk only seems to matter to the extent that it is perceived by employees. The possibilities within the five factors can be divided into basic and intrapreneurial factors, as showed in Table I. By basic factors is meant those which must be present for intrapreneurship to occur, e.g. regular payment to the intrapreneur, access to financial resources and other materials, a management that “sponsors” the project (not rejecting an idea before development gets started), a basic organisational structure, and tolerance for risk (at least lower-risk projects). Intrapreneurial factors denote efforts that can encourage and enrich intrapreneurial activities, such as expanded job responsibility, autonomy and recognition, real (top) management commitment – not just assignment of resources, different knowledge resources, different organisational structures that promote different aspects than the traditional organisation, and no penalisation of employees who try to develop something new. The interviews, small talk and observations at Danfoss Drives revealed that other factors at the company also enable intrapreneurship. Common to all interviewees is that they talked about the importance of communication, company culture, and Factor

Basic factors

Intrapreneurial factors

Rewards

Regular pay, job security Promotion, expanded job responsibility, autonomy, recognition, free time to work on pet projects, bonuses (Top) management support Sponsors Commitment Resources Finance and materials Knowledge resources Organisational structure Hierarchy Corporate venturing, cross-functional teams, internationalisation, external networks Risk Tolerance of lower risks No penalisation

Table I. Factors influencing intrapreneurship

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6.1 Communication Since it creates a common framework of understanding, language can be considered the most prominent communicative tool available to man (Christensen and Bang, 2003). At Danfoss Drives, communication is closely related to culture and geographical location. One of the interviewees expressed this very clearly: Via your language you can articulate the country in which you have been raised, its culture, and its values. The whole set of values are embedded in your language . . . that is why English and American, Danish and Norwegian are different, even though they are very similar. Language, culture, and geography are very closely related, and together they articulate precision . . . and when you try to express yourself in another language, then you lose the precision.

Language is thus a very central part of communication. The official language at Danfoss Drives is English, and this therefore causes some difficulties. All employees are expected to use English at the level they master, but employees find it very frustrating to have to speak English to German customers (to whom they used to speak German), since it can be a barrier to really understanding the details. Danfoss Drives says: If we continued speaking German with the German customers, then they would communicate in their native language and there would be only one translation. Now, all of us have to put substantial effort in expressing the right things, and furthermore we may not understand what is said with the intention of the sender.

In addition to the official language, there are at least two other languages at Danfoss Drives: a company-specific and a technical language. The language used internally in the company is very specific, with many abbreviations and terms, and it can be very confusing. As Danfoss Drives says: It takes new employees about a year to fully understand what is being said.

And as Pinchot (1985) argued, the innovation process is inhibited or distorted when people do not speak a common language, communication is slowed down. The technical language used by engineers is highly precise, since all terms within electronics and software are the same in English, American English and Australian English, and Danish educational courses are based on English textbooks. But not all employees at Danfoss Drives are engineers, and as one of the engineers said: “we [the engineers and the rest of the organisation] do not speak a common language . . . however the tone is free and hard – but friendly”, and they are not afraid to ask if there is something they do not understand. General communication within Danfoss Drives is very informal, which encourages employees to talk to everyone. However, employees at Danfoss Drives are scattered around Graasten, which is a barrier to daily communication. As Danfoss Drives explains: We have colleagues . . . 200m from here, and it feels like they are placed in Aarhus [almost 200 km from Graasten]. If you think you could gain from speaking with them then you have to walk over there, and then you are very likely to wait until tomorrow.

However, one of the managers says: Generally the information and communication within and between the departments, supply chain, core processes, etc., flow well – maybe too well, as there are hardly any conflicts; often we are too polite . . . it takes too much time to make a decision, because we seek consensus and too many people are involved.

The involvement of so many people is due to the complexity of the products, and makes it very hard to get an overview, because a lot of important information has to be taken into account. Conversely, the consensus-seeking and meetings shorten communication and make employees feel they have influence (Fry, 1987). To support communication, Danfoss Drives is developing a common information structure for meetings, reports, etc., which should make it easier for employees to find the right information. Face-to-face communication is the preferred form of communication at Danfoss Drives. This can be illustrated by the mechanics group, which meets physically every 14 days to keep the amount of written information to a minimum. The team leader of the mechanics group said: We can write a report . . . but if people are going to read it, some will read it in one way, others will read it in another way, and some will not read it at all. In this way [by meeting every 14 days] we get a resume, and if something is not clear, we can ask. I have chosen this information strategy in the group because everyone will be informed, and afterwards you can go home, and if you are interested you can easily ask for more information.

Together with direct and open communication (see, for example, Leonard and Swap, 2002; Pinchot, 1985), face-to-face communication, physical proximity, natural “watering holes” such as coffee pots and mail rooms, meetings, special places/rooms for special occasions, team building, social events, cross-level and cross-functional locations (see, for example, Christensen and Bang, 2003; Leonard and Swap, 2002) all encourage improved communication at Danfoss Drives. Decision reports and other kinds of documentation are still written down in the mechanics group, including a final report, but all the unnecessary “semi” reports are skipped. Danfoss Drives shares ideas and knowledge in both formal and informal ways, which, for example, Fry (1987) and Christensen and Bang (2003) have described to be preferable. However, being a worldwide company, face-to-face meetings are not always possible or convenient because of distance, so a lot of information is often sent by e-mail. This often leads to misunderstandings in their daily work, however. Danfoss Drives says: . . . you try to make sure that you have expressed exactly what you want, but when you get an e-mail back with 20 questions, then there is nothing else to do than call or, even better, meet face-to-face, otherwise the e-mails will continue going back and forth . . . because a large part of the context disappears when you write down information.

This is one of the reasons why employees at Danfoss Drives spend so much time in meetings, to inform and coordinate, and, as the company explains, this need for communication may reflect Danish culture. 6.2 Culture Since innovation is not restricted to the research and development department, it “pervades” the company’s culture. This is supported by small talk and observations,

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and it is clear that new ideas are generated across the whole company and in cooperation with customers and suppliers, and then further developed in an interplay between sales/marketing and customers, production and supplies, research and development and engineers. Danfoss Drives believes that in this way they ensure a higher degree of intrapreneurship – both in relation to product, process, and strategic innovation – than if innovation were only carried out by the research and development department, which typically consists of technicians/engineers. Thus, “. . . the innovation will be technology driven rather than market driven,” according to Danfoss Drives. Company culture also plays a role in relation to, for example, decision-making. The decision-making process at Danfoss Drives in Denmark has changed radically during the last decade because of changing product characteristics. A decade ago the company had employees with a broad range of knowledge resources, which meant that they could make decisions about almost everything. Today, the industry has become much more complex, more technologically oriented, which makes it impossible to be a generalist, and all employees have now become specialists within a relatively small area. Among other things, this is one of the reasons why Danes at Danfoss Drives are very consensus-seeking, and many different types of employees are asked for advice before a decision is made. Although it slows down the intrapreneurial process and is time- and resource-consuming, Danfoss Drives thinks it enables them to make better decisions. By involving many employees in the overall decisions, managers try to decentralise as many lower-level decisions as possible. Danfoss Drives believes that: . . . because of the complexity, there is no right answer. What may be a good solution for one may seem wrong to another, even though the result may be the same . . . What is most important is that the employee who has to carry out the task feels that it is the right way to do it.

Decentralised decisions create a very high degree of commitment and ensure that employees really make an effort to succeed. This is contrary to Danish culture, but as one of the managers explains: . . . Especially in Germany, the process of decision-making is different. They do not have so many meetings. The manager decides, he takes the responsibility, and he takes the consequences, and the employees implement . . . in the United States, it is also the manager who makes the decisions, but they [like the Danes] also have a lot of meetings before the decision is made.

Danfoss Drives believes that the delegation of decision-making creates more flexibility, which is one thing that Danes, because of their very relaxed culture, are better at than foreign companies. The general experience at Danfoss Drives is that culture also plays a major role in relation to the perception of time, especially working hours. In Denmark, most employees are employed on flextime terms, which means that they decide themselves when they come and leave, thus controlling their own working hours. In Germany, on the other hand, employees have fixed working hours, while in the US, employees usually come before the manager arrives and leave after he has left. In these countries, therefore, the manager decides working hours. At its plants abroad, Danfoss Drives adapts to the norms of the country concerned.

6.3 Process Since Danfoss Drives is ISO9000-certified, it has to follow and document a number of procedures and processes. In general, the company believes that their processes are very robust, but they are continuously trying to improve organisational processes further. One of the most visible process innovations concerns the development of an in-line printing house together with Xerox. Basically, this means that the manual is printed in a specific language and number related to a specific order, and every time there is a change in the manual, it is made online. The main advantage of this is that it ensures that the manual is always up to date, and it saves the company resources in relation to a printed manual – both paper and storage. Danfoss Drives has also improved inventory control by implementing an electronic kaizen system (Imai, 1986). However, when striving after effectiveness and efficiency, environmental awareness and high-quality products are also essential. All projects are managed in relation to a “key-point plan”, like Cooper’s (2001) stage gate model. Although they can change the level of documentation in each project, they acknowledge that it is very difficult for them to run small projects. One of the managers also explains that managing “the next generation of a product to a known market, developing a new product to an unknown market, or developing a specific product to a specific market, or a brand-labelling project with a supplier, are very different projects”, and they think it is a weakness to use the same project model for all projects. Danfoss Drives is aware of their strengths and weaknesses, and small projects are definitely one of their weaknesses, since the whole system is geared to large-scale production. Small companies are now bringing innovations to the market, which is something that Danfoss Drives used to do. By recognising that, Danfoss Drives temporarily “changed the focus from innovation and idea-creation to a focus on the process of production planning and technology planning”, as one of the managers explains. The focus not only changed from product to process innovation, but also to knowledge-intensive production, by means of relationship management and other ways of managing. However, the emphasis is now back on innovation again.

7. Conclusion and implications Activities that benefit the strategic and financial position of a company are those most likely to be developed and implemented. Given this, the exploration and exploitation of different intrapreneurial enablers seems the logical choice, since it can result in significant corporate gains. The research challenge is to understand why intrapreneurial enablers have not attracted companies’ attention to a greater extent. The Danfoss Drives case indicates that rewards, top management support, resources, organisational structure, and tolerance of risk are not sufficient to encourage intrapreneurship in a knowledge-intensive company. Not all factors directly encourage intrapreneurship, although some are necessary in order to create an intrapreneurial climate. Fry (1987, p. 5) argued that: . . . [i]f managers aren’t innovative, if they don’t provide the climate for creativity, if they can’t set aside their carefully laid plans to take advantage of a new opportunity, then intrapreneurs have little encouragement.

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This basically means that managers can be the biggest obstacle to intrapreneurs, inasmuch as a single decision can kill a project before it gets started. The Danfoss Drives case has shown that enabling intrapreneurship is easier when the (top) management communicates a clear vision and plan to employees for a longer time horizon (Sathe, 2003). Consequently, the framework should consist of eight intrapreneurial enablers instead of five: communication, culture, process, rewards, (top) management support, resources, organisational structure, and risk. Morris and Kuratko (2002, p. 257) note that “culture underlies all other components of a workplace”, i.e. all other factors. This means that all factors are interrelated and influence each other in some way – at least with culture as a common denominator. While the Danfoss case shows that culture in itself is not sufficient to describe how managers can enable intrapreneurship, the eight factors described above all contribute in one way or another, and are therefore too important to leave out. Hisrich (1990) defines an intrapreneurial culture as follows: “[d]evelop visions, goals, and action plans; take action and be rewarded; suggest, try, and experiment; create and develop regardless of the area; and take responsibility and ownership. This environment, of course, supports individuals in their effort to create something”, Danfoss Drives comes close to an intrapreneurial culture on several points, but there is still room for managerial improvements. Clearly, there is a need for further research into factors that enable and encourage intrapreneurship in knowledge-intensive companies. Studies related to the enablers are important. Are there more than eight, and which? How are they related? And how can managers exploit the synergies involved? Up to now we only know that the eight enablers influence intrapreneurship, not if and how they can be used to turn the intrapreneurial level up and down. Breakthrough innovations that change the rules of competition in a market are very rare, and, as Morris and Kuratko (2002) also argue, frequent experiments make intrapreneurs better able to determine what works and what does not work. References Antoncic, B. and Hisrich, R.D. (2004), “Corporate entrepreneurship contingencies and organizational wealth creation”, Journal of Management Development, Vol. 23 No. 6, pp. 518-50. Biggadike, R. (1979), “The risky business of diversification”, Harvard Business Review, Vol. 57 No. 3, pp. 103-11. Bukh, P.N., Christensen, K.S. and Mouritsen, J. (2005), Knowledge Management and Intellectual Capital: Establishing a Field of Practice, Palgrave Macmillan, Basingstoke. Burgelman, R.A. (1983), “A process model of internal corporate venturing in the diversified major firm”, Administrative Science Quarterly, Vol. 28 No. 2, pp. 39-55. Burgelman, R.A. and Sayles, L.R. (1986), Inside Corporate Innovation: Strategy, Structure, and Managerial Skills, Free Press, New York, NY. Chang, J. (1998), “Model of corporate entrepreneurship: intrapreneurship and exopreneurship”, Borneo Review, Vol. 9 No. 2, pp. 187-213. Christensen, K.S. (2004), “A classification of the corporate entrepreneurship umbrella: labels and perspectives”, International Journal of Management and Enterprise Development, Vol. 1 No. 4, pp. 301-15.

Christensen, K.S. and Bang, H.K. (2003), “Knowledge management in a project-oriented organization: three perspectives”, Journal of Knowledge Management, Vol. 7 No. 3, pp. 116-28.

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Cooper, R.G. (2001), Winning at New Products, Perseus, Cambridge, MA. Davis, S.M. and Lawrence, P.R. (1991), “The matrix organization – who needs it?”, in Shafritz, J.M. and Ott, J.S. (Eds), Classics of Organization Theory, 3rd ed., Wadsworth Publishing Company, Belmont, CA, pp. 234-54. Drucker, P.F. (1993), Post-capitalist Society, Butterworth-Heinemann, Oxford. Ellis, R.J. and Taylor, N.T. (1987), “Specifying entrepreneurship”, in Chruchill, N.C., Hornaday, J.A., Kirchhoff, B.A., Krasner, O.J. and Vesper, K.H. (Eds), Frontiers of Entrepreneurship Research, Babson College, Wellesley, MA, pp. 527-41. Fry, A. (1987), “The Post-It Note: an intrapreneurial success”, SAM Advanced Management Journal, Vol. 52 No. 3, pp. 4-9. Gartner, W.B. (1988), “Who is an entrepreneur? Is the wrong question”, American Journal of Small Buiness, Vol. 10, pp. 696-706. Glaser, B. (1978), Theoretical Sensitivity: Advances in the Methodology of Grounded Theory, Sociology Press, Mill Valley, CA. Glaser, B.G. and Straus, A.L. (1967), The Discovery of Grounded Theory: Strategies for Qualitative Research, Aldine, Chicago, IL. Guth, W.D. and Ginsberg, A. (1990), “Guest editors’ introduction: corporate entrepreneurship”, Strategic Management Journal, Vol. 11, pp. 5-15. Hanan, M. (1976), “Venturing corporations think small to stay strong”, Harvard Business Review, Vol. 54, pp. 139-48. Hisrich, R.D. (1990), “Entrepreneurship/intrapreneurship”, American Psychologist, Vol. 45 No. 2, pp. 209-22. Hisrich, R.D. and Peters, M.P. (1986), “Establishing a new business venture unit within a firm”, Journal of Business Venturing, Vol. 1, pp. 307-22. Hitt, M.A. and Ireland, R.D. (2000), “The intersection of entrepreneurship and strategic management research”, in Sexton, D.L. and Landstro¨m, H.A. (Eds), Handbook of Entrepreneurship, Blackwell, Oxford, pp. 45-63. Hitt, M.A., Ireland, R.D. and Lee, H. (2000), “Technological learning, knowledge management, firm growth and performance”, Journal of engineering and Technology Managmement, Vol. 17, pp. 231-46. Hitt, M.A., Ireland, R.D., Camp, S.M. and Sexton, D.L. (2002), Strategic Entrepreneurship: Creating a New Mindset, Blackwell, Oxford. Hornsby, J.S., Kuratko, D.F. and Zahra, S.A. (2002), “Middle managers perception of the internal environment for corporate entrepreneurship: assessing a measurement scale”, Journal of Business Venturing, Vol. 17 No. 3, pp. 253-73. Hornsby, J.S., Naffziger, D.W., Kuratko, D.F. and Montagno, R.V. (1993), “An interactive model of the corporate entrepreneurship process”, Entrepreneurship, Theory & Practice, Vol. 17 No. 2, pp. 29-37. Imai, M. (1986), Kaizen, Random House, New York, NY. Kuratko, D.F., Montagno, R.V. and Hornsby, J.S. (1990), “Developing an intrapreneurial assessment instrument for an effective corporate entrepreneurial environment”, Strategic Management Journal, Vol. 11 No. 1, pp. 49-58.

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Leonard, D. and Swap, W. (2002), “How managers can spark creativity”, in Hesselbein, F. and Johnston, R. (Eds), On Creativity, Innovation, and Renewal: A Leader to Leader Guide, Jossey-Bass, San Francisco, CA, pp. 55-65. Lu, J.W. and Beamish, P.W. (2001), “The internationalization and performance of SMEs”, Strategic Management Journal, Vol. 22, pp. 565-86. Miles, M.B. and Huberman, A.M. (1994), Qualitative Data Analysis, Sage, Thousand Oaks, CA. Morris, M.H. and Kuratko, D.F. (2002), Corporate Entrepreneurship, Harcourt College Publishers, Orlando, FL. Nonaka, I. and Takeuchi, H. (1995), The Knowledge-Creating Company, Oxford University Press, Oxford. Peterson, R. and Berger, D. (1972), “Entrepreneurship in organizations: evidence from the popular music industry”, Administrative Science Quarterly, Vol. 16, pp. 97-106. Pinchot, G. (1985), Intrapreneuring: Why You Don’t Have to Leave the Corporation to Become an Entrepreneur, Harper & Row, New York, NY. Sathe, V. (2003), Corporate Entrepreneurship: Top Managers and New Business Creation, Cambridge University Press, Cambridge. Sharma, P. and Chrisman, J.J. (1999), “Toward a reconciliation of the definitional issues in the field of corporate entreprenruship”, Entrepreneurship Theory & Practice, Vol. 22, pp. 43-68. Stevenson, H.H. and Jarillo, J.C. (1990), “A paradigm of entrepreneurship: entrepreneurial management”, Strategic Management Journal, Vol. 11, pp. 17-27, Special issue. Stopford, J. and Baden-Fuller, C.F. (1994), “Creating corporate entrepreneurship”, Strategic Management Journal, Vol. 15 No. 7, pp. 521-36. Weber, P.R. (1985), Basic Content Analysis, Sage, Beverly Hills, CA. Yin, R.K. (2003), Case Study Research: Design and Methods, Sage, London.

