No title

Innovation processes in an accident and emergency department AÂngeles MunÄoz FernaÂndez

Introduction Researchers have shown considerable interest in the area of innovation for some decades. However, there has been little real growth in our understanding of this area (King, 1992). The most consistent conclusion found in literature regarding innovation is that research results have been inconsistent (Wolfe, 1994). Nevertheless, there has been one important advance: . . . the increasing awareness that innovation is essentially a process, and must be studied as such (King, 1992).

The author AÂngeles MunÄoz FernaÂndez is Professor in Management, Campus Universitario de Cartuja, Granada, Spain. Keywords Innovation, Organizational change, Quality Abstract Provides an analysis of the innovation process in order to understand its development and to provide those responsible for its management with knowledge about this subject, as well as the behaviours that make it easy to introduce innovation successfully. The exploratory research work was carried out within the framework of a hospital's accident and emergency department and the development of several cases of innovation was monitored in situ. Observes that not all innovations develop following the same pattern, but rather each one is determined by the radical nature of the innovation. Electronic access The research register for this journal is available at http://www.mcbup.com/research_registers The current issue and full text archive of this journal is available at http://www.emerald-library.com/ft

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . pp. 168±178 # MCB University Press . ISSN 1460-1060

Research on the innovation process has become increasingly more sophisticated and practical. Some models, mainly the early pioneering ones (Hage and Aiken, 1970; Zaltman et al., 1973; Ettlie, 1980; Rogers, 1983; Coopers and Zmund, 1990), describe the innovation process as a linear sequence of clearly identifiable stages in which it is possible to differentiate boundaries or ``breakpoints'' [1]. Others, which represent the most recent views (Schroeder et al., 1989; Van de Ven, 1993), do not consider that there is a generalised pattern with respect to the order in which the stages occur, but rather that the pattern of development is neither clear nor sequential and that it is not easy to identify boundaries between the stages. An important difference between both arguments is that the former models have been constructed with little or no empirical evidence, whilst the latter represent a great step forward in the study of the innovation process, providing descriptive models of this process derived from systematic, empirical research. Despite the fact that innovation as a process is becoming more and more widely accepted, there are different views on how it develops. Therefore, this study looks at the evolution of a series of innovations in order to contribute towards drawing up a process theory that will describe the development of innovation. The author would especially like to thank Dr Fernando AntuÂnez Estevez, a member of the hospital teaching board, who provided the contact with the head of the accident and emergency department studied in this paper, Dr Manuel RodrõÂguez Elvira, head of the accident and emergency department, for his continued and patient collaboration throughout the whole study and in general to all the people from the department for their acceptance and collaboration.

168

Innovation processes in an accident and emergency department AÂngeles MunÄoz FernaÂndez

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 168±178

Empirical verification of a process theory could make a major contribution to improving the capabilities of managers, entrepreneurs, and policy makers to innovate (Van de Ven and Poole, 1990, p. 313).

Moreover: Specific knowledge of the pattern of occurrence for innovation helps managers to decide on the choice of management styles and organisational structures and cultures (Gopalakrishman and Damanpour, 1994).

Objective The design of this research was based on the questions of how and why innovation comes about, develops, is implemented and (perhaps) ends. In order to answer these questions, an exploratory research study was carried out within a specific framework, that of an accident and emergency department in a large general hospital (hereinafter referred to as department A), and the development of several cases of innovation was monitored in situ.

Background

It is also important to point out that this is an activity that deals with an infinite demand, and not all the problems of the patients that go to emergency unit have the same level of seriousness. Before the changes, the criteria that was followed in seeing to the patients was first come first serve. This situation meant that patients with serious problems had to wait for a long time before being given any medical attention. As a result of this situation, the hospital's management decided to create a new service called: ``critical care and emergency service''. With the establishment of the new service, the old emergency unit became a formal part of the existing critical care service. After the emergency unit had been incorporated in the general hospital's hierarchical structure, it became known as the accident and emergency department, with a head of department reporting to the head of the new service. Department A includes different professional groups: . doctors and nurses; . administrative staff; . porters; . cleaners; and . security staff. These groups have a double dependency: organic, from a hierarchical point of view; and . operational, with regard to the head of department. .

Department A was selected as the framework for the study due to both its past and its immediate future. The latter made it clear that great changes might come about during the course of our research. Before department A was created, there was what was called the emergency unit, an independent operational unit. One of the emergency doctors had been assigned with the operational coordination of the unit, but as he lacked explicit authority, and, therefore, specific responsibility, this meant that all the doctors did what they thought was best, without following any criteria. In the end, the hospital's top management had the final responsibility for the unit's operation. The need to integrate the emergency unit into the hospital's organisational structure became more and more apparent, since the hospital's management could not respond fast enough to operational problems and the coordination of emergencies. Furthermore, the management was too far removed from the unit's real problems.

This is a normal situation in this type of organisation, which hinders management considerably. The head of department is responsible for the efficiency of its operation, but he does not have formal authority over the people that work in the department. This main change in the accident and emergency area should be placed within a much broader context: ``The framework plan for reorganisation of the hospital accident and emergency areas in Andalusia''. The competent regional authority, after studying the development of demand and the general organisational problems in hospital emergency units, which were having difficulty in attending the most serious cases, specifies a proposal of action in this plan, which any hospital that wishes can take part in. In general terms, the reorganisation of department A involved a new organisational and operational design, so that the new structure offers continuous care for

169

Innovation processes in an accident and emergency department AÂngeles MunÄoz FernaÂndez

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 168±178

emergency patients depending on the seriousness of their case [2]. These levels cover from the least serious in the hospital's emergency consulting room, to the most critical in the intensive care unit. Constant medical attention encompassed in an organisational and hierarchical whole in the critical care and emergency service. It is important to point out that with the new operational strategy, patients are attended to and assessed by the medical staff according to their level of seriousness as soon as they arrive at the A&E department.

stated in Table I, together with the assumptions and perspectives of these concepts that can be found in literature. On the other hand, apart from identifying the succession of events that best explain the innovation process, we intend to contribute to the debate about the occurrence and applicability of unitary and multiple sequence patterns in the innovation process. Therefore, two broad theoretical constructs would be the unitary and multiple sequence patterns for the innovation process, bearing in mind the three variables that define each of these constructs: existence of feedback cycles, clarity of stage boundaries and consistency across innovations.