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Metaphoric boundary objects as co-ordinating mechanisms in the knowledge sharing of innovation processes

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Kaj U. Koskinen Tampere University of Technology, Pori, Finland Abstract Purpose – In order that knowledge distribution in companies can be efficient and effective, it should take place without boundaries. However, this is not often the reality. People tend to build up their own boundaries, often creating overly technical terminology so that others cannot participate in what they do. In other words, identity hinges on difference. Establishing these identities weakens the existence of real innovative companies and reinforces barriers within and between organisations. The ability of companies to transcend these barriers is partly based on the recognition of boundary objects. This means that the better the companies understand the nature of the existing boundary objects, the better they can take actions that will help to overcome existing barriers. Therefore the goal of the paper is to highlight boundary objects that co-ordinate knowledge sharing within and between firms’ innovation processes. Design/methodology/approach – There are many different types of boundary objects. The conceptual paper especially addresses the question of what kind of role metaphoric boundary objects play in the knowledge sharing within and between firms’ innovation processes. The study is conducted with the help of a literature survey. Findings – The results of the study suggest that metaphoric boundary objects may play a significant role as a co-ordinating mechanism in the knowledge sharing of companies’ innovation processes. Originality/value – The relevance of metaphoric boundary objects resides in the fact that with them companies can create the necessary shared understanding behind the framing and resolution of the emerging problem in innovation activities. Keywords Metaphors, Tacit knowledge, Explicit knowledge, Knowledge sharing, Innovation Paper type Research paper

1. Introduction Today, the notion of innovation is widely accepted. It has become part of our culture (Trott, 2002). Freeman and Perez (1988) define innovation as the introduction of new and improved ways of doing things at work. In the economic sense an innovation has been arrived at with the first commercial transaction involving a new or improved product, process, system or device. Thus, innovation is restricted to intentional attempts to bring about benefits from new changes. These might include economic benefits, personal growth, increased satisfaction, improved group coherence, better organisational communication, as well as productivity and economic measures. The innovations of technology firms often include technological changes such as new products, production processes, the introduction of advanced manufacturing technology, as well as the introduction of new computer support services.

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Innovation is perhaps a function in which the utilisation of new knowledge is more abundant than in any other function of the enterprise (e.g. Roussel et al., 1991). This means that the innovation process can be seen as a knowledge intensive phenomenon, which can be approached in terms of the quality and quantity of knowledge (e.g. Allen, 1977; Tushman, 1978; Nonaka and Takeuchi, 1995). This, in turn, means that in order that companies can benefit from knowledge, they must be able to interpret, internalise, and understand different issues, circumstances, and situations (e.g. Koskinen and Vanharanta, 2002; Koskinen et al., 2003). Therefore the innovative firms develop new products through creating and sharing knowledge. In order that knowledge distribution in companies can be efficient and effective, it should take place without boundaries, involving multiple disciplines, multiple functions, and organisational members with different experiences (e.g. Tushman and Katz, 1980). However, this is not often the reality. People tend to build up their own boundaries, practices, values, and codes of conduct, often creating overly technical terminology so that others cannot participate in what they do (e.g. Wenger, 1998). In other words, identity hinges on difference. Establishing these identities weakens the existence of real innovative companies and reinforces barriers within and between organisations. The ability of companies to transcend these barriers is partly based on the recognition of boundary objects. This means that the better the companies understand the nature of the existing boundary objects, the better they can take actions that will help to overcome existing barriers. The goal of this conceptual article is to highlight those boundary objects that co-ordinate knowledge sharing within and between firms’ innovation processes. In the pursuit of this goal, the following discussion first describes the concept of knowledge and how knowledge is distributed. Then the discussion goes on to describe boundary objects, focusing especially on metaphors as boundary objects. And after that, due to the need to concretise the metaphoric boundary objects in the innovation process, an example about their usage in the innovation process of a company is given. 2. Knowledge and how it is distributed Complex innovation processes cannot usually be performed by individuals. This means that different people and companies have to bring together different ideas regarding the problem area (Arias and Fischer, 2000). And this means, in turn, that due to the communication divide produced by the stakeholders’ respective cultures, reaching common understanding between the different parties is a major challenge for the innovative companies (e.g. Snow, 1993). A traditional way to categorise knowledge is to make a distinction between data, information and knowledge. Although it is not always very clear-cut, the distinction between these notions is often useful. Another way to categorise knowledge is to divide it into tacit and explicit knowledge (Polanyi, 1966). Tacit knowledge represents knowledge based on the experience of individuals (Polanyi, 1966). It is expressed in human actions in the form of evaluations, attitudes, points of view, commitments, motivation, etc. (e.g. Nonaka and Takeuchi, 1995) Usually it is difficult to express tacit knowledge directly in words, and often the only ways of presenting it are through metaphors (e.g. Morgan, 1986; Tsoukas, 1991; Goatly, 1996), drawings and different methods of expression not requiring a formal use

of language. On the practical level many experts are often unable to express clearly all the things they know and can do, and how they make their decisions and come to conclusions (Koskinen, 2000; Koskinen and Vanharanta, 2002). Tacit knowledge is context dependent and situation sensitive (Maturana and Varela, 1992; Varela et al., 1991). This means that tacit knowledge is not abstract but it is embodied in the individual. And this means, in turn, that everything known is known by somebody. . . . knowledge depends very much on the point of observation. Where you stand or what you know determines what you see or what you choose to be relevant (von Krogh and Roos, 1996).

Hamel (1991) and Badaracco (1991) emphasise that tacit knowledge, by its very nature, is difficult to acquire and transfer. According to them, this type of knowledge resides in social relations, and is highly context and history dependent. Even though these authors stress the difficulties in transferring tacit knowledge, they do not argue that this type of knowledge is impossible to transfer. Explicit knowledge, unlike tacit knowledge, can be embodied in a code, or a language, and as a consequence it can be communicated easily. The code may be words, numbers, or symbols like grammatical statements, mathematical expressions, specifications, manuals, and so forth. For example, explicit knowledge implies factual statements about such matters as material properties, technical information, and tool characteristics. There is not a dichotomy between tacit and explicit knowledge, rather there is a spectrum of knowledge types with tacit at one extreme and explicit at the other. Tacit knowledge is about what things work, explicit knowledge has the potential to explain why things work. In practice, teaching and learning in schools occur mainly through transfer and assimilation of explicit knowledge. Based on the discussion above, we adopted the latter categorisation (i.e. the division into tacit and explicit knowledge) to be the basis of our understanding of knowledge and knowing in innovative companies. In the most knowledge related activity, as in an innovation process, the knowing of what others know is a necessary component for co-ordinated action to take place (e.g. Clark, 1985; Krauss and Fussell, 1991). According to Brown (1981), effective knowledge sharing requires that the points-of-view of the others are realistically imagined. Therefore individuals working for a company communicate with each other by a number of different means, such as face-to-face conversations, telephone, e-mail, and ordinary mail (e.g. Koskinen et al., 2003). Knowledge is acquired and transmitted through symbols with an efficiency that will vary depending on the characteristics of the communication channels used for such transmission. According to Boisot (1983), the process of codifying a message for transmission involves a loss of information that can only be recovered in situations where the receiver associates the same cluster of meaning with the symbols chosen as does the sender. Therefore the transmission of knowledge, which may give rise to uncertain or ambiguous interpretations (e.g. tacit knowledge), requires either the simultaneous activation of several channels of communication, in order to minimise the loss of information caused by the use of a single channel, or a prior sharing of experiences out of which emerges a convention that reduces uncertainty for the use of certain symbols (e.g. Redding, 1972; Reddy, 1979). The richness of a communication medium can be analysed in terms of two underlying dimensions: the variety of cues the medium can convey and the rapidity of

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feedback the medium can provide (Daft and Lengel, 1984; Trevino et al., 1987; Berger and Luckman, 1966). That is, the media have varying capacities for resolving ambiguity, meeting interpretation needs, and transferring knowledge, and they can be placed along a five-step continuum (Daft and Lengel, 1984) (see Figure 1): (1) Face-to-face. (2) Telephone. (3) Written personal. (4) Written formal. (5) Numeric formal. Trevino et al. (1987) suggest that there exists a link between the selection of media and the ambiguity of the message to be conveyed. In situations characterised by a high degree of ambiguity, no established scripts or symbols are available to guide behaviour. Meaning must be created and negotiated as individuals look to others for cues and feedback to help interpret the message (Trevino et al., 1987, p. 557).

Berger and Luckman (1966) argue that most experience of others takes place in face-to-face situations because the other person’s subjectivity is available through a “maximum of symptoms” – the here-and-now of each individual continuously impinges on the other, both consciously and subconsciously, as long as the face-to-face situation continues. The authors further argue that misinterpretation is less likely in face-to-face interactions than in less close mediums. On the basis of the discussion above we draw the conclusion that the knowledge utilisation taking place in an innovation process is not only about the processing of objective information but that it also requires that the subjective views, intuitions and inklings of the individual persons are presented, tested and taken into use. These subjective views are largely acquired and distributed in informal face-to-face interaction. 3. Boundary objects and how they are created Many authors (e.g. Star, 1989; Star and Griesemer, 1989; Henderson and Clark, 1990; Boland and Tenkasi, 1995; Wenger, 1998; Arias and Fischer, 2000; Carlile, 2002) have recognised the importance of boundary objects. These objects are common to several organisations and people and satisfy the knowledge requirements of each of them. Boundary objects are flexible in adapting to the local needs and constraints of the several parties sharing them, they are robust enough to maintain a common identity across different stakeholders, and they can be either abstract or concrete. Boundary objects are often weakly structured in common use, and become strongly structured when they are used by individuals or small groups. They are interpreted differently by Figure 1. Media richness vs knowledge communicability

different organisations and people, and it is an acknowledgement and discussion of these differences that enables a shared understanding to be formed. A boundary object can serve as a co-ordinator of perspectives of various constituencies for a particular purpose. For example, a contract that is produced in a business meeting translates the consultations of a supplier and customer into a common understanding that can be processed. In this case, the boundary object serves as a kind of co-ordinating mechanism between supplier and customer and therefore, also, between their different viewpoints and opinions. The creation of a boundary object depends on an individual’s perspectives and a given context. In fact, everything known is attached to a particular point of observation; change the point, and the knowledge about a phenomenon also changes (see also von Krogh and Roos, 1995). For example, a car owner can assess the make of his or her car with terms like road-handling capacity and economy. The same make of car may be described by a car mechanic with words like servicing ease and availability of spare parts. This means that different individuals generate product ideas (that is, contribution to a boundary object) and improvements for existing products from different perspectives. This also means that an individual justifies the truthfulness of his or her beliefs based on observations of the product. These observations, in turn, depend on a unique viewpoint, personal sensibility, and individual experience. The problem of knowledge in firms is not a problem of simply combining, sharing or making information commonly available. It is a problem of boundary object creation in which the unique world views of different people and/or organisations are made visible and accessible to others. This means that the creation of a boundary object is never a one-to-one mapping of meanings. Members of an organisation will not always reach full consensus, and members of different organisations cannot simply adopt the meanings of another. In order that boundary object creation may proceed, the diverse knowledge held by individuals and/or organisations must be represented in its uniqueness, and made available to others to incorporate in their boundary object creation. Valuing diversity of knowledge by enabling each type of expertise to make unique representations of their understanding, and assisting actors with different expertise to better recognise and accept the different ways of knowing of others, is the foundation of boundary object creation. It can be encouraged by knowledge distribution systems (e.g. face-to-face interaction) that include an emphasis on supporting the distinctive needs of separate organisations. Boundary objects support both social interaction and create shared understanding among various stakeholders, i.e. contextualise knowledge to the task at hand. Creating shared understanding (i.e. a boundary object) requires a culture in which the stakeholders see themselves as reflective practitioners rather than all-knowing experts (Scho¨n, 1983). Boundary objects may also constitute a centre of intense conflict as easily as one of co-operative effort. Creating and reshaping boundary objects is an exercise of power that can be either collaborative or unilateral. Nonetheless, in the absence of boundary objects, the possibility to arrive at common understanding is limited and the opportunity for a successful innovative process is reduced. Boundary objects can be artefacts, documents and even vocabulary that can help people from different organisations to build a shared understanding. In the next

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chapter we focus on vocabulary based boundary objects, i.e. we will deal with metaphors in the creation of boundary objects. 4. Metaphors in the creation of boundary objects Language and knowledge go hand in hand. This means that it is obvious that without language, knowledge cannot flow from person to person. However, what is not always so obvious is that people are constantly in the process of creating new language and new knowledge. On the high value-added boundaries of an innovation process, the ability to create new language – and rapidly diffuse it through the company – is a great advantage. Externalising fuzzy ideas (i.e. tacit knowledge) into explicit ones often means finding a way to express the inexpressible. One of the means of doing so is the usage of figurative language and symbolism. A kind of figurative language that is especially important is metaphor (e.g. Morgan, 1986; Tsoukas, 1991). A metaphor consists of two main parts: the tenor and the vehicle. The tenor is the subject to which the metaphor is applied. The vehicle is the metaphorical term through which the tenor is applied. These two parts come together to reach a point of similarity known as ground. For a metaphor to work best there has to be just enough distance between the tenor and the vehicle for an individual to be able to make some connection between the two, but not so close as to appear over obvious or too far away as to appear obtuse (Parkin, 2003). For example, metaphor “he is a teddy bear” works well because it draws on the familiar idea “teddy bear” to describe the man’s appearance and character feature. But the metaphor “he is an apple” probably would not work because it is too distant and there is too little in the way of comparison for people to relate to. Indeed, the metaphor is a distinctive method of perception. It is a way for individuals grounded in different contexts and with different experiences to understand something intuitively through the use of imagination and symbols without the need for analysis or generalisation. Through metaphors, people put together what they know in new ways and begin to express what they know but cannot yet say. However, not all people are equally adept at thinking in terms of metaphors, but most of them, if given a few examples, can come up with an idea that help them to span the chasm between what is and what could be (cf. Hamel and Prahalad, 1994). The creation of metaphoric boundary objects is a process whereby an organisation develops and strengthens its knowledge domains. As a metaphoric boundary object strengthens, it becomes better able to support the company’s innovation process. Strengthening signifies a transition from a global, undifferentiated naming to a more precise explication of constructs, where more coherent structures of meaning are developed than the preceding ones. Metaphoric boundary objects progressively clarify themselves over a period of time to successfully solve innovation problems. This means that the creation of metaphoric boundary objects is a process of making and solving puzzles, thereby elaborating and refining the vocabulary that embody them. An agreement that knowledge is progressing is an agreement that a metaphoric boundary object is strengthening. On the basis of the discussion above we conclude that metaphors draw their power from being boundary objects. Once an innovative company has found a metaphor particularly powerful, that metaphor becomes a boundary object that serves to foster

understanding between people working for the company. However, not just any metaphor will do. The skill lies in finding the right metaphor – one that generates creative and co-ordinating responses among individuals. Indeed, crafting the right metaphoric boundary object is an organisational skill. 5. Innovation The literature on innovation management incorporates numerous studies of successful and unsuccessful innovations, from which researchers have developed different models for innovation management. Many of these models cut the innovation process into different phases, each with its own characteristics. Control is exercised by insisting on clear boundaries for each phase and on formal decision making at the end of each phase before a new phase can be started (e.g. Cooper, 1988; Wheelwright and Clark, 1992). This means that the emphasis is on the exploitation of specific knowledge, i.e. innovation follows a well-defined trajectory, innovation management involves clear definition of aims and responsibilities. However, in the literature there is also another line of thinking, which emphasises an environment in which organic structures prevail (e.g. Burns and Stalker, 1961). Such structures are characterised by loosely defined tasks and responsibilities and horizontal rather than vertical communication. In this type of environment the innovation process is seen to involve ill-defined problems and new unseen combinations of thoughts and ideas. This means that the focus is not so much on exploitation, but on exploration. These two approaches of innovation management refer to different phases in the innovation process. Organic management would be appropriate for the early phases when exploration is dominant. The various models described in new product development literature would then be more appropriate for the later phases of the innovation process, in which exploitation is dominant. 5.1 Innovation models As mentioned above, many models have been developed for acquiring a better understanding of the innovation process (e.g. Galbraith, 1982; Rothwell and Zegveld, 1985; Twiss, 1986; Patterson, 1990). These models have ranged from simple “pipeline” or “black box” models to complicated models. Some of them focus on consumer product innovation; others are concerned with industrial product innovation. Although numerous models have been developed to describe the innovation process, no model appears to be capable of being utilised as a generalised model of innovation. Usually innovation process models begin with idea generation or a problem recognition stage (e.g. Amabile, 1988; Kanter, 1988). According to Farr and Ford (1990), there are many different sources one can search to discover new ideas. For example, normally an individual will first search through memories of past experiences in similar situations to see if a satisfactory alternative can be found. It is also obvious that previous training, experience, and expertise will influence the number of ideas one can bring to bear on a given problem. The stages of the innovation process are most usually defined as idea generation, concept development, and product development. They represent the linear formation and development of an idea to its taking on a physical form. However, many of those actually involved with the development of new products dismiss this linear model as