Methodology Case study approach Due to the exploratory nature of this research and the interest in identifying the main people, events, activities and influences that affect the progress of innovation, we selected the research strategy proposed by Eisenhardt (1989), which she calls ``building theory from case study research''. This type of research attempts to develop a theory using case studies, which means the researcher initiates the study: as close as possible to the ideal of no theory under consideration and no hypotheses to test (Eisenhardt, 1989, p. 536).

Research design An understanding of how and why innovations develop over time requires a ``theory of process'' that uses qualitative methods, such as case studies (Schroeder et al., 1989), to develop empirically derived models based on a wide range of different innovations (King, 1992). A type of inductive research is consistent with the idea that more empirical knowledge is needed for an overall understanding of innovation as a multifaceted phenomenon (Besseyre des Horts, 1991). Table I A comparison of conventional knowledge and MIRP observations

Although it is not common in theory-building studies, it is valuable to specify, in line with the research questions that guide the study, a core set of constructs or variables that may be potentially important in the innovation process (Eisenhardt, 1989). This is also supported by Van de Ven and Poole (1990, p. 317): . . . implicitly or explicitly, the study of any change or innovation process requires a set of categories or variables to describe innovation development.

Following the definition of the innovation process provided by the researchers from the Minnesota innovation research program (MIRP), we used the five concepts that guided the data collection in their study: (1) ideas; (2) people; (3) transactions; (4) context; and (5) outcomes. The meaning that the MIRP researchers gave to these concepts as their research advanced is

Implicit literature assumptions Ideas

One invention, operationalized.

People

An entrepreneur with fixed set of full-time people over time

Transactions

Fixed network of people/ firms working out details of an idea

Context

Environment provides opportunities and constraints on innovation process Final result orientation; a stable new order comes into being

Outcomes

Source: Van de Ven and Poole (1990, p. 318)

170

MIRP observations Reinvention, proliferation, reimplementation, discarding and termination Many entrepreneurs, distracted fluidly engaging and disengaging over time in a variety of organizational roles Expanding and contracting network of partisan stakeholders diverging and converging on ideas Innovation process constrained by and creates multiple enacted environments Final result may be indeterminate; multiple in-process assessments and spin-offs; integration of new orders with old

Innovation processes in an accident and emergency department AÂngeles MunÄoz FernaÂndez

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 168±178

This research design takes into account these two concerns (time and the overall nature) and uses what Yin (1984, p. 41) describes as a design of a ``multiple embedded case''. Embedded design means that several analysis units are analysed. Our research was aimed at three levels: (1) The organisation (department A). (2) A main innovation (immediate and personal patient assessment). (3) A number of minor innovations (some derived from the main innovation and others in parallel).

The interviews were backed up with direct observation and the study of documents. As Gummesson (1989) says, many researchers consider that direct observation is the main method to be used for studies on change processes. Moreover, it has the advantage that we can obtain firsthand observations of how changes in the development of an innovation occur over time (Van de Ven and Poole, 1989). The study of documents was based on internal materials (operational reports) and articles in the city's newspaper.

As Yin points out (1984, p. 13):

Defining innovation Innovation is a term characterised by a lack of consensus regarding its meaning. In general, authors who research into innovation define this term in many different ways. It is therefore important for those who work on this subject to clarify what it means for them. In our case, the definition that guided our research when identifying the cases of innovation studied was as follows: the process of proposal, adoption, development and implementation of a new idea, generated internally, or taken from outside, relating to a product, process, policy, practice or behaviour, programme or service, which is new for the organisation at the time it is introduced and which will benefit the organisation, or society in general.

. . . case studies are the most popular research strategy when ``how'' and ``why'' are the questions posed, when the researcher has little or no control over the events and when interest concerns some everyday phenomenon, within some context of real life.

Moreover, as Gummesson (1988, p. 78) states: . . . conventional research methods are hardly applicable to studies of processes for change in companies.

Data collection Data collection was guided by the aim of studying the innovation process from start to finish. In accordance with Van de Ven and Poole (1990), most studies on innovation or change to date have been retrospective case histories, conducted after the outcomes were known. However, it is much better to observe the innovation process as it unfolds. In this study, most of the data were collected through interviews, direct observation and archive sources within the logic of triangulation in the research (Eisenhardt, 1989, p. 538). The interview was the most used technique of the three mentioned above. According to Yin (1984), this is one of the most important sources of information in case studies. It is also important that the interview should allow us to observe as well as to ask questions (Babbie, 1989). Unstructured and structured interviews were combined, covering a time that ranged from 20 minutes to an hour and a half. In both cases, the questions were open so that the situation might seem more like a conversation. However, in the second case the questions were aimed at obtaining precise information about the concepts on which the study of each innovation was concentrated.

Innovations observed during the study A total of 15 changes were observed that fitted our definition of innovation throughout our study. The duration of the study and, therefore, the identification of innovations, was determined by the concept of ``theoretical saturation'' introduced by Glaser and Strauss (1967): . . . the point at which incremental learning is minimal because the researchers are observing phenomena seen before.

With regard to the number of cases, Eisenhardt (1989) considers that while there is no ideal number, a number between four and ten cases usually works well. The innovations observed can be classified into four groups according to whether they were implemented; initiated and adopted (the decision to implement the innovations has been taken, but the full implementation has not been started); initiated but still not adopted; and initiated but rejected:

171

Innovation processes in an accident and emergency department AÂngeles MunÄoz FernaÂndez

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 168±178

(1) Innovations implemented during the research period: . immediate and personal patient assessment; . admittance sheet; . care quality working group; . observation under control; . care ward operation guide; . treatment ward operation guide; . clinical sessions; . presence of security staff. (2) Innovations initiated and adopted: . simulations for cardiopulmonary resuscitation; . movement of patients and relatives within this area. (3) Innovations initiated but still not adopted: . clinical record; . protocols; . critical times. (4) Innovations initiated but rejected: . system for allocating patients; . suitable priority given to spaces. Data analysis Following one of the tactics proposed by Eisenhardt (1989), we used the following approach. First, in order to be familiar with each innovation individually, a case history was written for every one of the innovations observed. This allowed us to identify the specific patterns of development that might appear within each innovation, before attempting to generalise across the different cases. Second, in order to look for patterns between cases, we proceeded in the following manner: (1) we took pairs of innovations in order to look for similarities and differences between each pair; and (2) we differentiated between technical and administrative, and radical and routine innovations in order to look for similarities within each group, as well as differences between the groups. Technical innovations are those occurring within the organisation's ``technical system'' and are ``directly related to the primary work activity of the organisation'' (Damanpour and Evan, 1984, p. 394). In the case of department A, the primary work activity is attending to, assessing and treating patients. Administrative innovations are those occurring in the organisation's ``social

system'' and they involve relationships between the organisation's members and: . . . lso include those rules, roles, procedures and structures that are related to communication and exchange between people and between people and the environment (Damanpour and Evan, 1984, p. 394).

It should be noted that in the framework of an A&E department, the staff's relationships with patients must be considered as part of the technical system, since the building and maintenance of these relationships is an integral part of the attention and care role. As far as the second classification of innovation is concerned, and following Nord and Tucker (1987, p. 11): . . . routine innovation is the introduction of something, which, although new for the organisation, is very similar to something that the organisation has done before. A radical innovation, apart from being new for the organisation, is very different from what the organisation has done before, and is therefore suitable for leading to big changes in the staff's behaviour and often in the organisational structure itself.

Moreover, according to the definition from Zaltman et al. (1973, p. 23): . . . the more an innovation differs from the existing alternatives, the greater is its degree of radicality.

If we bear in mind the two dimensions of innovation that we have considered in the analysis of the data: the centre of the organisation for which the innovation is the most relevant, technical versus social and radicality of the innovation, the classification of the innovations observed would be as shown in Table II. The final classification was derived from the comparison and consensus between three prior classifications, one made by the researcher, and the other two made independently by the head of department A and by the member of the hospital teaching board who had been collaborating in the research. After looking for similarities and differences between the cases, the process that follows is highly interactive, since it consists of systematically comparing the emerging structure with the evidence from each case. The aim is that the researchers should continuously compare the theory and the data, interacting towards a theory that will closely fit the data (Eisenhardt, 1989). After many interactions between data and

172

Innovation processes in an accident and emergency department AÂngeles MunÄoz FernaÂndez

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 168±178

Table II Classification of the innovations observed in department A

Technical

Administrative

Radical

Routine

Immediate and personal patient assessment Admittance sheet Clinical record Protocols Simulations for cardiopulmonary resuscitation Care quality working group Critical times System for allocating patients Suitable priority given to spaces Movement of patients and relatives within this area

Care ward operation guide Treatment ward operation guide Observation under control

proposals, we used comparisons with existing literature to highlight our results: Tying the emergent theory to existing literature enhances the internal validity, the possibility of generalisation, and the theoretical level of theory building from case study research (Eisenhardt, 1989, p. 545).

Presentation of results: proposals It has been difficult to find a pattern of development common to all the innovations. In some cases, a pattern with a linear sequence has defined the unfolding of the innovation with a certain amount of precision, from its generation to its implementation, which in turn takes place in a brief period of time. In fact, in some innovations, the transition from initiation to implementation takes place in the same event. We also observed that activities that appear in a sequential manner for some innovations, with each activity being differentiated by the behaviour that it requires, overlap in other cases of innovation. Finally, there are innovations that follow a process that is hardly structured or organised, in which the development of the innovation is based on a learning process through trial and error, and on overcoming the resistance from certain groups by means of a process for a gradual change in attitude. We found that there were no pure forms of patterns with a single sequence, or patterns with a multiple sequence, but rather that a given pattern, to a greater or lesser extent, describes how an innovation unfolds within the organisation. Some general proposals can be deduced from the analysis within and between the innovations:

Clinical sessions Presence of security staff

P1. A single sequence pattern gives a better description of the routine innovation process, regardless of whether they are technical or administrative. The evidence for this proposal is obtained from five routine innovations, three of which are technical: (1) care ward operation guide; (2) treatment ward operation guide; and (3) observation under control. And two of which are administrative: (1) clinical sessions; and (2) security staff. The routine nature of these innovations means that they are not based on new knowledge (Gopalakrishman and Damanpour, 1994), and they also lead to minor changes in the system of tasks, which can be fitted into the existing policy system without large adjustments and without great changes in the cognitive orientations for the members of the organisation. This proposal is not very far removed from other studies. For example, King (1992) found that routine innovations usually followed a single sequence pattern in their development process. Moreover, this same author quotes Pelz (1983), who demonstrated that innovation process phases are more perceptible in less radical innovations. The arguments of Gopalakrishman and Damanpour (1994) also go in this direction, since they point out that these types of innovation do not pose any threat to the existing power structure, are limited in scope and do not have many consequences for the organisation. All these circumstances make it easier to plan the different phases in the innovation process, and this prior planning ensures that the process will be more orderly

173

Innovation processes in an accident and emergency department AÂngeles MunÄoz FernaÂndez