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Figure 2. Innovation process as a circle of boundary objects

not being a true representation of reality. More recent research suggests that the process needs to be viewed as a simultaneous process with cross-functional interaction (Hart, 1993). Notwithstanding how the innovation process takes place, its stages always include the above mentioned phases: idea generation, concept development, and product development. 5.2 Metaphoric boundary objects and the innovation process Ill-structured innovation processes require the participation of many stakeholders. Complexity in innovations arises from the need to synthesise different perspectives of a problem, from the creation of boundary objects (Resnick et al., 1991), from the management of large amounts of information relevant to a design task, and from the understanding the design decisions that have determined the long-term evolution of a designed artefact. By supporting the process of reflection within a shared context defined by the task at hand, opportunities can emerge from enhancing the creation of shared understandings. This process melds the information that is collaboratively constructed into a boundary object, informing the process as well as the stakeholders and allowing them to participate from a more enriched and meaningful perspective. As Figure 2 suggests, the clarity of each phase of the innovation process grows towards the end result (new product). The thickness of the line of description of each phase (industry with many products, product idea, product concept, new product) shows how strongly each phase is structured. This means that, for a company, the whole industry with numerous companies which all have different products (Product 1. . .n), represents a weakly structured source for a product idea, while the company’s new product represents a strongly structured result of the innovation process. Because the need to co-ordinate tacit knowledge distribution is the greatest in the product idea generation phase, the weakly structured boundary object, “product idea (BO1)”, plays an important role as a co-ordinator mechanism in tacit knowledge communication. And

because the utilisation of explicit knowledge is more abundant in the phase of final product development, boundary object “concept (BO2)” plays a significant role in explicit knowledge sharing. From industry to product idea. In the idea creation process the first step toward achieving the goal is to decide what that goal will be. In practice the company paradigms influence what knowledge the company is likely to search for, as well as how this knowledge is interpreted (e.g. Schwandt, 1997). Starting the creation of the metaphor that becomes a boundary object, is an equally critical process for individuals and team-based idea-creating efforts. The boundary object provides a method for keeping the desired outcome of the work clear in mind throughout the ideation effort. It gives idea hunters a road map for successfully navigating the ideation process. And furthermore, the boundary object represents a shared commitment to the project by the participants who helped to create it (cf. Greiner, 1997). Innovations embody elements of the past; nothing is totally new or unprecedented (Smith, 2003). This means that the generation of innovative ideas relies on knowledge of existing artefacts and practices (Ward et al., 1999). The use of metaphors is typical of a process in which ideas are borrowed from various sources and shaped to fit the situation at hand. As suggested in Figure 2, at the beginning of the innovation process the ideas derived from “industry with many products” become a weakly structured boundary object “product idea (BO1)”. Many people participate in this phase, and tacit knowledge and metaphors play significant roles in it. During this phase the language used needs to be extraordinarily dynamic. The participants should not only speak freely, they should also allow the words they use to be playful (von Krogh et al., 2000). Fundamental challenges facing the participants in this phase of the process are found in the creation of the metaphor which describes the shared understanding, and thus becomes a boundary object of the project team (which often does not exist upfront, but is evolved incrementally and collaboratively and emerges in people’s mind and in external artefacts). Members of different domains need to learn to communicate with and learn from others who have a different perspective and perhaps a different vocabulary for describing their ideas and to establish a common ground and a shared understanding (e.g. Arias, 1996). When a project team commits to a metaphoric boundary object, and makes the connection, its understanding is enhanced and it discovers new ways of dealing with the problem. This means that this commitment serves as an “interrupt”, which, in turn, means that it gives people a “what?” sort of experience and jolts them out of their habitual thinking (Denning, 2001). For example, a team in an IT-company follows media when trying to identify trends in the information handling. Gradually it creates a metaphor “knowledge navigator” that functions as a guiding boundary object (BO1) on an idea of a new software product. It draws on the familiar notion of “navigation” to describe how the information is stored in and retrieved from a computer. From product idea to product concept. In this phase a weakly structured boundary object “product idea (BO1)” becomes a strongly structured boundary object “concept (BO2)”. This is often the result of the work of a loosely structured cross-functional project team (people from many disciplines) that discusses ideas based on the BO1 boundary object. There is usually a positive relationship between heterogeneity and

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creativity in cross-functional teams, especially during concept creation, in which expertise is not such an important factor. A conversation may begin with individuals discussing personal opinions regarding the BO1 boundary object, but as it proceeds, the expressions converge through the understanding of individuals into one product concept (BO2) that becomes the individuals’ common focus. The participants apply creative techniques in which they identify new metaphors that enhance their insights and experiences more explicit, helping to bundle them into key words that finally form a boundary object “product concept (BO2)”. For example, when the team of the above mentioned IT-company creates a new metaphor “knowledge atlas”, and replaces the existing metaphor “knowledge navigator” as a co-ordinating mechanism by it, it enhances its understanding of the product under development. This is because the metaphor “knowledge atlas”, which draws on the familiar notion of “atlas”, describes better than metaphor “knowledge navigator” the principles of how the knowledge is located in the computer’s software structure and how it is linked with the other pieces of knowledge. In other words, metaphor “knowledge atlas” has become a boundary object that serves as a co-ordinator of the perspectives of various people of the project team. Crystallisation of a weakly structured boundary object “product idea (BO1)” into a strongly structured boundary object “product concept (BO2)” is achieved when all the team members feel that the concept corresponds with what they know tacitly. From product concept to new product. In this phase the strongly structured boundary object “product concept (BO2)” becomes a “new product”. This is done by a well-structured project team that uses professional language and tangible tools like prototypes and mock-ups. When constructing a new product the team members pool together their different expertise (e.g. R&D, production, marketing, quality control, financial management) to develop specifications that meet everyone’s approval, and actually manufacture a new product. In this phase, the boundary object “product concept (BO2)”, although being strongly structured, has a relatively low impact on tacit knowledge communication, since most of the participants are professionals who use methods which are well known. However, the strongly structured boundary object “product concept (BO2)” may encourage better utilisation of explicit knowledge and help to legitimise the product development process itself. From new product to industry. When the product is ready and marketable it becomes again part of “industry with many products”, i.e. a source of a new boundary object “product idea (BO1)”. 6. Conclusions The management of innovation processes with the help of boundary objects represents a challenge that most innovative companies are only now beginning to acknowledge. Part of the reason for this is due to the fact that only a little is known about the nature of boundary objects and their manifestation in innovation processes. In this study we have sought to offer a brief illustration of the problem area. There are many different types of boundary objects. We conclude that especially metaphoric boundary objects may play a significant role as a co-ordinating mechanism in the knowledge sharing of innovation processes. The relevance of metaphoric boundary objects resides in the fact that with them companies can create the necessary

shared understanding behind the framing and resolution of the emerging problem in innovation activities. We also conclude that when a boundary object is weakly structured, it may still play a significant role in the sharing of tacit knowledge and understanding between the people involved. And, in contrast, when a boundary object is strongly structured, it can function as a co-ordinating mechanism in explicit knowledge communication. In sum, what a boundary object gains in structure, it loses in creativity and tacit knowledge communication. References Allen, T.J. (1977), Managing the Flow of Technology, MIT Press, Cambridge, MA. Amabile, T.M. (1988), “A model of creativity and innovation in organizations”, Research in Organizational Behavior, Vol. 10, pp. 123-67. Arias, E.G. (1996), “Bottom-up neighborhood revitalization: a language approach for participatory decision support”, Urban Studies, Vol. 33 No. 10, pp. 1831-48. Arias, E.G. and Fischer, G. (2000), “Boundary objects: their role in articulating the task at hand and making information relevant to it”, International ICSC Symposium on Interactive and Collaborative Computing, University of Wollongong, Wollongong, pp. 1-8. Badaracco, J.L. (1991), The Knowledge Link: How Firms Compete Through Strategic Alliances, Harvard Business School Press, Boston, MA. Berger, P. and Luckman, T. (1966), The Social Construction of Reality, Penguin, New York, NY. Boisot, M. (1983), “Convergence revisited: the codification and diffusion of knowledge in a British and a Japanese firm”, Journal of Management Studies, Vol. 1, pp. 159-90. Boland, R.J. and Tenkasi, R.V. (1995), “Perspective making and perspective taking in communities of knowing”, Organization Science, Vol. 6 No. 4, pp. 350-72. Brown, R. (1981), Social Psychology, The Free Press, New York, NY. Burns, T. and Stalker, G. (1961), The Management of Innovation, Tavistock, London. Carlile, P.R. (2002), “A pragmatic view of knowledge and boundaries: boundary objects in new product development”, Organization Science, Vol. 13 No. 4, pp. 442-55. Clark, H.H. (1985), “Language use and language users”, in Lindzey, G. and Aronson, E. (Eds), Handbook of Social Psychology, Random House, New York, NY, pp. 179-231. Cooper, R. (1988), “The new product process: a decision guide for management”, Journal of Marketing Management, Vol. 3 No. 3, pp. 238-55. Daft, R.L. and Lengel, R.H. (1984), “Information richness: a new approach to managerial behavior and organization design”, Research in Organizational Behavior, Vol. 6, pp. 191-233. Denning, S. (2001), The Springboard, Butterworth-Heinemann, Boston, MA. Farr, J.L. and Ford, C.M. (1990), “Individual innovation”, in West, M.A. and Farr, J.L. (Eds), Innovation and Creativity at Work: Psychological and Organizational Strategies, John Wiley & Sons, Chichester. Freeman, C. and Perez, C. (1988), “Structural crises of adjustment, business cycles and investment behaviour”, in Dosi, G., Freeman, C., Nelson, R., Silverberg, G. and Soete, L. (Eds), Technical Change and Economic Theory, Pinter Publishers, London, pp. 36-8. Galbraith, J.R. (1982), “Designing the innovative organisation”, Organisational Dynamics, Winter, pp. 3-24. Goatly, A. (1996), The Language of Metaphors: An Introduction, Routledge, London.

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Greiner, D. (1997), The Basics of Idea Generation, Quality Resources, New York, NY. Hamel, G. (1991), “Competition for competence and interpartner learning within international strategic alliances”, Strategic Management Journal, Vol. 12, pp. 83-103. Hamel, G. and Prahalad, C.G. (1994), Competing for the Future, Harvard Business School Press, Boston, MA. Hart, S. (1993), “Dimensions of success in new product development: an exploratory investigation”, Journal of Marketing Management, Vol. 9 No. 9, pp. 23-41. Henderson, R.M. and Clark, K.B. (1990), “Architecture innovation: the reconfiguration of existing product technologies and the failure of established firms”, Administrative Science Quarterly, Vol. 35, pp. 9-30. Kanter, R.M. (1988), The Change Masters: Corporate Entrepreneurs at Work, Allen & Unwin, London. Koskinen, K.U. (2000), “Tacit knowledge as a promoter of project success”, European Journal of Purchasing & Supply Management, Vol. 6, pp. 41-7. Koskinen, K.U. and Vanharanta, H. (2002), “The role of tacit knowledge in innovation processes of small technology companies”, International Journal of Production Economics, Vol. 80, pp. 57-64. Koskinen, K.U., Pihlanto, P. and Vanharanta, H. (2003), “Tacit knowledge acquisition and sharing in a project work context”, International Journal of Project Management, Vol. 21, pp. 281-90. Krauss, R.M. and Fussell, S.R. (1991), “Perspective-taking in communication representation of others’ knowledge in reference”, Social Cognition, Vol. 9 No. 1, pp. 2-24. Maturana, H.R. and Varela, F.J. (1992), The Tree of Knowledge, Shambhala, Boston, MA. Morgan, G. (1986), Images of Organisations, Sage Publications, Beverly Hills, CA. Nonaka, I. and Takeuchi, H. (1995), The Knowledge-Creating Company, Oxford University Press, New York, NY. Parkin, M. (2003), Tales for Coaching, Kogan Page, London. Patterson, M. (1990), “Accelerating innovation: a dip in the meme pool”, National Productivity Review, Vol. 19 No. 4, pp. 53-8. Polanyi, M. (1966), The Tacit Dimension, Doubleday & Co., New York, NY. Redding, C.W. (1972), Communication within Organization, Industrial Communication Council, New York, NY. Reddy, M.J. (1979), “The conduit metaphor”, in Ortony, A. (Ed.), Metaphor and Thought, Cambridge University Press, Cambridge, pp. 284-324. Resnick, L.B., Levine, J.M. and Teasley, S.D. (Eds.) (1991), Perspectives on Socially Shared Cognition, American Psychological Association, Washington, DC. Rothwell, R. and Zegveld, W. (1985), Reindustrialisation and Technology, Longman, London. Roussel, P.A., Saad, K.N. and Erickson, T. (1991), Third Generation R&D: Managing the Link to Corporate Strategy, Harvard Business School Press, Boston, MA. Schwandt, D. (1997), “Integrating strategy and organizational learning”, in Huff, A. and Walsh, J. (Eds), Advances in Strategic Management, Vol. 14, JAI Press, Greenwich, CT, pp. 337-60. Scho¨n, D.A. (1983), The Reflective Practitioner: How Professionals Think in Action, Basic Books, New York, NY. Smith, G.F. (2003), “Towards a logic of innovation”, in Shavinina, L. (Ed.), The International Handbook on Innovation, Elsevier Science, Amsterdam, pp. 347-65.

Snow, C.P. (1993), The Two Cultures, Cambridge University Press, Cambridge. Star, S.L. (1989), “The structure of ill-structured solutions: boundary objects and heterogeneous problem solving”, in Huhs, M. and Gasser, L. (Eds), Readings in Distributed Artificial Intelligence, Vol. 3, Kaufman, Menlo Park, CA, pp. 37-53. Star, S.L. and Griesemer, J.R. (1989), “Institutional ecology, ‘translations’ and boundary objects: amateurs and professionals in Berkeley’s Museum of Vertebrate Zoology, 1907-39”, Social Studies of Science, Vol. 19, pp. 387-420. Trevino, L.K., Lengel, R.H. and Daft, R.L. (1987), “Media symbolism, media richness, and media choice in organizations – symbolic interactionist perspective”, Communication Research, Vol. 14 No. 5, pp. 553-74. Trott, P. (2002), Innovation Management and New Product Development, Pearson Education Limited, London. Tsoukas, H. (1991), “The missing link: a transformational view of metaphors in organizational science”, Academy of Management Review, Vol. 16 No. 3, pp. 566-85. Tushman, M.L. (1978), “Task characteristics and technical communication in research and development”, Academy of Management Review, Vol. 21, pp. 624-45. Tushman, M.L. and Katz, R. (1980), “External communication and project performance: an investigation into the role of gatekeeper”, Management Science, Vol. 26, pp. 1071-85. Twiss, B.C. (1986), Managing Technological Innovation, Pitman, London. Varela, F., Thompson, E. and Rosch, E. (1991), Embodied Mind: Cognitive Science and Human Experience, MIT Press, Cambridge. Ward, T.B., Smith, S.M. and Finke, R.A. (1999), “Creative cognition”, in Sternberg, R.J. (Ed.), Handbook of Creativity, Cambridge University Press, Cambridge, pp. 189-212. Wenger, E. (1998), Communities of Practice: Learning, Meaning an Identity, Cambridge University Press, New York, NY. Wheelwright, S.C. and Clark, K.B. (1992), Revolutionising Product Development, Free Press, New York, NY. von Krogh, G. and Roos, J. (1995), “Conversation management”, European Management Journal, Vol. 13, pp. 390-4. von Krogh, G. and Roos, J. (1996), “Five claims of knowing”, European Management Journal, Vol. 14, pp. 423-6. von Krogh, G., Ichijo, K. and Nonaka, I. (2000), Enabling Knowledge Creation: How to Unlock the Mystery of Tacit Knowledge and Release the Power of Innovation, Oxford University Press, New York, NY. Further reading Kahneman, D., Slovic, P. and Tversky, A. (1982), Judgement under Uncertainty: Heuristics and Biases, Cambridge University Press, New York, NY. Koskinen, K.U. (2003), “The role of boundary objects in tacit knowledge communication”, Proceedings of 3rd International Conference on Researching Work and Learning, Tampere. Ross, L., Greene, D. and House, P. (1977), “The false consensus phenomenon: an attributional bias in self-perception and social perception processes”, Journal of Experimental Social Psychology, Vol. 13, pp. 279-301.

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Ari Jantunen Department of Business Administration, Lappeenranta University of Technology, Lappeenranta, Finland Abstract Purpose – Knowledge-based assets and organizational learning capabilities are recognized to be critical for firm’s innovation activities. The process of creating new knowledge requires acquiring useful data and information, and utilizing it effectively in its internal innovation activities. To manage external knowledge, firms need absorptive capacity. The purpose of this study is to present the concept of the firm’s absorptive capacity as a multidimensional, dynamic construct consisting of capabilities for organizational knowledge processing. Design/methodology/approach – The paper draws on results from a large-scale survey. The empirical data used in the study comprises of 217 Finnish firms from seven different industry sectors. The hypotheses were tested by means of hierarchical linear regression analysis. Findings – The results of the empirical tests give some support to the view that it is not only the firm’s knowledge stock but also its knowledge flows that are crucial for sustaining innovative performance. The regression estimation shows that knowledge-utilization capabilities were reflected in the firm’s innovative performance. Research limitations/implications – As the data used in the study was cross-sectional, the causal relationships and the sustainability of innovative performance cannot be captured. Avenues for further research include the interaction between the firm’s knowledge base, knowledge processes and innovativeness. Practical implications – This study emphasizes the importance of the firm’s ability to utilize and renew its knowledge base effectively. In order to utilize externally generated knowledge, firms need an ability to internalize it and then combine the information and new insights with the existing knowledge base. Originality/value – As only little empirical research has been conducted on the impact of knowledge-processing capabilities on the firm’s innovative performance, the empirical evidence reported here makes a valuable contribution in this highly important area. Keywords Knowledge processes, Innovation, Knowledge management, Finland Paper type Research paper

Introduction Knowledge-based assets and organizational learning capabilities are increasingly recognized in the literature as potential sources of competitive advantage. The ability to acquire and utilize knowledge effectively is argued to be critical for the firm’s innovation activities and performance (Cohen and Levinthal, 1990). As the innovation European Journal of Innovation Management Vol. 8 No. 3, 2005 pp. 336-349 q Emerald Group Publishing Limited 1460-1060 DOI 10.1108/14601060510610199

The author is grateful to David Teece, Kalevi Kyla¨heiko, Kaisu Puumalainen, and Jaana Sandstro¨m for their comments and discussion. The normal disclaimers apply. Financial support from Finnish Liikesivistysrahasto – The Foundation for Economic Education, for the data collection is acknowledged.

paradigm has changed from being discovery-based to being centrally learning-based (Lundvall and Borras, 1997), the way in which knowledge processes are managed within and between firms has emerged as a major theme in recent research. According to Chesbrough (2003), openness to using external sources of information and ideas in the firm’s innovation processes, as well as interaction among different partners, are of high importance when creating value through innovation activities. Firms are increasingly dependent on their customers, suppliers and other complementary capabilities as initiators of product and process improvement and sources of new ideas (von Hippel, 1988). In order to utilize externally generated knowledge, they need an ability to internalize it and then combine the information and new insights with the existing knowledge base. If they are to take advantage of knowledge, it has to be embodied in products and processes. Thus, firms need structures, processes and tools for information acquisition, and knowledge creation and utilization. In recent literature on strategy research, endeavors to explain performance differences between firms have shifted in focus from industry-level external factors to firm’s internal elements. The resource-based view of the firm (Wernerfelt, 1984; Barney, 1991; Peteraf, 1993) associates the sources of competitive advantage with strategic assets that are valuable, rare, inimitable and non-substitutable (Barney, 1991). Several studies have demonstrated that firm-specific factors play an important role in explaining performance differences between firms (Rumelt, 1991; Mauri and Michaels, 1998; Brush et al., 1999). Hence, the recent shift in strategy research towards consideration of firm’s internal assets in the search for the sources of competitive advantage is justified. However, static resource-based explanations have their problems, especially in terms of coping with change. To put it briefly, if superior performance is based on inimitable and non-substitutable assets, how can such assets sustain their value when technological change is rapid and market dynamism is high? As inimitable and non-substitutable assets are, by definition, highly specialized, their value erodes rapidly if there is no demand for the outcomes of production based on them. Thus, firms have to be able to reconfigure their asset base and generate and develop new capabilities when the applicability of the existing ones is eroded in attempts to maintain competitive advantage in rapidly changing dynamic environments. The dynamic capability view of the firm (Teece et al., 1997; Zott, 2003) considers the firm essentially a knowledge processing and utilizing entity. This approach seeks determinants for inter-firm performance differences mainly from dissimilar abilities among firms to exploit existing assets and to build up new capabilities. To be able to recognize changes in the environment and to utilize opportunities, firms make use of processes for acquiring information, assimilating it into their organizational knowledge base and acting on the knowledge. How well knowledge-processing routines and practices are orchestrated within the firm is reflected in its ability to recognize emerging trends and identify latent market needs. Organizational capabilities in sensing weak signals and seizing opportunities (Teece, 2000) essentially contribute to innovative performance and long-term competitiveness. Increased interest in the emergent domains of organizational learning and knowledge management has resulted in a lot of theoretical research and empirical case studies concerning organizational information processing and knowledge creation. However, only little empirical research has been conducted to explicate the impact of