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 168±178

and structured. In the specific case of the development of the care ward, this control can be observed in the decisions that are taken for the innovation to progress and which mark the changeover from one event to another. At the same time, the behaviours expected in the following stage and their result are planned. Nevertheless, in our specific case, the single sequence varies in the number of stages or events that describe the innovation process. At one extreme are the clinical sessions and observation under control, in which the transition from the idea to implementation apparently takes place in a single step. At the opposite end of the spectrum, there is the care ward operation guide, in which different decisions (breakpoints) determine the number of stages or events that define the innovation process. However, between these two extremes, in the other two innovations (security staff and treatment ward operation guide), which also follow a linear process, some events overlap (they happen simultaneously instead of in a sequence), which reduces the number of sub-stages or decision points, although the overlapping does not occur between initiation events and innovation use, but rather, in these specific cases, between initiation events (prior experience with the care ward operation guide might have been a determining factor in reducing the steps). The same thing does not happen with the radical innovations observed. There is no prior experience that can support their functionality and as it is impossible to break them down, or test them on a smaller scale, in order to decide whether to continue or not, the only possibility is to carry on with the innovation as a whole and advance with uncertainty and attempt to handle the foreseeable resistance from the different groups through a gradual change in attitude by means of negotiation, influence, and even by appealing to their professional responsibility. The evidence obtained allows us to formulate the following proposal: P2. A multiple sequence pattern gives a better description of the radical innovation process, regardless of whether they are technical or administrative.

and error. The problems and failures that occur as the innovation unfolds make us turn back to previous steps and correct them by changing the development of the innovative idea, modifying the idea itself and even reinventing the idea. This kind of process is indicative of a cumulative progression, in which every trial's errors make it easier for the innovation to work afterwards. (Gopalakrishnan and Damanpour, 1994) Therefore, there is a noticeable overlap between initiation events and innovation implementation: corrections are defined, negotiated and tested spontaneously among the staff from the department that uses the innovation. However, between considerably long periods of time, it is practically impossible to control times and it is not easy to identify the nature of the sequence or specific breakpoints that mark the changeover from one phase to another. It cannot be said, as Rogers (1983) pointed out, that until one stage has been substantially achieved, the other one cannot be started. We observed how the activities belonging to the initiation happened throughout the implementation of the innovation as and when the changes were being made to modify the development of, or reinvent, the innovation, thus making organisational learning easier. On the other hand, radical innovations, especially administrative ones that have not yet been implemented, demanded more resources (especially human resources, as well as physical ones and more time) and also more changes in behaviours, values and status. These demands made it more difficult for the head of the department to plan and control the innovation development process because he lacks control over the resources that he coordinates (everything requires approval from top management) and legitimate authority over the behaviours of the staff in department A. As he himself acknowledged:

Lack of knowledge about the initiation and implementation of the innovation forces us to proceed in an interactive manner using trial

. . . we have not managed to turn the A&E department into a real operational unit, where its members depend, in terms of operation and coordination, on the head of the department.

This means that, in the initiation process of these innovations, multiple alternatives are generated by multiple interest groups and objectives in conflict, thus resulting in different versions of the innovation, which suffer from continuous delays in their evaluation. This leaves some innovations immersed in a kind of ``suspended reality'',

174

Innovation processes in an accident and emergency department AÂngeles MunÄoz FernaÂndez

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 168±178

whilst momentary decisions are taken that run the risk of ceasing to be the exception to become the norm. The different groups attempt to look after their own interests, which makes it difficult to define and control the activities that are expected to progress as the innovation advances. As can be deduced from the research, all the routine innovations were implemented before the study ended, whereas only three radical innovations of the ten started were implemented. One of them ± care quality working group ± was suspended through the negative influence of other innovations. It made no sense to keep an innovation operative when its purpose was not achieved: providing solutions for operational problems. Except for the three cases of routine innovation generated by the group and implemented in the department, the rest did not receive any support from the interest groups affected by the innovation. This innovation was stopped due to the fact that certain innovations did not unfold as expected. This allows us to formulate another proposal in the following terms: P3. When two or more innovations are introduced at the same time in the organisation, they have a mutual influence on their development.

distinction between two levels ± level I and level II ± of the four levels of seriousness previously defined, affected the admittance sheet innovation, which was no longer used for its purpose: classifying the patient. Another example is the case of the simulations for cardiopulmonary resuscitation, whose implementation was affected by an incorrect use of the care quality working group (the meetings were not attended and therefore nobody knew about the new ideas for improving the department's operation). As far as the concepts that we have identified are concerned, they define the innovation process (Van de Ven and Poole, 1990), and the field observations made allow us to make some additional proposals. In general, we discovered that: P5. Innovation does not remain intact from its conception to its assimilation by the organisation, and neither its functionality nor its acceptance are guaranteed.

Not just in this case, but also with other innovations, such as: . clinical record; . critical times; and . movement of patients and relatives. In all these cases, as the head of the department admitted, the negotiations with regard to their development had been stopped until the selection and implementation of the critical times innovation and the sustained implementation of the observation under control innovation took place, with the extra backing from a house officer. The relationship between the innovations observed in the case histories also leads us to another proposal: P4. If an innovation is no longer applied in accordance with its initial intention, others relating to it will also no longer function in accordance with their purpose. For example, the reinvention of the immediate and personal patient assessment innovation, which meant eliminating the filter and the non-

Although some innovations were implemented as they had been conceived at the beginning, there were problems when it came to putting them into practice, which called for either their reinvention (e.g. immediate and personal patient assessment, admittance sheet, care quality working group) or re-implementation (an example of this was the clinical record, and it was also foreseen that it might happen with care quality working group). Moreover, some ideas were eliminated and others, which were discarded at the beginning, were restarted (e.g. giving priority to spaces). These observations are closer to the MIRP results than articles in literature implicitly assume. On the other hand, the dissatisfaction of different people within and outside department A with the existing conditions led to the action to solve that dissatisfaction (Schroeder et al., 1989; Van de Ven, 1993). This meant that many entrepreneursinnovators appeared who defended their innovation and looked for support among people, who, given their other occupations, were only partially included in the innovative effort (an example of this was the participation in the initiation of the care quality working group of the head of the new critical care and emergency service, which department A belongs to, and his intermittent participation in the meetings that were held,