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knowledge practices on organizational performance (Easterby-Smith and Araujo, 1999; Lyles and Easterby-Smith, 2003). Since the generalizability of results based on case-study research is often problematic, the suggested implications for research and management remain vague and open to various interpretations. This study explores the connections between organizational knowledge-processing capabilities and innovative performance by drawing on results from a large-scale survey on innovation activities and organizational practices. The effect of environmental dynamism on innovative performance is explicitly taken into account as well, and the relationship between the firm’s R&D investments and innovative outcomes is examined. The paper is structured as follows. The next section contains the theoretical discussion and introduces the hypotheses. Then, an empirical model is presented and subsequently tested. The last section discusses the results and limitations of the study and draws implications for further research. Theoretical background and hypotheses Absorptive capacity According to Cohen and Levinthal (1990), the firm’s ability to absorb new knowledge and practices is largely determined by its prior related knowledge stock. Its absorptive capacity consists of its abilities “to recognize the value of new information, assimilate it, and apply it to commercial ends” or “to evaluate and utilize outside knowledge” (Cohen and Levinthal, 1990). The theoretical construct of absorptive capacity has also been used in other levels of analysis, such as the individual, inter-firm, industrial, and national (for meta-analytic reviews, see Van Den Bosch et al., 2003; Zahra and George, 2002). To some extent, absorptive capacity may be developed as a byproduct of the firm’s R&D and manufacturing operations. Cohen and Levinthal (1990) argue that when potential exploitable external knowledge is closely related to the firm’s existing knowledge base, “by-produced” absorptive capacity may be sufficient for knowledge utilization. However, when there is a need to acquire and use knowledge that is distinct from the existing knowledge base, firms have to develop their knowledge-processing capabilities deliberately. This is the case especially when they operate in a rapidly changing environment. As absorptive capacity is based on the firm’s prior knowledge, it could be seen as an accumulated, knowledge-based asset stock. Dierickx and Cool (1989) make a distinction between strategic stocks and flows: strategic asset stocks are the cumulated result of deploying appropriate flows, i.e. continuous expenditures and efforts to develop assets. They stress the fact that the firm’s current competitive position and profitability are determined by its current level of strategic asset stocks. However, its potential future competitive position and long-term profitability depend on how rapidly assets erode or become obsolete. The stronger the asset-value depreciation is, the stronger the need to renew the asset base. Thus, strategic processes, “flows”, are crucial for long-term competitiveness. Winter (1987) also examines the firm’s strategy as an inter-temporal asset-optimizing process. He looks at its strategic choices through the lens of optimal control theory, and considers its knowledge-based strategic assets as state variables in the organizational system. In other words, they are not subject to choice in the short-term. However, in the long-run, managerial decisions related to control variables basically direct the development of state variables. Thus, the firm’s

strategic asset position is developed in a continuous process of refining flows that, over time, renew the knowledge asset base. Kogut and Kulatilaka (2001) argue that when the market opportunity emerges, firms that have invested in developing appropriate capabilities are able to respond, whereas those with unsuitable organizational capabilities cannot easily make adjustments. Learning tends to be a path-dependent activity in the sense that new knowledge acquisition is largely determined by the existing knowledge base, on both the individual and the organizational level (Levinthal and March, 1993; Crossan et al., 1999; Bontis et al., 2002). Accumulated prior knowledge enhances the ability to assimilate knowledge related to the existing knowledge base. In that sense, absorptive capacity may be a potential source of competitive advantage. The firm that has a large knowledge base is well equipped to understand new scientific knowledge and its commercial applicability, for example. Due to time-compression diseconomies (Dierickx and Cool, 1989) in the development of absorptive capacity, this strategic knowledge-based asset cannot be imitated quickly. As a result, the firms with absorptive capacity have a potential advantage in terms of knowledge acquisition. As modern literature on innovation emphasizes the importance of the ability to utilize external knowledge sources in innovation activities (Cohen et al., 2002; Cockburn and Henderson, 1998; Chesbrough, 2003; von Hippel, 1988), the suggested relationship between the firm’s absorptive capacity and its innovative performance is obvious. On the other hand, when the business environment radically changes, a large existing knowledge base is not necessarily solely an advantageous asset. The existing knowledge base also filters incoming signals, and hence new information is always interpreted in the light of earlier experiences within the framework of existing concepts and understanding (Levinthal and March, 1993). Signals that do not directly fit in existing cognitive frameworks will easily be filtered out (Daft and Weick, 1984; Prahalad and Bettis, 1986). There is a risk that the firm will fall into a “competency trap” (Levinthal and March, 1993) and become resistant to recognizing the need to renew its capabilities in order to match the requirements of changing markets. In environmental shifts, the firm’s knowledge base may become partly inappropriate, and hence the value of its developed absorptive capacity erodes. In such conditions, it needs an ability to renew its knowledge base effectively in order to maintain its absorptive capacity. This is particularly crucial when the business environment is in a state of flux. Organizational processes for acquiring, assimilating, and utilizing knowledge have a central role in organizational renewal. When time-to-market for new products is critical, the firm’s innovative performance depends on its ability to recognize opportunities for applying capabilities in a profitable way, and to reconfigure processes with a view to achieving congruence with the operating environment (Teece et al., 1997). Zahra and George (2002) conceptualize the construct of absorptive capacity as “a dynamic capability pertaining to knowledge creation and utilization that enhance a firm’s ability to gain and sustain a competitive advantage.” They present it as a four-dimensional construct, consisting of capabilities for organizational knowledge processing. In their view, the absorptive capacity of the firm is a dynamic capability that evolves over time. This dynamic approach brings the continuous reconfiguration of the firm’s knowledge-based assets into focus, and puts more emphasis on knowledge processes than on knowledge stocks. The authors argue that the immanence of both

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components of absorptive capacity, namely the potential and the realized, is a prerequisite for improved performance. Potential absorptive capacity refers to the firm’s ability to be receptive to external signals, while realized absorptive capacity reflects how knowledge is utilized. As conventional measures such as R&D investments often capture only the input factors of innovation activities, taking into account the output variables as well brings new light to research related to the connection between the firm’s absorptive capacity and innovative performance. Knowledge acquisition, dissemination and utilization Several authors emphasize the vital role of external knowledge sources in innovation activities (von Hippel, 1988; Tripsas, 1997; Cohen et al., 2002; Caloghirou et al., 2004). However, to be able to match market needs and the firm’s capabilities, internal information gathering is also needed. Huber (1991) suggests that knowledge acquisition may be carried out through several processes; by learning when observing other organizations, and by grafting knowledge-possessing components such as other firms, by intentional search and monitoring, for example. In general, knowledge-acquisition capabilities consist of processes and mechanisms for collecting information and creating knowledge from internal and external sources. Even though the importance of knowledge acquisition in innovation activities is recognized, it is not so clear how directly effective knowledge-acquisition capabilities are reflected in improved performance. It may have a more indirect than direct role in promoting innovation (Darroch and McNaughton, 2003), or it may be a necessary but insufficient condition for enhancing performance (Zahra and George, 2002). A firm that does not sense opportunities can hardly make use of them either. Still, other processes and structures are also needed in innovation activities. The acquired information and knowledge of individuals has to be converted into a transferable form and distributed internally so that it can be used in business. Knowledge codification facilitates knowledge dissemination. Formal and informal communication can be supported by several human-resource-management practices. Knowledge is transformed from the tacit to the explicit in social interaction (Nonaka and Takeuchi, 1995). From the perspective of organizational renewal and innovativeness, the most crucial practices involve organizational-level learning activities that bring understanding of action-outcome causal connections and result in higher-order learning, which in turn allows changes in basic assumptions (Argyris and Scho¨n, 1978; Kim, 1993). The ability to integrate and transform knowledge is fundamental in ambitions to institutionalize innovativeness in the firm. A firm that is sensitive to recognizing changes in the market and is able to identify opening opportunities, but without the necessary capabilities to transform its knowledge into valuable products or profitable business models, does not improve its performance. Knowledge-utilization capabilities indicate how effectively it can exploit acquired knowledge in the form of new and improved products. On the other hand, a firm with advanced knowledge-utilization capabilities is quick to respond to signals it receives. Serendipitous opportunity seizing is possible without the systematic use of knowledge-exploitation procedures, but in order to sustain a high degree of innovativeness, the firm necessarily needs processes for deliberately incorporating acquired knowledge so as to enhance processes and products as well. Responsiveness to market knowledge (Jaworski and Kohli, 1993), strategic flexibility (Kogut and

Kulatilaka, 2001) and reconfiguring capabilities (Teece et al., 1997) are all mentioned as the most essential elements of organizational-renewal capability. A firm that is alert to changes in the environment (Kirzner, 1997) and is well prepared to change its processes, strategies and products, has the potential to sustain a high level of innovativeness, and to profit from innovations.

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Environmental dynamism Teece et al. (1997) argue that organizational and technological skills and routines may offer sustainable competitive advantage to the firm in the rapidly changing market only if it is able to recognize relevant changes, and reconfigure its asset base and processes continuously to match the requirements of the changing environment. When environmental dynamism continuously opens and closes windows of opportunity, market success depends on the firm’s proficiency in converting expertise and knowledge rapidly to new and improved products (Christensen et al., 1998). Rapid technological change and changing customer preferences mean that the continuous introduction of product improvements and the development of new products is imperative for firms involved in manufacturing activities and in the production of services. Thus, it is proposed that firms operating in volatile business environments focus more on innovating activities than their counterparts in more stable industries. This is reflected in the proportion of new or substantially improved products to turnover.

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Hypotheses As the firm’s absorptive capacity and the processes that develop its innovative capabilities are difficult to imitate, companies with superior knowledge-processing practices are likely to sustain innovativeness and thus be better positioned in long-term competition. Given the foregoing argumentation, in the context of a dynamic environment, firms with proficiency in creating, integrating and utilizing knowledge are expected to be more skilled in developing profitable innovations than those that lack effective knowledge-processing capabilities. Taken together, the preceding discussion gives rise to the following hypotheses: H1. There is a positive relationship between environmental dynamism and innovative performance. H2. Knowledge acquisition is positively related to innovative performance. H3. Knowledge dissemination is positively related to innovative performance. H4. Knowledge utilization is positively related to innovative performance. Method Data The empirical data used in this study was drawn from a dataset collected using a structured questionnaire. The survey was carried out in Spring 2004. The initial population consisted of Finnish companies engaged in R&D from eight different industrial categories. A total of 1,140 companies were identified from the Blue Book Database, and 881 of them were reached by telephone and found eligible to take part in the study. The respondents were assured of confidentiality and promised a summary

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of the results. Of those contacted by telephone, 200 firms refused to participate. The survey questionnaire with a cover letter describing the purpose of the research was mailed to the remaining 681 firms. A reminder e-mail was sent to those who had not responded within two weeks. A total of 299 responses were received, yielding a satisfactory effective response rate of 33.9 percent (299/881). Most of the respondents had a title such as chief executive officer, managing director or R&D manager, indicating a senior position. Non-response bias was checked on a number of variables by following the suggestions of Armstrong and Overton (1977). No evidence was found, with the exception that the firm size of the early and late respondents differed slightly: those in the late respondent group were modestly larger than the early respondents, which may result simply from longer delays in terms of mail delivery and response in larger firms. The sample referred to in this paper includes 217 firms from the size class 50 to 1,000 employees in seven industry sectors. The industry-sector distribution of the sample is presented in Table I. Measures Knowledge acquisition, knowledge dissemination and knowledge utilization. We used multiple items to measure the constructs. The items were assessed on a seven-point Likert scale from “strongly disagree” to “strongly agree”. Knowledge-processing capabilities were grouped by means of exploratory factor analysis. Normal pre-analysis checks were run to ensure the appropriateness of the factor analysis. The Bartlett test of sphericity showed a highly significant ( p , 0.001) number of correlations between items in the correlation matrix, indicating that the matrix was not an identity matrix. The Kaiser-Meyer-Olkin (KMO) measure, with a value of 0.837, as well as measures of sampling adequacy (MSA) taken from the anti-image correlation matrix for each individual variable indicate that the matrix was suitable for factor analysis, which was then conducted using principal component extraction with varimax rotation. Following guidelines related to eigenvalue, screeplot, and interpretability criteria resulted in a three-factor solution, grouping knowledge-processing capabilities as knowledge acquisition, knowledge dissemination and knowledge utilization. For each construct, the item responses were averaged to create a composite measure (see the Appendix for the final items). Cronbach’s alpha was used as a reliability measure. Knowledge acquisition was measured on four items (a ¼ 0:62), evaluating the firm’s activities in collecting information related to markets, the industry, and their internal activities. The knowledge-dissemination measure included five items

Table I. Industry-sector distribution of the sample

Industry sector

Firms

Food products Forest/paper Chemicals Metal products Electronics Services ICT Total

20 21 18 79 23 17 39 217

(a ¼ 0:69), focusing on knowledge codification and efforts to examine reasons for failures and successes. Knowledge utilization was measured on seven items (a ¼ 0:77), measuring responsiveness to knowledge and the propensity to change practices according to new information. Firm size, R&D intensity and the degree of environmental dynamism were controlled in the analysis. Firm size was measured according to the number of employees. The logarithmic transformation of this variable was used in order to satisfy regression assumptions. R&D intensity was calculated by dividing yearly R&D expenditures by turnover. The logarithmic form was used to normalize the variable. Environmental dynamism was measured using a multi-item Likert scale. The questions (see Appendix), measured on a seven-point scale, assessed the rapidness of technological change in the industry, the amount and unpredictability of changes in the markets, and the general rate of change in the industry. Nine items were averaged to create a composite measure (a ¼ 0:79). Innovative performance was measured as the proportion of the firm’s turnover related to products that were new or substantially improved during the previous three years. This variable was used earlier by Caloghirou et al. (2004), for example, and it follows the Oslo Manual (OECD, 1997) guidelines that have been adopted in European Union Community Innovation Surveys (CIS). Logarithmic transformation of this variable was used as a dependent variable in the regression analysis. Hypotheses testing Standard multivariate ordinary least square (OLS) regression was used to test the hypotheses. Table II reports the means, standard deviations, and correlations for the variables used in the model estimation. The values of the variable inflation factor (VIF) scores were examined to test for multicollinearity. They were all within acceptable bounds, the greatest value, 1.35, being substantially less than the cut-off of 10 suggested by Hair et al. (1998), and thus multicollinearity was not a problem. Examination of the residuals in the estimation yielded no evidence of heteroscedasticity in the regression. As the positive skewness in two independent variables and the dependent variable was corrected by logarithmic transformation, and the kurtosis statistics fell well within the boundaries of normality, no violations of the assumptions of regression analysis were found. In order to estimate the variance explained by the knowledge-processing capabilities over that explained by the control variables size and R&D intensity and exogenous environmental dynamism, these three variables were entered first into the regression. In the next step, the three knowledge-processing-capability variables were entered. Table III reports the results of the regression analysis. Model 1 explains a statistically significant ( p , 0.001) proportion of the variance in innovative performance (R 2 ¼ 0:103). Environmental dynamism correlates positively and significantly ( p , 0.001) with innovative performance. Model 2 shows the impact of knowledge-processing capabilities on innovative performance and is also significant ( p , 0.001; R 2 ¼ 0:146). The coefficient for environmental dynamism remains positive and significant ( p , 0.001), providing support for H1. Firm size is not significantly related to innovative performance. The coefficient for R&D intensity has a positive sign, as expected. However, the effect of R&D intensity was not statistically significant. Knowledge acquisition and knowledge dissemination are not significantly

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Table II. Means, standard deviations and correlations for the variables 185.8 (166.6) 4.10 (9.61) 3.90 (0.95) 4.86 (0.88) 3.77 (0.91) 4.91 (0.84) 24.78 (21.51)

Notes: *p , 0.05; * *p , 0.01; * * *p , 0.001

Firm size R&D intensity Environmental dynamism Knowledge acquisition Knowledge dissemination Knowledge utilization Innovative performance

1.00 2 0.222 * * 2 0.066 0.093 0.034 2 0.104 2 0.080

1 1.00 0.135 * 2 0.012 0.009 2 0.032 0.122

2

1.00 0.104 0.146 * 0.149 * 0.302 * * *

3

1.00 0.278 * * * 0.389 * * * 0.037

4

1.00 0.386 * * * 20.027

5

344

1. 2. 3. 4. 5. 6. 7.

Mean (SD)

1.00 0.196 * *

6

1.00

7

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Variable Constant Firm size R&D intensity Environmental dynamism Knowledge acquisition Knowledge dissemination Knowledge utilization R2 F-statistic Change in R 2

Model 1 Coefficient SE 1.98 * * * 20.03 0.05 0.28 * * *

0.53 0.09 0.04 0.07

0.103 6.34 * * *

t-stat. 3.74 20.37 1.19 3.93

Model 2 Coefficient SE 1.41 * 0.001 0.05 0.27 * * * 2 0.05 2 0.13 0.24 * *

0.68 0.09 0.04 0.07 0.08 0.08 0.09

t-stat. 2.06 0.008 1.43 3.82 2 0.66 2 1.70 2.66

0.146 4.61 * * * 0.042 *

Notes: *p , 0.05; * *p , 0.01; * * *p , 0.001; n ¼ 217

related to innovative performance. Thus, H2 and H3 are rejected. The knowledge-utilization-capabilities variable has a positive and significant ( p , 0.01) effect on innovative performance, thus supporting H4. Discussion This study contributes to the literature on dynamic capabilities by testing empirically the relationship between the firm’s knowledge-processing capabilities and its innovative performance. As hypothesized, we found that the firms operating in a fast-changing environment captured a larger portion of their turnover from new or substantially improved products than those operating in more stable and predictable conditions. We argue that, in order to sustain innovativeness in a dynamic environment, the firm must have the ability to renew its knowledge base. Earlier research on absorptive capacity has mostly used proxies such as R&D intensity to measure the firm’s ability to utilize its external knowledge. Studies have traditionally emphasized the static or accumulated features of this construct and dismissed the temporal aspects of its development, such as how absorptive capacity is sustained in a changing environment (Zahra and George, 2002; and Van Den Bosch et al., 2003 are exceptions to this). In my view, when environmental dynamism is high, it is not only the firm’s knowledge stock but also its knowledge flows that are crucial for sustaining innovative performance. The results of the empirical tests give some support to this view. The regression estimation shows that knowledge-utilization capabilities were reflected in the firm’s innovative performance while the effect of R&D intensity did not reach a statistically significant level. The relationship between knowledge-acquisition and knowledge-dissemination capabilities, and innovative performance is not so clear, however. Even though the importance of external knowledge sources for innovative outcome has been discussed in several studies, knowledge acquisition and dissemination capabilities may have an essentially enabling and supporting role in innovation activities. In other words, firms also need the ability to embed acquired knowledge in products in order to enhance performance. The implication here is that firms with well-developed knowledge-processing capabilities are well equipped to

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Table III. Regression results – dependent variable: innovative performance

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renew their asset base and exploit the assets they already have in order to develop products that are able to match market needs. This study has its limitations. First, as the data used was cross-sectional, the results represent only a snapshot view of fundamentally dynamic phenomena. However, this limitation does not invalidate the basic logic of the argument that, in a dynamic environment, firms need processes for reconfiguring their asset structures, and that proficiency in knowledge-processing capabilities is reflected in innovative performance. Because of the cross-sectional nature of the data, however, the causal relationships and the sustainability of innovative performance cannot be captured. A second limitation relates to the reliance on key informants in the data collection. Although this method is typical in organizational studies and strategy research, potential common-method variance is still an inbuilt risk. However, Harrison et al. (1996) suggest that this drawback is a potentially severe problem mainly when respondents lack experience with the constructs, and when the independent and dependent variables are both cognitions. As the dependent variable used in this study is not cognitive by nature, and because the respondents had a senior status in their company, it appears that common-method variance should not be considered a serious problem. Nevertheless, this possibility has to be kept in mind. The operationalization of the dynamic capability view of the firm is at an early stage. Teece et al. (1997) argue that, in a rapidly changing environment, the firm’s distinctive organizational processes and capabilities have a central role in endeavors to achieve competitive advantage. The findings of this study support this theoretical argumentation. To sustain innovativeness and market success, firms need assets, processes and structures that enable strategic flexibility and support entrepreneurial opportunity sensing and seizing. Company structures, processes, strategic orientations and their interaction are relevant subjects for further research. The relationship between elements that constitute the firm’s absorptive capacity, such as between the existing knowledge base and knowledge processes, and their impact on performance in different environments, also deserve more attention. Even though the construct of capabilities is still to some extent ambiguous, it should not be seen as a distinctly more obscure concept to operationalize than, say, innovation or strategy. It is thus clear that, in the field of strategic management and innovation, further large-scale empirical research has much potential in terms of developing the dynamic capability view of the firm to become a systematic framework for explicating sources of competitive advantage in a knowledge-based economy. References Argyris, C. and Scho¨n, D. (1978), Organizational Learning: A Theory of Action Perspective, Addison-Wesley, Reading, MA. Armstrong, J.S. and Overton, T.S. (1977), “Estimating non-response bias in mail surveys”, Journal of Marketing Research, Vol. 14 No. 3, pp. 396-402. Barney, J.B. (1991), “Firm resources and sustained competitive advantage”, Journal of Management, Vol. 17 No. 1, pp. 99-120. Bontis, N., Crossan, M.M. and Hulland, J. (2002), “Managing an organizational learning system by aligning stocks and flows”, Journal of Management Studies, Vol. 39 No. 4, pp. 437-69.

Brush, T.H., Bromiley, P. and Hendrickx, M. (1999), “The relative influence of industry and corporation on business segment performance: an alternative estimate”, Strategic Management Journal, Vol. 20 No. 6, pp. 519-47. Caloghirou, Y., Kastelli, I. and Tsakanikas, A. (2004), “Internal capabilities and external knowledge sources: complements or substitutes for innovative performance?”, Technovation, Vol. 24, pp. 29-39. Chesbrough, H.W. (2003), “The logic of open innovation: managing intellectual property”, California Management Review, Vol. 45 No. 3, pp. 33-58. Christensen, C.M., Sua´rez, F.F. and Utterback, J.M. (1998), “Strategies for survival in fast-changing industries”, Management Science, Vol. 44 No. 12, pp. S207-20. Cockburn, I.M. and Henderson, R.M. (1998), “Absorptive capacity, coauthoring behavior, and the organization of research in drug discovery”, Journal of Industrial Economics, Vol. 46 No. 2, pp. 157-82. Cohen, W.M. and Levinthal, D.A. (1990), “Absorptive capacity: a new perspective on learning and innovation”, Administrative Science Quarterly, Vol. 35 No. 1, pp. 128-52. Cohen, W.M., Nelson, R.R. and Walsh, J.P. (2002), “Links and impacts: the influence of public research on industrial R&D”, Management Science, Vol. 48 No. 1, pp. 1-23. Crossan, M.M., Lane, H.W. and White, R.E. (1999), “An organizational learning framework: from intuition to institution”, Academy of Management Review, Vol. 24 No. 3, pp. 522-37. Daft, R.L. and Weick, K.E. (1984), “Toward a model of organizations as interpretation systems”, Academy of Management Review, Vol. 9 No. 2, pp. 284-95. Darroch, J. and McNaughton, R. (2003), “Beyond market orientation: knowledge management and the innovativeness of New Zealand firms”, European Journal of Marketing, Vol. 37 Nos 3/4, pp. 572-93. Dierickx, I. and Cool, K. (1989), “Asset stock accumulation and sustainability of competitive advantage”, Management Science, Vol. 35 No. 12, pp. 1504-11. Easterby-Smith, M. and Araujo, L. (1999), “Organizational learning: current debates and opportunities”, in Easterby-Smith, M., Burgoyne, J. and Araujo, L. (Eds), Organizational Learning and the Learning Organization: Developments in Theory and Practice, Sage, London, pp. 1-21. Hair, J.F. Jr, Anderson, R.E., Tatham, R.L. and Black, W.C. (1998), Multivariate Data Analysis, 5th ed., Prentice-Hall, Englewood Cliffs, NJ. Harrison, D.A., McLaughlin, M.E. and Coalter, T.M. (1996), “Context, cognition, and common method variance: psychometric and verbal protocol evidence”, Organization Behavior and Human Decision Processes, Vol. 69 No. 3, pp. 246-61. Huber, G.P. (1991), “Organizational learning: the contributing processes and the literatures”, Organization Science, Vol. 2 No. 1, pp. 88-115. Jaworski, B.J. and Kohli, A.K. (1993), “Market orientation: antecedents and consequences”, Journal of Marketing, Vol. 57 No. 3, pp. 53-70. Kim, D.H. (1993), “The link between individual and organizational learning”, Sloan Management Review, Vol. 35 No. 1, pp. 37-50. Kirzner, I. (1997), “Entrepreneurial discovery and the competitive market process: an Austrian approach”, Journal of Economic Literature, Vol. 35 No. 1, pp. 60-85. Kogut, B. and Kulatilaka, N. (2001), “Capabilities as real options”, Organization Science, Vol. 12 No. 6, pp. 744-58.

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Levinthal, D.A. and March, J.G. (1993), “The myopia of learning”, Strategic Management Journal, Vol. 14, Winter, Special issue, pp. 95-112. Lundvall, B.A. and Borras, S. (1997), “The globalising learning economy: implications for innovation policy”, report prepared for the TSER programme, European Commission, Brussels. Lyles, M.A. and Easterby-Smith, M. (2003), “Organizational learning and knowledge management: agendas for future research”, in Easterby-Smith, M. and Lyles, M.A. (Eds), The Blackwell Handbook of Organizational Learning and Knowledge Management, Blackwell, Oxford, pp. 639-52. Mauri, A.J. and Michaels, M.P. (1998), “Firm and industry effects within strategic management: an empirical examination”, Strategic Management Journal, Vol. 19 No. 3, pp. 211-9. Nonaka, I. and Takeuchi, H. (1995), The Knowledge Creating Company: How Japanese Companies Create the Dynamics of Innovation, Oxford University Press, Oxford. OECD (1997), Oslo Manual – Proposed Guidelines for Collecting and Interpreting Technological Innovation Data, OECD, Paris. Peteraf, M.A. (1993), “The cornerstones of competitive advantage: a resource-based view”, Strategic Management Journal, Vol. 14 No. 3, pp. 179-91. Prahalad, C.K. and Bettis, R.A. (1986), “The dominant logic: a new linkage between diversity and performance”, Strategic Management Journal, Vol. 7 No. 6, pp. 485-501. Rumelt, R.P. (1991), “How much does industry matter?”, Strategic Management Journal, Vol. 12 No. 3, pp. 167-85. Teece, D.J. (2000), Managing Intellectual Capital: Organizational, Strategic, and Policy Dimensions, Oxford University Press, Oxford. Teece, D.J., Pisano, G. and Shuen, A. (1997), “Dynamic capabilities and strategic management”, Strategic Management Journal, Vol. 18 No. 7, pp. 509-33. Tripsas, M. (1997), “Surviving radical technological change through dynamic capability: evidence from the typesetter industry”, Industrial and Corporate Change, Vol. 6 No. 2, pp. 341-77. Van Den Bosch, F.A.J., Van Wijk, R. and Volberda, H.W. (2003), “Absorptive capacity: antecedents, models, and outcomes”, in Easterby-Smith, M. and Lyles, M.A. (Eds), The Blackwell Handbook of Organizational Learning and Knowledge Management, Blackwell, Oxford, pp. 278-301. Von Hippel, E. (1988), The Sources of Innovation, Oxford University Press, New York, NY. Wernerfelt, B. (1984), “A resource-based view of the firm”, Strategic Management Journal, Vol. 5 No. 2, pp. 171-80. Winter, S.G. (1987), “Knowledge and competence as strategic assets”, in Teece, D.J. (Ed.), The Competitive Challenge: Strategies for Industrial Innovation and Renewal, Harper & Row, New York, NY, pp. 159-84. Zahra, S.A. and George, G. (2002), “Absorptive capacity: a review, reconceptualization, and extension”, Academy of Management Review, Vol. 27 No. 2, pp. 185-203. Zott, C. (2003), “Dynamic capabilities and the emergence of intraindustry differential firm performance: insights from a simulation study”, Strategic Management Journal, Vol. 24, pp. 97-125.

Appendix. Measurement items Knowledge-processing capabilities (1 ¼ disagree completely, 7 ¼ agree completely). Knowledge acquisition . We actively observe and adopt the best practices in our sector. . We continuously gather economic information on our operations and operational environment. . Our development activities are based on examined market needs. . We have assessed our know-how capital. Knowledge dissemination . We have a lot of documented information on the successes and failures related to product development and marketing. . We use a lot of time to figure out why our project succeeded. . We use a lot of time to figure out why our project failed. . In our company we are not used to documenting in writing the things that are learned by experience (reversed). . We often update our instructions. Knowledge utilization . We are able to take on unexpected opportunities. . We are capable of responding rapidly to competitors’ actions. . The change in the working methods and practices in our company is very slow (reversed). . We often hold over the correction of defects as far into the future as possible (reversed). . We usually respond immediately to defects pointed out by employees. . We change our practices when customer feedback gives us reason to change. . When someone in our company needs information about customers or marketing, he/she knows to whom to turn. Environmental dynamism (1 ¼ disagree completely, 7 ¼ agree completely). . In our field of business the life cycle of products is typically long (reversed). . In our field of business customers’ preferences are quite stable (reversed). . In our field of business knowledge and know-how go quickly out of date. . In our field one cannot succeed if one is not able to launch new products continuously. . Our operational environment changes slowly (reversed). . The ability to operate quickly is crucial for success in our field of business. . Technological development offers remarkable possibilities in our field of business. . Technological development is rapid in our field of business. . In our field of business no one yet has the know-how needed a few years hence.

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350

Associate Faculty, Henley Management College, Henley-on-Thames, UK

Elspeth McFadzean Andrew O’Loughlin Cranfield University, Swindon, UK, and

Elizabeth Shaw Brunel University, Uxbridge, UK Abstract Purpose – To examine the literature on corporate entrepreneurship and innovation and to develop a combined definition of these two terms. Moreover, the literature is used to construct a holistic model that seeks to explain the links between corporate entrepreneurial activity and the innovation process. Design/methodology/approach – A number of published works on entrepreneurship and innovation are critiqued. The findings from this literature review are used to develop a framework illustrating the relationships between the corporate entrepreneur and the innovation process. Findings – The paper presents a combined definition of corporate entrepreneurship and innovation and, from the literature review, concludes that previous models on entrepreneurship and innovation are fragmented because there is little exploration on the relationships and dynamics between these two factors. A framework of corporate entrepreneurship and innovation is constructed by synthesising the information gathered from previous literature. This model shows that there are missing links between the entrepreneur and the innovation process. The paper discusses three factors that may explain both the dynamics and the relationships between the entrepreneur and the innovation process. These are entrepreneurial attitudes, vision and actions. Originality/value – This paper fulfils an identified gap in the literature, namely the lack of investigation into the links between the corporate entrepreneur and the innovation process, and suggests three factors that could be used to explain this gap. Part 2 of this paper will present a new holistic model of corporate entrepreneurship and innovation that illustrates the relationships between these two areas in more detail. Keywords Entrepreneurialism, Innovation, Attitudes Paper type Conceptual paper

European Journal of Innovation Management Vol. 8 No. 3, 2005 pp. 350-372 q Emerald Group Publishing Limited 1460-1060 DOI 10.1108/14601060510610207

Introduction The need to understand corporate entrepreneurship has been gaining in importance (Dess et al., 2003; Stevenson and Jarillo, 1990) and has resulted in a number of entrepreneurship frameworks being presented in the literature (Burgelman, 1984; Covin and Slevin, 1991; Pinchot, 1985). Although the scholars who have addressed corporate entrepreneurship have made significant contributions to theory development, there is still scope for a more focused exploration, particularly as there is a growing need for corporate entrepreneurship and innovation within organisations (Hornsby et al., 2002; Hornsby et al., 1993; Ireland et al., 2001; Kuratko et al., 1993; Sexton and Bowman-Upton, 1991; Zahra, 1995). Further research in these two areas has become problematic due to a general lack of consensus surrounding an agreed upon meaning of both concepts (Morris et al., 1994) and the key internal factors that

stimulate them (Hornsby et al., 2002). Earlier frameworks have focused on either entrepreneurship or innovation as independent processes, thereby limiting their application and utility (Baum et al., 2001; Chesbrough, 2003; Cunningham and Lischeron, 1991; Dooley and O’Sullivan, 2001; Jin, 2000). Thus, there has been very little comment in the literature on the relationships between entrepreneurship and innovation. The aim of this paper, therefore, is to present a critical evaluation of the corporate entrepreneurship and innovation literature and to construct a synthesised framework illustrating the current view of these two areas. The model shows that there is a gap between entrepreneurship and innovation. This paper suggests three elements that can fill this gap, namely entrepreneurial attitudes, vision and activities. In part 2, these three elements are explored in more detail and a new model of entrepreneurship is presented. The next two sections define corporate entrepreneurship and innovation and examine the variables and relationships from the literature that underpin these areas. The paper then culminates in the construction of a framework that has been developed by synthesising the literature on entrepreneurship and innovation. The model shows that there is a gap between these two concepts and presents some suggestions as to which elements should be utilised to fill this gap. What is corporate entrepreneurship and innovation? Researchers and practitioners have attempted to define corporate entrepreneurship and innovation in many different ways (Bessant, 2003; Kirby, 2003; Zahra, 1996). There appears, however, to be little consensus surrounding what constitutes entrepreneurial and innovative activity. For example, Chell et al. (1991, p. 1) states: The problem of identification of an entrepreneur has been confounded by the fact that there is still no standard, universally accepted definition of entrepreneurship.

This section reviews some of the most influential literature, from both areas, in order to provide clearer definitions of these two terms. Defining corporate entrepreneurship A number of authors have emphasised entrepreneurship as the primary act underpinning innovation (Amit et al., 1993; Drucker, 1985b; McGrath, 1996; Stevenson and Jarillo, 1990), which also resonates with Schumpeter’s (1961) view of entrepreneurship, as the primary catalyst for innovation. All of these views are, however, concerned almost exclusively with entrepreneurial activity as a radical change mechanism. Evidence suggests however that this might not always be the case (Afuah, 2003; Tidd et al., 2001). In contrast, corporate entrepreneurship is held to promote entrepreneurial behaviours within an organisation (Echols and Neck, 1998). It uses the fundamentals of management, while adopting a behavioural style that challenges bureaucracy and encourages innovation (Barringer and Bluedorn, 1999). It is also responsible for stimulating innovation within the organisation through the examination of potential new opportunities, resource acquisition, implementation, exploitation and commercialisation of the new products or services (Guth and Ginsberg, 1990; Kuratko et al., 1990; Sathe, 1989; Stopford and Baden-Fuller, 1994;

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Thornberry, 2003). In addition, Zahra (1991, 1995) states that corporate entrepreneurship also includes various attitudes and actions that enhance a company’s ability to take risks, seize opportunities and innovate. According to Leibenstein (1968, p. 73), entrepreneurship can be defined as: The activities necessary to create or carry on an enterprise where not all the markets are well established or clearly defined and/or in which the relevant parts of the production function are not completely known.

Leibenstein further contends that an entrepreneur undertakes one or more of the following activities: The entrepreneur: . organises and puts in place the appropriate resources required to produce and market the new product or service; . co-ordinates contractual agreements between different parties such as the firm and its employees or suppliers; . arranges an appropriate organisational structure and culture in order to develop and produce new products and services; . responds to market deficiencies by supplying resources for which there is no market; and . connects buyers and sellers and/or different geographical markets together. From the above discussion corporate entrepreneurship can be defined as the effort of promoting innovation from an internal organisational perspective, through the assessment of potential new opportunities, alignment of resources, exploitation and commercialisation of said opportunities (see Figure 1 for explicit links). It is important to note that corporate entrepreneurship can be used interchangeably with intrapreneurship.

Figure 1. Corporate entrepreneurship

Defining innovation Various definitions have been developed to explain innovation, and as a result the term has gained greater ambiguity (Garcia and Calantone, 2002). Examination of the innovation literature confirms that there is enormous diversity in views and approaches to what actually constitutes innovative activity, and also highlights some of the confusion that exists within the discipline itself. Confusion seems to stem from the fact that many definitions introduce peripheral concepts, which may deflect attention from the core components of innovation and make its application difficult. For example, both Cannon (1993) and Gurteen (1998) introduce paradigmatic change and creative thinking. While Rogers (1995) concentrates on perception, Henderson et al. (1996) feature invention, and Koontz and Weihrich (1990) and Zahra (1995) put forward definitions that highlight marketing and entrepreneurial philosophies. A number of process models have been developed in the literature suggesting that innovation consists of a variety of different phases: idea generation, research design and development, prototype production, manufacturing, marketing and sales (Dooley and O’Sullivan, 2001; Knox, 2002; Poolton and Ismail, 2000; Rothwell, 1994). However, theorists have suggested that there is more to innovation than the process (Amabile, 1996; Couger, 1995; Rhodes, 1961). Considerations must also be given to the product so that organisations can evaluate their success (or failure) (Bessant, 2003; Tidd et al., 2001; von Stamm, 2003). In fact, the most important, as well as consistent, factors to emanate from the innovation literature focus on the product; that is, new ideas and the potential for improvement through change. New ideas can be placed on a novelty continuum. Heany (1983) suggests that the least novel and risky form of innovation is to incrementally change the style of a product. This tends to be predictable and the effect on the market is likely to be slight. In contrast, at the other end of the continuum, major innovation is held to radically influence the market place. In addition, major innovations have the potential to create new markets and new industries. This in turn can place considerable strain on all the functional areas within an organisation, and can be highly risky and uncertain (Brown, 1992; Clegg et al., 2002; von Stamm, 2003). Between these two points in the continuum, Heany (1983) specifies four other types of innovation: product line extensions, product improvements, new products for the current market, and new products for another established market in which the vendor is currently not involved (see Table I). According to Drucker (1985b), Heany’s products of innovation are associated with wealth production for the organisation, which is a form of added value. The above factors have been categorised into key themes in order to maintain a simple definition of innovation. Consequently, innovation can be defined as a process that provides added value and a degree of novelty to the organisation and its suppliers and customers through the development of new procedures, solutions, products and services as well as new methods of commercialisation (Covin and Slevin, 1991; Knox, 2002; Lumpkin and Dess, 1996) (see Figure 2). Combining entrepreneurship and innovation In this brief review, corporate entrepreneurship and innovation have been defined. What has become clear, however, is that without the presence of some form of entrepreneurial activity to exploit opportunities as they arise within organisations, innovation remains little more than an aspirational, rather than a tangible destination

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Table I. Degrees of innovation

What is the design effort? Is the market for product established?