175

Innovation processes in an accident and emergency department AÂngeles MunÄoz FernaÂndez

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 168±178

as well as the same type of intermittent participation of the emergency staff whose respective occupations meant that they could not all be present at every meeting in order to draw up and evaluate new innovative ideas. In the treatment ward operation guide and the care ward operation guide, the people who took part in their preparation together with the head of department A also varied). To sum up, our observations do not support the assumption that only one entrepreneur, with a fixed team all the time, takes part in innovation, as literature assumes. As a result of these observations, we were able to make the following proposal: P6. Innovation is not the result of an individual and isolated act, but rather a reality that is constructed socially by different people who make their contributions at different moments in time as the innovation progresses. The study also shows that the innovation process influences and is influenced by groups of individuals with interests directly affected by the innovation, who play different roles and have conflicting objectives: . generators/adapters (they create or take the idea from somewhere else); . controllers (they have the authority for taking decisions in relation to the introduction of an innovation); . operators (they have to use the innovation once introduced); and . users (they directly benefit from the innovation). In some cases they coincide, but in others they do not and, to be precise, the more widespread these roles are, the more the socio-political dimension of innovation is highlighted (Maute and Locander, 1994). We also observed that as the innovation unfolds, unexpected problems and indirect effects appear, which require a solution and management, and which may affect the criteria according to which the effectiveness of the innovation is assessed. Moreover, the different groups affected by the innovation make their own evaluations, not just on the basis of how it affects them, but also on how they believe that it satisfies the organisation. In general, these evaluations do not coincide. For example, we observed evaluations of the immediate subjective results (users of the innovation) compared to evaluations of deferred objective results (operators of the

innovation). The consequence of all this is resistance to innovation. As Daft (1982, p. 149) states: . . . the main barrier to change in organisations may simply be that the innovation does not fit in with the objectives of the organisation or of its participants

which the author calls the ``instrumental value'' of innovation. These previous observations lead us to consider that: P7. The successful use of an innovation may be more conditioned by achieving support from the different groups that may be affected to some extent by the innovation, than by the decision to adopt the innovation by those with the authority to do so. Finally, we were able to observe that: P8. Innovations are not simple additions to, or replacements of, existing practices and behaviours, but rather they should be integrated within the existing organisational provisions. In department A, the care quality working group may be considered to be a mechanism for coordination. An interdisciplinary group designed for the proper implementation of the first innovation (immediate and personal patient assessment), with the purpose of ensuring that the new practices would be integrated with the usual way of doing things. The objective was to have a mechanism in which people belonging to the different disciplines affected by the innovation might pose and offer a solution for the problems that arose. We think that the proper use of this innovation and support for its proposals by the top management of the general hospital would have made it easier to integrate the new operational structure with the old practices in the emergency unit. However, the opposite effects gave rise to the fact that we can talk about innovation without organisational change. As may be deduced from the latter contributions, the results of our observations are closer to the results of the MIRP researchers in their studies of innovation.

Limitations of the study and future extensions This study should be viewed with a certain amount of caution due to its own

176

Innovation processes in an accident and emergency department AÂngeles MunÄoz FernaÂndez

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 168±178

methodological limitations. If it had been a deductive study, its most serious limitation would be the fact of having only studied one organisation and a small number of innovations. Due to the fact that the purpose of the study was to develop, rather than to prove, a theory, we used a small number of innovations, an approach considered to be the best one for inspiring and guiding the development of new theories (Eisenhardt, 1989). Just one person carried out the analysis, and although a single judgement is important when the objective is to create indepth understanding of an event as a whole, it increases the need for further research (Gersick, 1988). Furthermore, we feel that an important drawback in the development of theory was the fact that more time was not spent in department A, or the fact of not having been able to personally monitor the negotiations between the head of department A and top management, which would have provided us with relevant information on the controversy of the decision-making in this specific organisational framework. Perhaps participative observation is the best approach for future inductive research (Sutton and Callahan, 1987). There are also limits in the type of organisation in which the study was carried out. Therefore, the results would only be applicable to similar organisational frameworks, although that is a question for future empirical research.

identify clear points of transition between them. On the other hand, the evidence obtained in our study makes us see innovation as an overall responsibility. We believe that it is necessary to stop thinking of innovation as being a specialised function and responsibility of a given group of people in the organisation. Moreover, it should be assumed that, in general, innovation will not remain intact as a concept and in its scope insofar as it is adopted, but that the innovation is redefined, modified and reinvented in order to match it to the specific structural, cultural and environmental situation. The specific nature of each and every situation will always have an influence, so that it will not be possible to give exact instructions on how to manage the innovation in order to change the reality. However, if we had to identify some factor that was generally responsible for innovation's progress, delay and hindrance, then this would be the ``human factor''. In our specific case, we could really say that people and their attitudes are both the starting and ending point for innovation. Through this case study we have been able to ascertain that resistance to change does exist and that a technique as old as communication would have allowed many of the innovations that fell by the wayside to have been implemented. In the accident and emergency department the new organisational and operational structure had always been considered as something imposed from above, which made the members more reluctant to accept the new state of affairs and they therefore refused to actively and enthusiastically participate in changing the old ways of doing things. Discovering the pattern for development that an innovation acquires should influence the way in which it will be handled, mainly to avoid resistance to change for those involved in it. Together with the uncertainty, the change in the status quo and the new behaviours that radical innovation involves, there is the drawback that a clear, sequential pattern for development based on past experience cannot be defined in advance. This means that its management requires a managerial style, a structure and a system of rewards far removed from the one that

Conclusions Our observations on how 15 innovations were developed from their conception until their assimilation by the organisation coincide with other papers on the subject. However, in our case, the radicality of each innovation has been decisive in determining the pattern of the sequence that defines its development. To a greater extent, routine innovation is in line with the conventional stage model (Zaltman, et al., 1973; Rogers, 1983), whereas radical innovation follows a much more confused process of development (Van de Ven, 1993), in which it is difficult to assume that a stage has ended in order to start the activities belonging to another subsequent stage, since we cannot

177

Innovation processes in an accident and emergency department AÂngeles MunÄoz FernaÂndez

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 168±178

might lead to success in implementing a routine type of innovation. According to our results, management of innovation depends on the degree to which it is radical.