Is the business already serving the market?

Do customers know functions and features?

Product

Process

Then innovation is a:

Yes Yes Yes Yes Yes No

Yes Yes Yes Yes No No

Yes Yes Yes Yes Yes No

Minor Minor Significant Major Major Major

Nil Minor Minor Major Major Major

Style change Product line extension Product improvement New product Start-up business Major innovation

Source: Heany (1983)

Figure 2. Entrepreneurship and innovation

(Pinchot, 1985; Schumpeter, 1961; Thornberry, 2001; Zahra, 1995). Amit et al. (1993, p. 816) therefore state that the two concepts must be linked together: In a business setting, it appears that the process of endowing resources with new wealth-production capacity [innovation] is central to any conceptualisation of entrepreneurship.

A number of authors have argued that there are different types of innovation. For example, Paulson Gjerde et al. (2002, p. 1268) suggest that innovation can range from incremental to frontier: BMW may be viewed as a frontier innovator, choosing not to introduce a new model until it is very different from the previous models and is at the leading edge of the technology frontier. In comparison, Japanese automobile manufacturers may be viewed as incremental innovators, frequently introducing new models that are only slightly different from the previous ones and do not incorporate all possible technological advances.

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Kirton (2003) believes that people solve problems and develop solutions in different ways. He suggests a continuum of thinking styles ranging from adaption to innovation (see Table II). Many new innovations have been created through adaption. For example, the word processor is a combination of three existing instruments: the typewriter, the computer and a display screen (Drucker, 1985a). Likewise, the internet has been developed from the computer and the telephone (McFadzean, 2003). Another form of adaption is what Drucker (1985a, p. 15) calls “creative imitation”: Creative imitation is a contradiction in terms. What is “creative” must surely be “original.” If there is one thing imitation is not, it is being “original.” Yet the term fits, it describes a strategy which is “imitation” in its substance. Here, the entrepreneur does something somebody else has already done. It is “creative” because the entrepreneur who applies this strategy understands what the innovation represents better than the people who made the innovation. Adaptors

Innovators

In problem defining: Adaptors tend to accept the problems as defined by consensus, accepting generally agreed constraints. Early resolution of problems, limiting disruption and immediate increased efficiency are their more important considerations

Innovators tend to reject the generally accepted perception of problems and redefine them. Their view of the problem may be hard to get across. They seem less concerned with immediate efficiency, looking to possible long-term gains

In solution generating: Adaptors prefer to generate a few novel, creative, relevant and acceptable solutions aimed at “doing things better.” They have confidence in implementing such solutions effectively, despite size and complexity

Innovators generally produce numerous ideas, some of which may not appear relevant or be acceptable to others. Such ideas often contain solutions which result in “doing things differently”

In organisations: Adaptors prefer more well-established, structured situations. They are best at incorporating new data or events into existing structures or policies, making them more efficient. Adaptors are essential to managing current systems, but in times of unexpected changes from unexpected directions, they encounter difficulty regrouping established roles

Innovators prefer less tightly structured situations. They use new data as opportunities to set new structures or policies, accepting greater risk to the current paradigm. Innovators are essential in times of radical change or crisis, but may have trouble applying themselves to managing change within ongoing organisational structures

Source: Adapted from Kirton (2003)

Table II. Trait characteristics of adaptors and innovators

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IBM, for example, practiced creative imitation by using the concept first devised by Apple. The original idea of the personal computer came from Apple, who successfully marketed the innovation. IBM – who had originally thought that personal computers would be too expensive – recognised the potential and set to work to become the industry standard and to dominate this market (Langlois, 1992). The role of the entrepreneur can therefore be presented as a continuum ranging from the entrepreneur as a creative imitator to the entrepreneur as an originator (Paulson Gjerde et al., 2002). Both the internal and external environments can have a significant impact on innovation (Jin, 2000). Evidence shows that firms develop different products (creative imitations or major innovations) due to environmental factors such as its relationship to the market, its competitors, and industry practices (Ali, 1994). Constant and rapid change in the business environment can make decision-making and innovation uncertain and ambiguous (Greve and Taylor, 2000). Thus, organisations must systematically scan both its internal and external environments. A thorough examination of the internal environment involves the evaluation of novel combinations of existing technology, shelved concepts and ideas, and new applications for existing competencies. External scanning consist of: Searching, filtering and evaluating potential opportunities from outside the organization, including related and emerging technologies, new markets and services, which can be exploited by applying or combining with existing competencies (Tidd et al., 2001, p. 293).

The above factors can be used to develop a combined and sequential definition of entrepreneurship and innovation (see Figure 3): Corporate entrepreneurship can be defined as the effort of promoting innovation in an uncertain environment. Innovation is a process that provides added value and novelty to the organisation, its suppliers and customers through the development of new procedures, solutions, products and services as well as new methods of commercialisation. Within this process the principal roles of the corporate entrepreneur are to challenge bureaucracy, to assess new opportunities, to align and exploit resources and to move the innovation process forward. The corporate entrepreneur’s management of the innovation process will lead to greater benefits for the organisation. A holistic view of entrepreneurship and innovation The following section will present a critical evaluation of the corporate entrepreneurship and innovation literature in order to construct a synthesised framework that will illustrate the current view of these two areas. Key entrepreneurship models A number of different corporate entrepreneurship models have been reviewed and their key features, contributions and weaknesses are presented in Table III. Although Table III demonstrates that these models have a number of weaknesses, they also contribute some valuable information in order to help in the understanding of entrepreneurship. Powell and Bimmerle (1980) suggest, for example, that entrepreneurship is initiated by three sets of attributes, namely entrepreneurial descriptors, precipitating factors and venture-specific factors. Entrepreneurial

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Figure 3. A holistic definition of entrepreneurship and innovation

descriptors include individual traits, personal fitness, knowledge and skills. According to Powell and Bimmerle (1980, p. 34): If enough of the entrepreneurial descriptors . . . are present in the proper balance, the individual can then be regarded as a prime candidate for entrepreneurship.

Embarking on an entrepreneurial venture, however, depends upon the precipitating factors – such as, dissatisfaction, encouragement or the recognition of an opportunity – and venture-specific variables, which will include the evaluation of the project as well as financial and technical support. Cunningham and Lischeron (1991) adopt a different approach and have sought to emphasise the need for an iterative process, where there is constant re-evaluation of the individual, as well as future opportunities, the entrepreneurial actions undertaken and the potential need for change. Hornsby et al.’s (1993) model differs from both of these two models, as it highlights the need for a participating event that provides the stimulus for entrepreneurial activity. These events may include, for example, a change in management, a merger or acquisition, the development of a new procedure, economic changes, technological changes and revision of consumer demand. Other researchers have concentrated on categorising and measuring the major traits and variables involved in entrepreneurship (Baum et al., 2001; Powell and Bimmerle, 1980). Covin and Slevin (1991) have classified these elements into three groups: external variables, strategic variables and internal variables. Their approach can be

Cunningham and Lischeron (1991)

Covin and Slevin (1991)

Miller and Friesen (1982)

Powell and Bimmerle (1980)

Only takes a behavioural view of entrepreneurship. Uses high-level variables

Consideration of performance

(continued)

No output variables stated in Recognises the need for feedback and the evaluation of the model self

Little acknowledgement of behavioural variables

Developed equations for entrepreneurial activity in conservative and innovative firms

Categorises the entrepreneurial No evaluation of entire entrepreneurial process characteristics into distinct divisions seeking to highlight complexity in the process

Entrepreneurial descriptors: traits, personal fitness, knowledge and experience Precipitating factors: dissatisfaction, opportunity, initial encouragement Venture-specific factors: evaluation, support Scanning Examines environmental, Concentration of authority information processing, structural and decision making Planning horizons Resources variables Control External variables: industry Focuses on organisational behaviour with consideration lifecycle, technological sophistication of the context as well as the Strategic variables: mission individual strategy, business practices, competitive tactics Internal variables: culture, resources Firm performance Recognising opportunity Entrepreneurship is a reiterative process and focuses Reassessing need for change on personal values, opportunity identification, planning and acting, and reassessing change

Table III. Key corporate entrepreneurship models

Focuses on the venture creation decision-making process with concentration on three key aspects; entrepreneurial descriptors, and precipitating and venture-specific factors

Potential weaknesses

Value added

Model’s key features

Key variables

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Model’s key features

Baum et al. (2001)

Focuses on traits, competencies, motivation, competitive strategies and the environment

Hornsby et al. (1993) A model of corporate entrepreneurship which focuses on organisational and individual characteristics, the precipitating event, the decision to act intrapreneurially, business/feasibility planning, resource availability, ability to overcome barriers and idea implementation Morris et al. (1994) An integrative model of entrepreneurial inputs and outcomes

Literature source

No evaluation of entire entrepreneurial process

Over-simplification of procedures because they view entrepreneurship and innovation as a single process

Emphasis on the multidimensional and interactive nature of intrapreneurship

Process perspective and the variable nature of entrepreneurship with innovation as a possible output of the entrepreneurial process Categorises the entrepreneurial characteristics into distinct divisions seeking to highlight complexity in the process

Business feasibility Ability to overcome barriers Decision to act entrepreneurially Precipitating event

Firm performance: value creation, new products, services or processes, profits/benefits, revenue growth Individual traits Management competencies

No evaluation of relationships between variables

Potential weaknesses

Value added

Key variables

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Table III.

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criticised for being overly reductionist resulting in a lack of specific and measurable elements. Contrasting this, Miller and Freisen (1982) have concentrated on developing a more scientific approach to entrepreneurship through the development of a regression equation that seeks to assess the entrepreneurial traits. Baum et al. (2001) have taken this one stage further and have attempted to quantify different entrepreneurial traits and measure the strength of their relationship with venture growth. All of these models can be criticised for seeking to assess only a small part of the entrepreneurial process, and when more scientific methods are used, the focus is almost exclusively on the quantification of tangible outputs. Such approaches clearly ignore some of the more subtle and personal traits associated with entrepreneurial activity, as well as the broader frameworks within which entrepreneurs operate (Morris et al., 1994). A synthesis of key variables in Table III has been undertaken in order to develop a more complete picture of entrepreneurship (see Figure 4). However, the acknowledged concern with this model is the limited recognition given to the inter-relationship between entrepreneurship and innovation. Key innovation process models Rothwell’s (1992) taxonomy provides a useful method for classifying innovation models (see Table IV). He produced a framework that allows the classification of the dominant perceptions of innovation through time (Rothwell, 1992, 1994). It is important to note the generational processes at play here because these constructs are used to explain and investigate subsequent model development. Table V presents a selection of innovation frameworks that were gathered from the literature. The table highlights a lack of fifth generation models even though Rothwell

Figure 4. A synthesised model of entrepreneurship

Generation

Type of model

Characteristics of model

First

Technology push model

Second

Need pull model

Third

Coupling model

Fourth

Integrated model

Fifth

Systems integrating and network model

Simple, linear, step-wise models showing progression from discovery through to the commercialisation of a new product; emphasis is on R&D; little focus on transformation or the role of the marketplace Simple, linear, sequential models that focus on the marketplace; innovations developed from perceived or clearly articulated needs from consumers; marketing directs R&D Sequential models with distinct but interacting stages; contain feedback loops and can include technological push, market pull or a combination of both; emphasis on integration between R&D and marketing Models show an increase in integration between functions and between other companies; show parallel development and increased relationships between R&D, manufacturing, and design as well as with customers and suppliers Models include fully integrated parallel development; strategic integration with suppliers and strong links with customers; co-development with stakeholders; emphasis on corporate flexibility and development speed; use of expert systems, simulation modelling and computer-aided design and manufacturing; collaborative research and marketing arrangements; increased focus on quality; innovation placed at leading edge of corporate strategy

Source: Adapted from Rothwell (1992, 1994) and von Stamm (2003)

(1992, 1994) suggests that these models are vital because organisations need to increase their speed of development and reduce the time it takes from idea conception to market distribution. He views such models as having high levels of integration with other stakeholders outside the organisation. The advantage of this view is the focus on continuous innovation (Tidd et al., 2001). In addition, Rothwell advocates the integration of all internal departments who should work on new projects simultaneously. Here, communication can be enhanced between the appropriate departments by undertaking regular joint group meetings. Dooley and O’Sullivan’s (2001) model also considers continuous innovation but their model is focused towards internal efficiencies, rather than innovation as new solutions or new methods of commercialisation. As with many other models in the literature, Dooley and O’Sullivan’s framework shows a multi-stage process (Couger, 1995; Roberts, 1988; Roberts and Fusfeld, 1981; Utterback, 1971). Likewise, Roberts and Fusfeld (1981) present an innovation process model. However, this framework is a first generation linear model of innovation that is highly technology-focused and overly simplistic (Kline, 1985). In addition, there is little recognition of the marketing and

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Table IV. Rothwell’s taxonomy of innovation models

Dooley and Three integrated elements; O’Sullivan (2001) goals-constraints, actions and results

Multi-stage processes

Simple, linear, sequential model that largely focuses on the stages of innovation rather than the variety of variables that make up these stages Focuses on innovation dimensions rather than processes, functions or networks Suggests that innovations can possess the characteristics of different dimensions. Thus, they can be looked at from a broader perspective Largely focuses on internal A structured approach to systems innovation to facilitate processes rather than future opportunities or potential continuous innovation commercialisation processes

Presents the relationships between creativity and innovation

Considers drivers of innovation Fails to recognise the use of and dynamism personnel, collaboration and networking

First-generation model focusing on technology-push and the R&D function. No commercialisation or marketing features

Model shows three dimensions Dimensions: product to process, of innovation; product/process, incremental to radical, and administrative to technological incremental/radical, and administrative/technological

Multi-stage processes

Multi-stage processes Technology The market

Consideration of the required roles in the innovation process

Cooper (1998)

Couger (1995)

Roberts (1988)

Roberts and Fusfeld (1981)

Fails to recognise the use of Introduces dynamism with personnel, collaboration and consideration of changing technology and needs over time networking

Multi-stage processes Current economic and social environments Current technological knowledge Multi-stage processes

Coupling model incorporating three basic phases; idea generation, problem-solving, and implementation and diffusion Project based multi-stage model; pre-project, project possibilities, project initiation, project execution, project outcome evaluation, and project transfer Multi-stage model; recognition of opportunity, idea formulation, problem solving, prototype solution, commercial development and technology utilization and/or diffusion Stage-dominant linear model; discovery, invention, innovation, output

Utterback (1971)

Potential weaknesses

Value added

Table V. Key innovation process models Key variables

362

Literature source Models key feature

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manufacturing functions. Contrasting this is Couger’s (1995) framework – a second generation innovation model – which considers market needs but lacks any focus on technological innovation, and organisations using this model are very likely to lose the capacity to adapt quickly to technological changes. Moreover, the model concentrates on the stages of innovation rather than the many variables that can have an impact on the process. The above models have now been made redundant by the incorporation of both market and technology considerations. For example, Utterback’s (1971) earlier sequential process with feedback loops, which appears advanced for its time, has grouped these different processes into three major categories: idea generation sub-processes, problem solving sub-processes and implementation and diffusion sub-processes. Further improvements – such as Roberts’ (1988) model – were made with the introduction of fourth generation frameworks, which considered functional overlaps. The third and fourth generation models, however, are weak because they neglect to emphasise the focus on multi-level collaboration and networking or information access and corporate flexibility. None of the above models, however, comprehensively investigates the actual source, characteristics and management of innovation, and they are overly reductionist. Cooper (1998), for example, has developed a relatively sophisticated model that explores three dimensions of innovation. Each dimension consists of a continuum ranging from: . Product to process. . Incremental to radical. . Administrative to technological. According to Cooper (1998, p. 499): Much of the misunderstanding and conflict surrounding innovation adoption is owed to a long-standing unidimensional concept of innovation.

However, many innovations consist of two or even three dimensions. Thus, if an innovation is combined into just one type there could be a failure to accommodate varying strategic motivations behind different combinations of innovation dimensions (Schroeder, 1990). Although Cooper’s model provides a useful starting point, it overlooks the relative interconnectivity between functions and elements. More importantly, all of the other models discussed above also lack certain variables that would provide a clearer understanding of innovation. Consequently, these models have been synthesised to produce a more holistic view of innovation (see Figure 5), and is discussed in more detail in the following sections. Entrepreneurship and innovation: the missing link From the review of the key entrepreneurship and innovation models, it is possible to identify gaps to be explored and addressed. Two major omissions appear immediately; firstly, the lack of explanation concerning entrepreneurial and innovation dynamics (Ireland et al., 2001; Rothwell, 1992), and secondly, the relationship between the corporate entrepreneur and the innovation process (see Figure 6).

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364

Figure 5. A synthesised model of innovation

There are a number of areas that can be investigated in order to explain both the dynamics and the relationships between the entrepreneur and the innovation process. These include entrepreneurial attitudes, vision and actions (see Figure 7). Entrepreneurial attitudes Understanding entrepreneurial attitudes is a critical factor in comprehending the link between the entrepreneur and the innovation process (Kuratko et al., 1997). According to Shaver and Scott (1991, p. 39): The study of new venture creation began with some reasonable assumptions about the psychological characteristics of “entrepreneurs.” Through the years, more and more of these personological characteristics have been discarded, debunked, or at the very least, found to have been measured ineffectively. The result has been a tendency to concentrate on almost anything except the individual. Economic circumstances are important; social networks are important; entrepreneurial teams are important; marketing is important; finance is important; even public agency assistance is important. But none of these will, alone, create a new venture. For that we need a person, in whose mind all of the possibilities come together, who believes that innovation is possible, and who has the motivation to persist until the job is done. Person, process, and choice: for these we need a truly psychological perspective on new venture creation.

The motivation of the entrepreneur is one particular attitude that has been examined in the literature (Naffziger et al., 1994; Robichaud et al., 2001; Stewart et al., 2003).

Corporate entrepreneurship and innovation 365

Figure 6. The missing link between entrepreneurship and innovation

Gilad and Levine (1986) assert that individuals develop entrepreneurial tendencies because of negative situational factors or because they wish to exploit potentially profitable business opportunities. A negative situational factor such as job dissatisfaction can motivate an individual into making the decision to become an entrepreneur (Cromie and Hayes, 1991). In addition, entrepreneurs are driven by both financial and non-financial goals. However, evidence suggests that monetary gain often features second to the need for achievement (Chaganti and Greene, 2002). McClelland (2002a, b) contends that those with a high need for achievement are much more likely to engage in entrepreneurial activities than those with lower achievement thresholds. Entrepreneurs that operate within organisations tend to focus on the need for achievement, searching more for challenge and autonomy than financial gain (Burns and Kippenberger, 1988). However, within many organisations monetary reward is still used as the single most important determinant of success or performance (Miller, 1983; Schumpeter, 1961; Swedberg, 2000). Other entrepreneurial attitudes include propensity for risk taking, confidence, willingness to fail, perceived difficulty of the new venture, persistence, drive and so on (Ensley et al., 2000; Jackson and Rodkey, 1994; Lee-Gosselin and Grise, 1990; Pellissier and Van Buer, 1996; Shaver and Scott, 1991). Entrepreneurial vision An entrepreneurial vision is an indication of what the organisation expects to achieve in the future. Visioning is a process which involves multiple future time horizons and is a result of intuitive, holistic thinking (Bird and Jelinek, 1988; Boyd and Vozikis, 1994).

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Figure 7. Linking entrepreneurship with innovation – attitudes, vision and actions

It is about seeing what is not there (Carland et al., 1996). In other words, the entrepreneur goes beyond recognising opportunities; rather, he or she has the ability to envision a change in the the environment in order to create opportunities (Ensley et al., 2000). The latter type of visioning, therefore, requires intuition and imagination whereas the former is a result of a rational evaluation of the environment. According to Tellis and Golder (1996) and Boyd and Vozikis (1994), the vision is influenced by self-efficacy, environmental opportunities – such as an improvement in technology or a change in the market place – and the patterns of competition occurring between the organisation and its rivals. Kuratko et al. (2001, p. 62) suggest that: A meaningful vision is sensible in employees’ eyes, is easily understood, suggests a higher calling, and creates a cultural glue that binds people together in ways that help them share knowledge in competitively relevant ways. Moreover, in the global economy, the most effective vision highlights a firm’s commitment to product, process, and market innovations.

Talented entrepreneurs use the vision to energise employees, help them to meet the challenges that face them and to “facilitate their attempts to achieve more than they thought possible as they strive to help the firm reach its vision” (Kuratko et al., 2001, p. 62). Entrepreneurial action According to Naffziger et al. (1994), the activities of entrepreneurs can have a major impact of their firm’s performance. The literature suggests a number of different

entrepreneurial activities. For example, Adaman and Devine (2002) suggest that entrepreneurship consists of social interaction, which occurs both within and outside the organisation. In addition, these activities also include resource management and organisation; the ability to influence, and to generate support, from others; and the capability of assessing, shaping and developing ideas (Bird and Jelinek, 1988; Chandler and Hanks, 1994; Korunka et al., 2003; Sadler-Smith et al., 2003; Tidd et al., 2001). It has also been suggested that entrepreneurs must be capable of flexibility, especially when there is a lack of staff to help them (Bird and Jelinek, 1988). Furthermore, as the venture grows, the entrepreneur can shift his or her actions to new potential opportunities, and hand the day-to-day running of the previous innovation to an appropriate manager. Further investigation into the above three elements is presented in part 2 in order to further develop the link between entrepreneurship and the innovation process. From this, a more detailed model showing this link is presented as well as some implications for managers and researchers. Summary This paper has critically evaluated the literature in order to develop a holistic definition of entrepreneurship and innovation. In addition, the literature has shown that these two concepts are generally discussed as separate entities. This paper has, therefore, presented a synthesised model of the current view of entrepreneurship and innovation. The model highlights a gap between the process – innovation – and the person – the entrepreneur. Consequently, there is a lack of explanation regarding the relationships and dynamics of these components within the literature. It is suggested that further examination of three variables – entrepreneurial attitudes, vision and actions – as they pertain to innovation is required. In part 2, these variables are discussed in more detail and new model of entrepreneurship and innovation is developed. References Adaman, F. and Devine, P. (2002), “A reconsideration of the theory of entrepreneurship: a participatory approach”, Review of Political Economy, Vol. 14 No. 3, pp. 329-55. Afuah, A. (2003), Innovation Management, Open University Press, New York, NY. Ali, A. (1994), “Pioneering versus incremental innovation: review and research propositions”, Journal of Product Innovation Management, Vol. 11 No. 1, pp. 46-61. Amabile, T.M. (1996), Creativity in Context, Westview Press, Boulder, CO. Amit, R., Glosten, L. and Muller, E. (1993), “Challenges to theory development in entrepreneurship research”, Journal of Management Studies, Vol. 30 No. 5, pp. 815-34. Barringer, B.R. and Bluedorn, A.C. (1999), “The relationship between corporate entrepreneurship and strategic management”, Strategic Management Journal, Vol. 20 No. 5, pp. 421-44. Baum, J.R., Locke, E.A. and Smith, K.G. (2001), “A multidimensional model of venture growth”, Academy of Management Journal, Vol. 44 No. 2, pp. 292-303. Bessant, J. (2003), High-Involvement Innovation: Building and Sustaining Competitive Advantage through Continuous Change, John Wiley & Sons, Chichester. Bird, A.M. and Jelinek, M. (1988), “The operation of entrepreneurial intentions”, Entrepreneurship: Theory & Practice, Vol. 13 No. 2, pp. 21-9.

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A multi-level theory of innovation implementation Normative evaluation, legitimisation and conflict

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Rodney McAdam University of Ulster, Belfast, UK Abstract Purpose – Increased developments in competition, globalisation and technology have led to an increased emphasis on innovation in organisations and academia. There is a substantial body of knowledge in regard to the concept of innovation. However, there is a need to make a distinction between innovation and the implementation of innovation in organisations. The study of innovation implementation is much less defined in regard to theory and practice. The aim of this paper is to develop a theoretical conception of innovation implementation primarily based on a critique of the literature. The development is intended to inform further research and enable organisations to develop pathways for effective implementation. Design/methodology/approach – A conceptual and integrated framework is developed from the literature. The constructs of normalising, legitimising and conflict are used to develop the theory. Findings – It is shown how conflict or abrasion is a key element of innovation implementation in attempting to overcome normalising and legitimising organisational forces. Moreover, it is contended that conflict can be used to assess innovation implementation. Originality/value – There is a paucity of theory building at multiple levels within organisations in relation to innovation implementation. Keywords Conflict, Innovation Paper type Conceptual paper

Introduction Increasing market changes resulting in increased competition in traditional small- to medium-sized enterprise (SME) markets has led to a need for increased innovation and, therefore, programmes of innovation in organisations (Tidd et al., 2001). Effective innovation implementation resulting in increased competitiveness, involves intervention programmes with underpinning theory, rather than relying solely on natural progression or “innovation under the gun” (Amabile et al., 2002). There is considerable literature on the concepts of innovation per se, however, there is much less definition in regard to the theory of innovation implementation. Klein and Sorra (1996) states that: Increasingly organisational analysts identify implementation failure, not innovation failure as the cause of many organisations inability to achieve the intended benefits of the innovation they adopt.

Westphal et al. (1997) states that innovation implementation concerns an in-depth study of the definition and implementation of innovation as opposed to issues such as: will the organisation implement innovation, which is more of an innovation diffusion issue, usually associated with the sigmoid curve (Guler et al., 2002; Bass, 1969).

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The process of innovation implementation, in organisations is often phenomenologically based, non-linear, fuzzy and suffers from lack of connectedness (Dougherty and Hardy, 1996; Ford, 2000). This complexity is compounded in organisations where there are issues such as scarce resources, lack of skills, scepticism towards formal training, the need for flexibility and lack of systematic measurement (Findlay et al., 2000; Vossen, 1999). If understanding about the longitudinal incorporation of innovation within organisations can be increased then there will be a contribution to the areas of theoretical understanding and that of designing creativity and innovation programmes to increase competitiveness (Klein and Sorra, 1996). As suggested by Gorton (2000), organisational learning and competitiveness will be increased through defining the underpinning theory of innovation implementation more consistently and applying supportive measures. The aim of this paper is to develop a theoretical conception of innovation implementation primarily based on a critique of the literature. The innovation considered is defined as a technology or practice “being used for the first time by members of an organisation, whether or not other organisations have already used it previously” (Nord and Tucker, 1987). Theoretical approach Deriving theory from the literature, as opposed to experimentation is an inductive process. Inductively derived theory is developed over a period of time by developing an in-depth understanding of key issues using processes such as synthesis, combination and critique (Alvesson and Deetz, 2002). These processes were used in the current paper for the analysis and critique of the literature in a constructionist manner as suggested by Locke and Golden-Biddle (1997). They suggested that “scientific contribution is a constructed phenomena”. A coding process after the manner of Remenyi et al. (1999) and Locke and Golden-Biddle (1997) was used where sub-components, components and constructs were built up. As suggested by Alvesson and Deetz (2002) the coding was cross-checked by a colleague who was not involved in the study but who was familiar with the subject area. This cross checking resulted in changes at sub-component level. The researcher attempted to continually guard against introducing hypothesis and deductive reasoning as suggested by Yin (1994). Thus, inductively derived theory must be grounded in the context of the subject matter, namely the people, power, politics, culture, norms, rites and runes of organisations (Eisenhardt, 1989; Suchman, 1995). While each organisation is a unique entity, there were some overarching constructs, which emerged from the literature, and were therefore used to guide the study, albeit within the limitations of generalisation. Key constructs The literature analysis on innovation implementation resulted in the inductive identification of three key constructs within a theory of innovation implementation, namely normative evaluation, legitimisation and conflict. Klein et al. (1994) states that such constructs theories should include assumptions about level, homogeneity and heterogeneity. Innovation implementation effectiveness is conceptualised as an organisation level and homogenous construct after the manner of Klein and Sorra (1996):

Describing the overall, pooled or aggregate consistency and quality of targeted organisation member’s innovation use.

Normative evaluation is based on comparing the incoming innovation against the organisation norms, routines and practices and is therefore also classified as a homogenous construct. Legitimisation involves a sense-making process of integrating or rejecting the intended innovation at a group or organisational level in the organisation. There is a processual and recursive link between normative evaluation and legitimisation. Conflict is viewed as a more heterogeneous construct with different classifications. For example the respective normative evaluation and legitimisation processes will lead to conflict that is both healthy and harmful (Brown and Duguid, 1999) and can therefore be used to classify and ultimately assess innovation implementation. Moreover conflict is also a multi-level phenomena that is intrinsic to innovation implementation (Denis et al., 1996) and can therefore be used to classify and assess innovation implementation at all levels in an organisation. These constructs and their interactions are conceptualised in Figure 1.

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Normative evaluation The origins of innovation can be exogenous (e.g. market changes) or indogenous (e.g. internal social construction of knowledge). Whatever the origin, attempts to implement innovation in organisations encounter the innate resistance of normative evaluation. Alvesson and Willmott (1992) describe the construct of normalisation or normative evaluation (sometimes referred to as “functionalist”, Alvesson and Deetz, 2002) as comparison against a set of norms, standards and routines which conform to a corporate agenda and require obedience from individual and groups in a structurally prescribed manner. Thus, normative evaluation is multi-level and judgmental. It is espoused “common sense” or “normalised knowledge” which is specified by recognised “experts” in the organisation. Guler et al. (2002) refers to the “coercive isomorphism” of

Figure 1. Theoretical constructs for innovation implementation

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“mimetic normalisation” as showing the pressure for homogeneity through replication and atavism in the organisation. Finnegan (2000) concludes that employee’s view of organisational values is encouraged to be normative. Thus, any attempts at implementing innovation will generate multi-level conflict, to a greater or lesser extent depending on the incongruence between the normative state and the potential change. Hence the normative evaluation construct is linked to the conflict construct (Figure 1), which is induced from the literature (Findlay et al., 2000). For the purposes of this discussion the multi-level conflict generated by normative evaluation of attempted innovation implementation are discussed at: strategic, operational/team and individual levels, thus showing the interaction of the normative evaluation and conflict constructs. At a strategic level innovative ideas and proposed plans are likely to challenge espoused wisdom within the senior management of an organisation. Alvesson and Deetz (2002) contend that an organisations propensity to “arrive at a robust truth” which is institutionalised by “homogenous norms”, will not sit easily with the more subjective and eclectic claims of innovation implementation. They further show that senior managers who are deemed to be “experts” give normative evaluation an effectual role by exerting “discipline for normalisation” and hence generating conflict with the innovators. This situation is exacerbated in organisations where the owners and decision-making structure are overly top-down in approach, leading to the further embedding of a normative culture. Alvesson and Deetz (2002) conclude that attempts at prolonged normalisation beyond what markets and society demands, engender “insecurities which lead to normalisation strategies to which people . . . cling”, thus supporting the “corporate culture” and generating conflict with the advocates of change. Organisations also encounter exogenous normative evaluation. For example, Gundry and Rousseau (1994) and Bettenhausen and Murnighan (1991) discuss how the need for external accreditation, such as ISO, can constrain, and conflict with, innovation implementation. Guler et al. (2002) in a cross national study found that multinationals exerted outside normative pressures on small firms, resulting in localised conflicts with innovative implementation practice. At an operational level normative evaluation can reinforce “normative commitment” and create a “normative affective [working] environment” as opposed to innovation practice based on an “empirical process”, where experimentation and risk taking are engaged (Etzioni, 1993). This approach is often enshrined, not in overt statements, but in the “taken for granteds” and social and cultural norms (Guler et al., 2002). It acts as an invisible filter on all innovation implementation efforts. Thus, at an operational level normative evaluation conflicts with innovation implementation by attempting to maintain “affective, normative and continuous commitment” to the status quo as found by Finnegan (2000) in a study of a large multinational organisation. Westphal et al. (1997) shows that this approach attempts to enforce social conformity pressures and “isomorphism” within the operations of an organisation, based on the flawed assumption that operations and teams are homogenous entities. From an individual perspective normative evaluation enforces normative behaviour supported by knowledge, training and routines (Alvesson and Deetz, 2002). Findlay’s (2000) study of bottling hall practices revealed that individual normalisation can be reinforced by teamwork roles, socialisation and peer pressure which Westphal et al. (1997) termed as the “micro social factors” of normalisation. Gaining social consensus for innovation change in these circumstances leads to conflict at a personal level

(Gundry and Rousseau, 1994). Bettenhausen and Murnighan (1991) contend that this conflict can lead to “sanctions” and isolationism for those proposing the innovative change with ultimatums of “challenge or withdraw”. Sanctions can relate to withdrawal of rewards and lack of social acceptance (Lahiry, 1994), leading to unwarranted attributions of heresy and disloyalty. The multilevel conflict, which emerges from innovation implementation and its interaction with normative evaluation, can be further classified into “constructive” and “destructive” conflict (Brown and Duguid, 1999). Hence, if the conflict construct is to be instrumental in classifying and assessing the effect of innovation implementation, there must be a distinction made in the type of conflict generated (Roffe, 1999). The normative resistance to innovation implementation cannot be solely viewed as objective evaluation against a set of norms. Barley and Kunda (1992) suggest that a cyclical pattern is created where organisational norms at all levels are changed through the normative evaluation process. This change may be imperceptible at times or else overt and large scale depending on the amplitude of the cycle. Thus the affective forces of normalisation can become reflective and reflexive to some degree (Suchman, 1995). Guler et al. (2002) developed Barley and Kunda’s (1992) concept that normative evaluation is processually linked to legitimisation through innovation implementation. In this situation unresolved conflict arising from normative evaluation of innovation, are passed on to the legitimisation stage or construct. Westphal et al. (1997) uses the example of legitimising TQM routines and practices, which had been identified as incongruous to the existing norms as revealed by the normative evaluation process. They found that elements of TQM accepted as consistent with existing norms were insufficient to produce the economic change required. Thus outside economic arguments became part of a legitimising process, beyond that of normative evaluation, in creating a platform for a more full implementation of TQM. Similarly, Westphal et al. (1997) concluded that the legitimisation construct is applied to “non-adaptors” arising from normative evaluation. Therefore, the normative evaluation construct alone is insufficient to represent all of the conflict and debate associated with innovation implementation, hence the construct of legitimisation. Legitimisation The processual and recursive interaction between normative evaluation, legitimisation and conflict constructs is shown in the integrative framework (Figure 1), induced from the literature after the manner of Klein and Sorra (1996). It is suggested that the interaction between normative and evaluation and legitimisation is similar to Elsbach and Sutton’s (1992) model of “acquiring organisational legitimacy”. The interaction between normative evaluation and legitimisation is discussed by Grint (1995), who states that “normative sanctions” or organisation rites ultimately underpin attempts to legitimise innovation implementation, where normative evaluation and legitimisation are part of a cyclical process (Barley and Kunda, 1992). Driscoll and Crombie (2001) describe this action as ultimately gaining “normative approval . . . for any actions” through a process of conflict, debate and sense-making. Alvesson and Willmott (1996) see attempts at legitimisation as being limited by normative “politically bounded rationality”, and also as exerting pressure for change on existing normative standards or norms in organisations (Stjernberg and Philips, 1993). Thus, it is suggested that the interaction between normative evaluation and legitimisation is a source of dynamic tension and conflict (the interaction shown in Figure 1).

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In his seminal paper on legitimisation, Suchman (1995) gives an inclusive, constructionist definition: Legitimisation is a generalised perception or assumption that the actions of an entity are desirable, proper, or appropriate, within some socially constructed system of norms, values, beliefs and definitions.