Notes 1 The stages that are generally identified by this type of investigation are the initiation and implementation of innovation. Stages that are established by diverse sub-stages are dependent on each author's contribution. 2 Patients are now classified according to four levels of seriousness: Level I. Status of patient enables medical attention to be given in the receiving area. Level II. Clinically stable patient, whose reason for medical care requires additional tests. Level III. Patient's clinical situation and reason for consultation requires immediate transfer to a doctor's consultancy area, treatment ward, care or observation ward. Level IV. Patient's clinical status is life threatening, requiring immediate medical attention in cardiopulmonary resuscitation.

References Babbie, E. (1989), The Practice of Social Research, Wadsworth, New York, NY. Besseyre des Horts, C.H. (1991), The Relationship Between Organisational Innovation and Technology: An Exploratory Research, CR No. 403, Chambre de Commerce et D'Industrie de Paris, Paris, pp. 1-27. Coopers, R.B. and Zmund, R.W. (1990), ``Information technology implementation research: a technological diffusion approach'', Management Science, Vol. 36 No. 2, pp. 123-39. Daft, R.L. (1982), ``Bureaucratic versus non-bureaucratic structure and innovation process and change'', in S.B. Bacharach (Ed.), Research in the Sociology of Organisations, Vol. 1, JAI Press, Greenwich, CT, pp. 129-166. Damanpour, F. and Evan, W.M. (1984), ``Organisational innovation and performance: the problem of organisational lag'', Administrative Science Quarterly, No. 29, pp. 392-409. Eisenhardt, K.M. (1989), ``Building theories from case study research'', Academy of Management Review, Vol. 14 No. 4, pp. 532-50. Ettlie, J.E. (1980), ``Adequacy of stage models for decisions on adoption of innovation'', Psychological reports, No. 46, pp. 991-5. Gersick, C.J. (1988), ``Time and transition in work teams: toward a new model of group development'', Academy of Management Journal, Vol. 31 No. 1, pp. 9-41.

Glaser, B. and Strauss, A. (1967), The Discovery of Grounded Theory: Strategies of Qualitative Research, Wiedenfeld and Nicholson, London. Gopalakrishman, S. and Damanpour, F. (1994), ``Patterns of generation and adoption of innovation in organisations: contingency models of innovation attributes'', Journal Engineering and Technology Management, No. 11, pp. 95-116. Gummesson, E. (1988), Qualitative methods in management research, Chartwell-Bratt, Studenlitteratur, London. Hage, J. and Aiken, M. (1970), Social Change in Complex Organisations, Random House, New York, NY. King, N. (1992), ``Modelling the innovation process: an empirical comparison of approaches'', Journal of Occupational and Organisational Psychology, No. 65, pp. 89-100. Maute, M.F. and Locander, W.B. (1994), ``Innovation as a socio-political process: an empirical analysis of influence behaviour among new product managers'', Journal of Business Research, No. 30, pp. 161-74. Nord, W.R. and Tucker, S. (1987), Implementing Routine and Radical Innovations, Lexington Books, Lexington, MA. Pelz, D.C. (1983), ``Quantitative case histories of urban innovations: are there innovation stages?'', IEEE Transactions on Engineering Management, No. 30, pp. 60-7. Rogers, E.M. (1983), Diffusion of Innovations, 3rd ed., Free Press, New York, NY. Schroeder, R., Van de Ven, A., Scudder, G. and Polley, D. (1989), ``The development of innovation ideas'', in Van de Ven, A.H., Angle, H.L. and Poole, M.S. (Eds), Research on the Management of Innovation: The Minnesota Studies, Ballinger/Harper and Row, New York, NY, pp. 107-34. Sutton, R.I. and Callagan, A.L. (1987), ``The stigma of bankruptcy: spoiled organisational image and its management'', Academy of Management Journal, Vol. 30 No. 3, pp. 405-36. Van de Ven, A.H. (1993), "Managing the process of organisational innovation", in Huber G.P. and Glick W.H. (Eds), Organisational Change and Redesign: Ideas and Insights for Improving Performance, Oxford University Press, New York, NY, pp. 264-94. Van de Ven, A.H. and Poole, M.S. (1989), ``Methods for studying innovation processes'', in Van de Ven, A.H., Angle, H. and Poole, M.S. (Eds), Research on the Management of Innovation, Vol. 1, Ballinger/ Harper and Row, New York, NY, pp. 31-53. Van de Ven, A.H. and Poole, M.S. (1990), ``Methods for studying innovation. Development in the Minnesota Innovation Research Program'', Organisational Science, Vol. 1 No. 3, pp. 313-35. Wolfe, R.A. (1994), ``Organisational innovation: review, critique and suggested research directions'', Journal of Management Studies, Vol. 31 No. 3, pp. 405-31. Yin, R.K. (1984), Case Study Research: Design and Methods, Sage Publications, Beverly Hills, CA. Zaltman, G., Duncan, R. and Holbevk, J. (1973), Innovations and Organisations, John Wiley & Sons, London.

178

The aim of our work is to analyse the reasons why specific technologies, and in this particular case, sustainable technologies, are emerging in differentiated ways in space. This communication is part of a current research programme [1], which compares the industrialisation of starch based biopolymers used in packaging, in France and Germany. From a theoretical point of view, we use the concept of national systems of innovation which develops the idea that as firms are rooted in differentiated national systems, they will have different attitudes towards innovation. More precisely, the aim of this paper is to present some theoretical considerations about the interaction between the government regulation and technological innovation, in the specific case of an emerging environmental technology, biodegradable materials in Germany. The study shows the important role regulation plays in the innovation process. However, it should be remembered that regulation is only one part of the whole system which influences the development of a technological innovation.

Some considerations about interactions between regulation and technological innovation: the case of a sustainable technology, biodegradable materials in Germany Marie Delaplace and Hakim Kabouya

The authors Marie Delaplace is Senior Lecturer and Hakim Kabouya is Project Manager, both at the Faculte des Sciences Economiques et de Gestion de Reims-Champagne-Ardenne, Laboratoire ESSAI, Reims, France

Some theoretical considerations about interactions between regulation and innovation

Keywords Innovation, Regulations, Sustainable development, Technology Abstract Aims to present some theoretical considerations about the interaction between government regulation and technological innovation, in the specific case of an emerging environmental technology: biodegradable materials in Germany. Shows the important role regulation plays in the innovation process. However, regulation is only one part of the whole system which influences the development of a technological innovation. Electronic access The research register for this journal is available at http://www.mcbup.com/research_registers The current issue and full text archive of this journal is available at http://www.emerald-library.com/ft

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . pp. 179±185 # MCB University Press . ISSN 1460-1060

We will not go back to the concept (see, e.g. Delaplace, 1994, 1999; Delaplace and Kabouya, 1999) of national systems of innovation as developed by Freeman (1988), Lundvall (1988, 1992), Porter (1990) or Nelson (1988, 1993). However, we might define a national system of innovation as: . . . the network of institutions in the public and private sectors whose activities and interactions initiate, import, modify and diffuse new technologies (Freeman, 1988).

We consider the regulation as one of the components in the national system of innovation in which firms develop their strategies. Interacting with the other components of the system (public, industrial, research policies . . .), it shapes the actors' behaviour by offering opportunities and/or constraints and thus, it participates in the emergence of technological innovations. The authors thank A. Thomson, an English colleague of the University of Reims, for his help concerning the translation.

179

Interactions between regulation and technological innovation

Marie Delaplace and Hakim Kabouya

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 179±185

However, the birth of an innovation can also imply an evolution of the regulatory framework.

technical but also institutional (DahmeÁn, 1989). The innovation requires that technology and institutions are well matched.

The study of the impact of the regulation on innovation Regulation can be perceived by the firm as a constraint (to comply with or . . . to bypass), or as an opportunity (the firm can go beyond the ordinary compliance of the regulation) (Bascourret et al., 1999). The firm can: . place itself in advance of the regulation (in relation to the deadline of the application); or . be a forerunner by going beyond existing or proposed regulatory dispositions; or . place itself beyond the regulatory constraints (Bascourret et al., 1999).

The study of the interactions between the regulation and innovation If firms can innovate as the regulation evolves, they can also use the existing regulation to their advantage to obtain a competitive advantage, that is ``to go beyond the simple compliance'' (Bascourret, 1997). However, firms can also influence the regulation itself. DahmeÁn (1989), in his analysis in terms of development blocks, puts forward the idea that innovation is embedded in a network of interdependencies and synergies. If ``Economic success at certain stages . . . requires the realization of one or more specific complementary stages'' describing then ``structural tensions'' (DahmeÁn, 1989), the resolution of these tensions requires adjustments which are as much technical as institutional. Consequently, it is necessary to proceed to the analysis of the interactions between the institutional framework and the emerging technology. In the same manner, Freeman's (1994) lecture on the national systems of innovation emphasises the importance of the adjustment between the institutional framework and the emerging technology. If this approach concerns essentially such innovations which are likely to constitute a ``techno-economical'' paradigm, it can also be applied to those innovations which do not by nature correspond to such a paradigm (Lundvall, 1992). According to this author, the institutional framework of a nation is influenced by its own patterns of specialisation. These patterns can be characterised by specific innovation processes. Thus, if the regulation is an element of the institutional framework, it can be supposed that the regulation is influenced by these innovation processes. Consequently, we are confronting a co-evolution process inducing interactions between the institutional framework (and thus regulation) and the innovation processes. From this, we can argue that:

The regulation is in essence national, so the regulation in a given state may be more easily understood by the actors located in this state. They will therefore be motivated to develop innovations enabling them to be in phase with this regulation. Indeed, it is possible to use Linder's (1961) or Vernon's (1966) argument which analyses the impact of the local market on innovation. According to these authors, the development of a product must be carried out in a close contact with the target market. So, the development time for a new product will be longer, given that the innovator will have difficulty obtaining information about the conditions for using its innovation (Linder, 1961; Vernon, 1966). In other words, the needs in the vicinity of a firm are easier to perceive and less costly to analyse than those at some distance from it. Elements such as proximity and cultural identity allow a better perception of needs, which is crucial for the success of an innovation. In the same manner, it can be supposed that the actors concerned with the development of innovations respond to the national regulation. In other words, the current national regulation and the changes the firm anticipates will influence its innovation decisions. Thus, it can be supposed that the development of a particular technology constitutes a response to the regulation. But we must go beyond a simple linear model going from the regulation to innovation. Indeed, the birth of an innovation must generate intrasystemic interactions necessary for resolving structural tensions, the latter being not only

180

. . . mismatches and tensions between structure and institutions (and thus the regulation) may be regarded as the fundamental motor behind social and economic change in innovation systems (Lundvall, 1992).

Interactions between regulation and technological innovation

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 179±185

Marie Delaplace and Hakim Kabouya

An empirical study: the case of the sustainable technology ± biodegradable materials in Germany .