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Thus, legitimation is formative and goes further than the more comparative normative evaluation construct. The element of social constructionism is critical to legitimisation and allows for debate, argument, opinion forming, critical reflection and ultimately critically reflexive action that will act in a cyclical manner to change the norms of the organisation. Grint (1995) describes this process as establishing “consensus for change in the development . . . of models of legitimacy”. Thus legitimisation is much more than evaluation; it is a “debate about what norms, obligates, rules and judgements”, which are to be respected and used in addressing innovation implementation (Alvesson and Willmott, 1992). Massey (2001) and Driscoll and Crombie (2001) thus concludes that legitimation is a “dialogic” and “instrumental” process, involving all stakeholders from within and without the organisation, with conflicting needs in an ultimately constructive process, even though there may be very distinctive phases in the overall cycle (Guler et al., 2002). Suchman (1995) concludes that the interaction of innovation implementation and legitimisation create new values and beliefs, through the conflict that is generated. At an organisational or strategic level the legitimisation discourse, when faced with innovation implementation, will use the critique of rationality and history as arguments for the status quo. Grint (1995) calls such debates and conflicts: the “arguments of tradition”. He suggests that innovators must soften this conflict by appealing to “sympathetic resonances with other developments”. For example, TQM resonates with some of the principles of business excellence. Thus, the eclectic nature of innovation can act as a useful stratagem in this situation. It can be used to identify congruence with existing legitimate practice, where possible, and show that innovation implementation can enable the organisation to “return to former glories” and address current issues and competitiveness. Hence, legitimisation involves a dynamic interchange of views, with uncertain outcomes, as opposed to normative evaluation where a rational and comparative analysis identifies non-normative behaviour as being inappropriate (Laurila and Lilja, 2002). The views of Suchman (1995) and Massey (2001) can be assimilated to produce the following recursive stages within the processual construct of legitimisation: (1) Destabilise legitimisation. (2) Attract audiences/stakeholders to alternatives. (3) Socially construct alternatives. (4) Gain legitimacy. These steps are analogous to Lewin’s (1947) unfreeze, change, refreeze change steps. However, each of the steps (1-4) are filled with conflict generated from differing beliefs and practices. The classification and assessment of this conflict at each stage can therefore be indicative of the progress of innovation implementation. Therefore, gaining legitimacy for innovation implementation is a complex and time consuming process in most organisations.

Alvesson and Willmott (1992), referring to a city council innovation, suggests a somewhat Machiavellian approach of first nominally recognising legitimised structures and processes and then to “undercut” them from within. Alvesson and Deetz (2002) develop this approach into four key drivers to interactively change legitimised beliefs and practice: (1) The need for grounding arguments in context rather than solely relying on rational argument. (2) The decline of grandnarritives with the proliferation of options that are less homogeneous. (3) The hegemony of social constructionism as opposed to cognitive realism. (4) Legitimation crisis – a lack of belief in one right way for organisations (sometimes caused by an economic crisis) (Massey, 2001). All of these meta level forces support the challenge (or crisis) to established organisational rites and routines, resulting from innovation implementation. Thus, an opportunity is presented to carefully plan and implement localised implementation of innovation at an organisational or strategic level. Generalised implementation rules, which assume isomorphism, should be avoided as a lack of specificity is likely to lead to failure. Throughout this process, conflict will arise. Alvesson and Willmott (1996) contend “that mutually incompatible sets of ideas” will lead to conflict, where rational and human-interest debates will compete. Carter and Mueller (2002) in their study of a UK electrical utility viewed the organisation as having “institutional templates with mimetic legitimacy”, thus creating structural conflict with attempts to implement innovation. For example, there is a challenge for utilities to grow unregulated income and to break away from such templates. Driscoll and Crombie (2001) view the conflict as arising from different stakeholders (e.g. the government regulator) with different beliefs and voices, hence claiming that legitimisation is multifaceted rather than isomorphic. Therefore, the challenge to those attempting innovation implementation is related to complexity, rather than generalisation. At a strategic level organisations progressing innovation implementation are also constrained by external legitimacy, where networks of organisations or clusters, have established rules and rites of belief and practice (Stjernberg and Philips, 1993). Guler et al. (2002) refers to this state as embedded “mimetic isomorphism”. For example, accountancy bodies and networks impose legitimate practices on their memberships (Elsbach and Sutton, 1992) including disclosure or environmental reporting (Deegan, 2002). Laurila and Lilja (2002) in a study of forestry companies found that firms demonstrate legitimacy by being similar to other firms. Thus, there can be a lack of competitiveness due a lack of innovation and questioning of the “taken for granteds”. Hence, conflicts caused by innovation implementation are likely to spread beyond the boundaries of the organisation in certain circumstances. At operational or team level negotiation and managerial legitimacy are key issues (Taylor et al., 2002). There is a strong emphasis on effective communication to either spread innovation or to establish the status quo (Driscoll and Crombie, 2001). At this level the proposed innovation must promise credible improvements in both productivity and quality of life (or emancipation of employees) beyond those of the current system. Stjernberg and Philips (1993) state that if such innovations are to have an effective voice then suitable arenas and networks must be established within the

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organisation for sharing experiences and establishing new routines. Massey (2001) expands this reasoning by describing it is a cultural process, which must engage stakeholders from all operational areas and different kinds of teams. Currie (1999) contends that it is at the operational level where conflict is most in evidence in relation to innovation implementation and legitimisation and that conflict can be used to evaluate innovation implementation. From an individual perspective Stjernberg and Philips (1993) state that the role of “souls of fire” or innovation champions are essential in the questioning and developing types of conflict associated with innovation implementation. They see a role for encouraging individual learning (or shared understandings – Suchman, 1995) for change champions when there is a tendency towards atrophy and normelency for the suggested changes. These champions are seen as often being in conflict with established rules and regulations. Sometimes they can advance too quickly losing social consensus and thus become isolated and open to the criticism of performing illegal actions (Elsbach and Sutton, 1992). A crisis of legitimation in an organisation is likely to produce a crisis of motivation in individuals (Alvesson and Willmott, 1996). Such situations present an opportunity for the innovation champions to suggest alternatives and drive in the change by changing both beliefs and practices. Overall, legitimisation is a highly dynamic phenomena, involving continuous and multi-level conflict and change. Thus, the idea of achieving legitimacy can be a delusion as standards keep changing and today’s innovations can be tomorrow’s norms. Thus legitimacy has to be constantly regenerated as it is limited in time (Stjernberg and Philips, 1993). Rather, legitimacy can be viewed as both reflective and reflexive. The arguments and conflicts encourage increased dialogue, learning, understanding and knowledge, leading to critically reflective social constructionism of new approaches in a continuous manner. These continuous changes should reflect both the market and the emancipatory desires for change in organisations (Alvesson and Willmott, 1996). Massey (2001) concludes that attempts at “maintenance of legitimacy” are ultimately delaying the inevitable and creating a false sense of stability in organisations. Conflict A key posit arising from the aim of this paper is that conflict can be used as a construct for increasing understanding and assessment of innovation implementation (Anderson and King, 1991; James, 1981), where conflict is seen to interact with the constructs of normative evaluation and legitimisation (Figure 1). There are two main components of the conflict construct in this context. Firstly, conflict within the domain of innovation implementation, arises from “differences” (Roffe, 1999). Klein and Sorra (1996), in their study of values in relation to innovation implementation, developed the concept of “between individuals, between groups or between organisations . . . differences” where “innovation values fit . . . may vary between individuals, between groups or between organisations”. Similarly, Brown (1993) contends that measures of conflict level can be a measure of the “shift” caused by innovation implementation. Roffe (1999) states that such “differences” can be a measure of innovation implementation. Extending these ideas further, conflict, arising from differences due to innovation implementation efforts, can be used as a means to assess implementation progress or lack of it. In this context the conflict is

multi-level arising from differences in relation to normative evaluation and legitimisation at individual, group, organisational and inter organisational levels. Second, conflict can be managed within “good” and “bad” categories (Smith and Berg, 1987). Brown and Duguid (1999) indicate that a distinction must be made between conflict, which produces “benefits”, and that which causes “disaster”. They, along with Rickards (1999) refer to beneficial “creative abrasion” as opposed to “atrophy”. Thus, the possibility arises of using conflict as a measure of innovation implementation, not solely as a level indicator (Brown, 1993), but also as a classification and assessment approach. This aspect increases the usefulness of conflict in organisational assessment of innovation implementation. Smith and Berg (1987) views this approach as distinguishing between negative conflict and “healthful and liberating conflict”. Using this distinction Denis et al. (1996) distinguished between conflict, which encouraged change, and that which led to “organisational anarchy”. For the purposes of this paper conflict assessment is restricted to two broad categories. Firstly, “constructive” conflict is defined as conflict, which encourages innovation implementation. Second, “destructive” conflict is defined as conflict, which discourages innovation implementation. This definition helps in the development of an organisational taxonomy of conflict as shown in Table I, which summarises components of the normative evaluation and legitimisation in relation to constructive and destructive conflict. The overall construct of conflict arising from innovation implementation in regard to normative evaluation and legitimisation, therefore, can be evaluated, and hence used as a measure of progress for the implementation. Rahim (1985) concluded that conflict should be managed, “not eliminated . . . complex issues necessitate an open and integrative approach to handling conflict”. Thus, organisations should be “at ease with ambiguity” (Sinetar, 1985). Similarly, Caudron (1998) suggests that conflict should be encouraged as a guide to innovation implementation and “tough decision making”. Attempts to implement innovation in organisations will undergo normative evaluation leading to conflict (Figure 1). Using Roffe’s (1999) terminology, “differences” between the norms of an organisation and the perceived innovation change will be related to the level and type of conflict generated. Feldman (1988) argues that normative idealisation of goals or functions limits development and thus openness to new and innovative ideas. Brown (1993) refers to over-reliance on “old heuristics and traditional explanations to explain events”. Denis et al. (1996) draws an analogy with an NHS nursing sister who had been transferred in to a change resistant hospital where her ideas immediately caused conflict by challenging (or differing from) the norm of physician’s authority over all nursing resources. Overall, conflict generated by innovation implementation and its interaction with normative evaluation will generate conflict that can be assessed by level and type, thus acting as a progress guide on the implementation process. Ultimately innovation implementation efforts will go beyond normative evaluation and engage in legitimisation, where the conflict generated can be much more complex (Figure 1). Denis et al. (1996) sees this engagement as a struggle for control and an attempt to shake or undermine the existing authority and structures, with conflict being inevitable. There are parallels with Lewin’s (1947) term of “unfreezing”. Thus conflict from legitimisation is much more dynamic than that from normative evaluation. Gioia et al. (1994) refers to the process of sense-making and sense giving through anarchy, ambiguity, imposition and leadership. All of these elements will

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Table I. Conflict classification and assessment mapping in innovation implementation

Legitimisation

Strategic level

Individual level

Operational/team Level

Strategic level

Courage to identify with new routines (Caudron, 1998); Persistence in advocating change (Thompson, 1998); Acceptance of role variety (Anderson and King, 1991); Lack of conformity (Currie, 1999); Diversity in the workforce (Jehn, 2000) Crisis situations develop (Massey, 2001; Denis et al., 1996); Challenges to existing structure (Alexandra, 1999); Communication of new approaches; Destabilising benchmark comparisons (Denis et al., 1996; Brown and Duguid, 2001); Effects of management appraisal and promotion changes (Roffe, 1999); Resource allocation; Priority changes (Taylor et al., 2002); Market influences (Brown and Duguid, 2001); Statement of planned innovation changes; Struggle for control using the new order and symbolism (Brown, 1993; Denis et al., 1996)

Innovation learning programme (Roffe, 1999); Inter group learning and inter group benchmarking outcomes (Zairi and Whymark, 2000); Social constructionism (Caudron, 1998); Stakeholder voices (Brown, 1993); Government agency tailored interventions (Denis et al., 1996); Challenge historical assumptions (Suchman, 1995); Promote novelty or newness Promotion of efficiency and proficiency benefits of innovations (Rahim, 1985); Display new competencies (Lakshmanan, 1993); Make a distinction in regard to existing routines (Thompson, 1998); Look for resonance (Grint, 1995)

(continued)

Not invented here (Tidd et al., 2001); Privileging old heuristics (Townley, 2002); Past success (Deegan, 2002); Reliance on existing markets (Findlay et al., 2000); Lack of crisis (Massey, 2001); Owner/manager dominance (Vossen, 1999); Government agency one size fits all (Gorton, 2000); An excessive need for stability (Smith and Berg, 1987); Denial of vision (Westphal et al., 1997) Enforcement of rigid operational and team structure (Betterhausee and Murnaghan, 1991); Maintenance of “harmony” (Caudron, 1998; Anderson and King, 1991); Top down communications (Tidd et al., 2001); Privileging of knowledge (Demerest, 1997; Feldman, 1988) Acquiescence (Thompson, 1998); Resist role and responsibility changes (Thompson, 1998); Cognitive mapping comparisons (Leonard and Swapp, 1999; Alexandra, 1999); “apprenticing” in existing norms (Brown, 1993) Maintenance of top down control Denis et al., 1996); Quest for stability (Denis et al., 1996); Defence of existing rules and rites; “if its not broke don’t fix it” position (Brown and Duguid, 1999); Trenchant job-shop planning (Zairi and Whymark, 2000); “head in the sand” approach (Sinatar, 1985); Denial of market voices (Denis et al., 1996)

Conflict Destructive conflict

382

Normative evaluation

Constructive conflict

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Individual level

Operational/team level

Defence of existing career development and training (Brown, 1993); Compliance with existing culture (Alexandra, 1999); Loyalty to historic rites (Roffe, 1999); Desire for rational and predictable future (Townley, 2002); Bullying for status quo compliance (Denis et al., 1996); Intolerance of differences (Roffe, 1999)

Filtering innovations using existing rules (Alexandra, 1999); Blocking tactics (Denis et al., 1996); Promote existing operational norms (Brown, 1993); Avoid dissemination of new knowledge (Brown, 1993)

Conflict Destructive conflict

Suggest alternatives (Tidd et al., 2001); Rebrand and relabel innovation as legitimate (Rikards, 1999); Implement new routines (Brown and Duguid, 1999); Create “bubbles” of new practices (Grint, 1995); Demonstrate success of new routines and approaches (Currie, 1999); Establish a critical mass for change (Brown, 1993); Formation of communities of practice and learning networks (Brown and Duguid, 1999; Roffe, 1999) Empowered to critique the status quo (Denis et al., 1996; Bacon, 1985); Learning creativity and innovation skills (Henry, 2002); Tutoring and mentoring in innovation (Alexandra, 1999); Emergence of innovation champions (Stjernberg and Philips, 1993); Challenging adapters to become innovators (Amabile et al., 2002); Involvement in decision making (Thompson, 1998); Reward innovative behaviour (Caudron, 1998)

Constructive conflict

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generate conflict that can be either constructive or destructive, based on the above definition, according to the stakeholders involved. Brown (1993) sees this process as questioning and destruction followed by naturalising and legitimisation where conflict is inevitable and essential. Thus, conflict generated by the interaction of innovation implementation interaction with legitimisation will generate assessable conflict. The generation of conflict is a multi-level phenomena. Brown and Duguid (1999) see conflict at strategic level due to innovation causing differences in intra- and inter-organisational methods. Roffe (1999) envisages a much more open organisation emerging where strategy is devised through “open discussion” with resultant conflict being seen as “creative abrasion”. At an operational or team level conflict will be generated through sense-making and social constructionism where organisational groups seek to operationalise and implement the innovations (Bacon, 1985). Roffe (1999) calls this approach “coalition building” and “symbolic framing” where constructive conflict can help legitimise the change and ultimately re-establish new norms in a cyclical manner (Suchman, 1995). At individual level Brown and Duguid (1999) and Alvesson and Deetz (2002) show that individuals will face conflict in attempting to rationalise emerging change with their cognitive views and in attempting to participate in a process of social constructionism where there are no “a priori” assumptions. Jehn (2000) sees individual diversity in the workplace as generating constructive conflict in any process of social constructionism. In this situation open and honest communication and decision-making are essential if the conflict that is generated is to be conducive to innovation implementation. In summary, a holistic and multi-level integrated framework (Figure 1) has been inducted from the literature. This framework uses conflict as a key construct in the assessment of innovation implementation in an organisation, where the level and type of conflict can be assessed. Central to the framework are the constructs of normative evaluation and legitimisation, which interact in a dynamic and recursive manner. Thus conflict and its classification and assessment offers organisations the possibility of assessing the progress of innovation implementation efforts. Conclusions and research suggestions Progressively, throughout this paper there has been an inductive development of a multi-level theory of innovation implementation in organisations, which will inform further research and enable organisations to develop pathways for effective implementation. The framework has been developed from the literature and theoretical conceptualisation. The constructs of normative evaluation, legitimisation and conflict are used to develop the theory. It was found that conflict and its classification and assessment, arising from innovation implementation is a useful assessment approach in determining the progress of innovation implementation in organisations. Innovation implementation efforts were seen as initially interacting with the normative evaluation construct, leading to, or generating, conflict as shown in Figure 1. The construct of normative evaluation is multi-level and is espoused “common sense” or “normalised knowledge”. It exerts change resistant pressure through the need for conformity, thus the evaluation element that compares innovation against the existing norms (Guler et al., 2002). Thus, any attempts at implementing innovation leads to conflict. Finnegan (2000) shows that this conflict is multi-level, occurring at strategic, operational/team and individual levels. This conflict is conceptualised, as “differences”

using Roffe’s (1999) terminology, between the norms of an organisation and the perceived innovation change will be related to the level and type of conflict generated. Thus, the idea of conflict as an assessment of the progress of innovation implementation is raised. It can also be concluded that, conflict generated by the interaction of innovation implementation interaction with normative evaluation will generate conflict that can be assessed by level and type, thus acting as a progress guide. The paper separates out the construct of legitimisation from that of normative evaluation. Suchman (1995) supports such a distinction by arguing that legitimisation goes beyond the summative judgements of normative evaluation and is formative (Massey, 2001). It is concluded that the interaction of innovation implementation and legitimisation construct involves multi-level conflict generation. This conflict is delivered from debate, social constructionisn, sense-making and destabilisation (Denis et al., 1996). It is concluded that this process is formative, ultimately leading to new legitimacies and normative standards in a cyclical manner (Massey, 2001, Suchman, 1995). Thus, there is no static equilibrium for conflict caused by innovation implementation. Today’s innovations are tomorrow’s norms (Brown, 1993). This cyclical process can be summarised as: (1) Destabilise legitimisation. (2) Attract audiences/stakeholders to alternatives. (3) Socially construct alternatives. (4) Gain legitimacy. These steps are analogous to Lewin’s (1947) unfreeze, change, refreeze change steps. Each of the steps (1-4) generates conflict, which can be used to assess the progress of innovation implementation. The need to go beyond establishing the level and classification of conflict was identified. While taxonomy of conflict is helpful, there is an additional need for evaluation if conflict is to be used to determine the progress of innovation implementation. The multilevel conflict, which emerges from innovation implementation and its interaction with normative evaluation, was therefore evaluated into “constructive” and “destructive” conflict (Brown, 1993). Firstly, “constructive” conflict is defined as conflict, which encourages innovation implementation. Second, “destructive” conflict is defined as conflict, which discourages innovation implementation. Thus, conflict arising at any level in the organisation, arising from innovation implementation can be classified assessed to indicate progress in relation to innovation implementation. It is suggested that the framework and its constructs could lead to at least three main research studies. First, the cyclical process of normative evaluation, legitimisation and conflict needs further delineation for innovation implementation. Possibly, such studies could be made context specific by taking a particular innovation (e.g. TQM) as applied in multiple case analysis. Second, there is a need for more definitive studies on the multi-level taxonomy of conflict arising from innovation implementation leading to further development of the concepts and information recorded in Table I. These studies would increase the accuracy of conflict as an assessment approach for innovation implementation. Thirdly, there is a need for studies, which will show how conflict assessment can be used to guide and develop

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innovation implementation strategies for managers in organisations leading to more informed innovation training and development activities in organisations.

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