From an empirical point of view, when one wants to study the interactions between regulation and innovation, two kinds of study can be carried out (Bascourret et al., 1999): (1) A study focusing on a given state with the aim to identify: . to what extent the innovation is due to the regulation. Consequently, we consider that the innovation depends, in part, on whether or not a regulation which can affect it exists. . To what extent the innovation processes can lead to modifications of this regulation. (2) A comparative study of emerging innovations in different states, concerning the regulation differences for the activity in question. We have chosen the first of the two studies because any innovation process needs adjustments, through interactions, i.e. ``complementary sequences'' (DahmeÁn, 1989) which lead to co-evolution processes between technology and regulation. Both the confrontation between the structural tensions and their resolution and the development of the regulation allows: . the illustration of the process of coevolution between innovation and national regulation; and . the identification of the gaps in this coevolution which depend on the inadequacy of the regulation, at a given time. The study of biodegradable materials in a given state, Germany, will allow us to identify the structural tensions which are relative to the development of these materials and raise questions about their resolution through the development of the regulation. The structural tensions relating to biodegradable materials In addition to technical ``structural tensions'' [2], some institutional tensions have been identified by a 1994 European Commission report about the biodegradable thermoplastics and, in 1998, by K. Bastioli from Novamont [3]. These problems are: . The lack of an exact definition of ``biodegradability'' and ``ability to be

.

.

.

.

composted'' which allows non-degradable materials to be distinguished from biodegradable ones. The necessity of a norm which attests the composting ability and which excludes non-degradable materials. The lack of regulations and laws which impose the identification of renewable or biodegradable resource-based products. The unsatisfactory nature of waste elimination systems and the necessity that there is growth in the selected collection of organic waste and the development of sufficient composting infrastructures. The necessity to extend the ``polluter pays principle'' [4]. The necessity of regulatory advantages for renewable-based materials.

The evolution of the German regulation Confronted with rising problems concerning waste management, the German government, beginning in the early 1990s, has put into place a policy aiming to reduce waste and to promote recycling. Given their ability to be transformed into waste, packaging materials are situated at the core of this policy. The packaging decree of 1991 and its amendment of 1998 have obliged the producers and distributors of packaging to belong to a system [5] (the Duales System Deutschland company, DSD) of collection, sorting and transporting of packaging waste to the recycling plants, which has had to be set up throughout the entire German territory. The membership of this system, involving the payment of a fee [6], has led to an internalisation of the costs related to the collection, sorting and transporting of packaging waste to the recycling plants. Nevertheless, biodegradable packaging does not have access to this system because the DSD imposes a fee on it which is identical to the one imposed on synthetic packaging. Under such conditions, biodegradable packaging can not benefit from the competitive advantages inherent in the facility of disposal. The resolution of this problem for biodegradable packaging requires the building of another system of collection, sorting and transporting of packaging waste to the composting plants. The German government, by adopting ``the technical directive relative to town waste'' of 1993, has promoted the disposal of biological

181

Interactions between regulation and technological innovation

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 179±185

Marie Delaplace and Hakim Kabouya

waste by composting. This directive plans a separated sorting of biological waste and a considerable increase in composting infrastructures before the year 2000; 60 per cent of the German territory being covered by a biological waste disposal system. The perspective of an insertion of biodegradable packaging in this system has been improved by two decrees adopted in 1998. The first is the decree concerning biological waste which recognises that biodegradable packaging is biological waste, making it possible for this type of packaging to be integrated into the biological waste disposal system. The second is the amendment of the decree relative to packaging introducing an escape clause for biodegradable packaging which exempts the system in which they may be inserted from covering the whole German territory. This means that the integration into the present biological waste disposal system is in line with the existing capacity. Under such conditions, the costs of collection, sorting and transporting of the biodegradable packaging waste would be three to six times less than the equivalent costs for the synthetic packaging (SchuÈtte, 1998; Witt et al., 1997). In other words, this will lead to the costs of biodegradable packaging approximating the costs of synthetic packaging, while the unit costs of the latter actually remain lower. If, today, the legislative situation in Germany seems favourable to the development and the diffusion of biodegradable materials, the producers of these materials have rapidly recognised the importance of parallel institutional steps. Notably, the integration of biodegradable packaging requires the support of all the actors involved. This is particularly the case for the managers of composting plants, who are submitted to competitive pressure concerning the quality of their compost, and who are, under such conditions, not greatly inclined to integrate biodegradable packaging in the masses to be composted. This is the reason why manufacturers involved in the development of biodegradable materials organised themselves in an interest group (the biodegradable materials interest group, Interessengemeinschaft Biologisch Abbaubare Werkstoffe (IBAW)). This institution was strongly involved in the development of a norm (DIN 54900) which led to a certification attesting the composting ability

of biodegradable materials and products using them. This certification is attested by a logo developed by IBAW.

What part does regulation play in the innovation process? The case studied shows that innovation and regulation had to adapt to each other to permit the resolution of the structural tensions. But it is also necessary to take into account the other elements of the national system of innovation. The resolution of the structural tensions With regard to the structural tensions collected by the European Commission in 1994 and, in 1998, by K. Bastioli, we can note that: . The lack of a definition for ``biodegradability'' has been filled by the norm DIN 54900 which, in accordance with the ``technical directive relative to town waste'' of 1993, identifies the biodegradability with the composting ability. . Although regulation and laws do not impose an identification of the renewable materials-based products, through the actions of IBAW, the manufacturers involved in the development of biodegradable materials have managed to define a norm and a logo which attest the composting ability of biodegradable materials-based products. . Basically, the German regulation can be viewed as ``satisfactory'' according to the systems of collection, sorting and transporting of waste: the ``technical directive relative to town waste'' of 1993, has promoted a separated sorting of biological waste and the growth of sufficient composting infrastructures. As mentioned above, by the year 2000, 60 per cent of the German territory will be covered; with a capacity of up to 10 million tons a year. Thanks to the decree concerning biological waste, this system has been enlarged to include biodegradable materials. This system exempts the biodegradable materialsbased packaging from the obligation of being collected. However, the integration of this packaging into this system has yet to materialise.

182

Interactions between regulation and technological innovation

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 179±185

Marie Delaplace and Hakim Kabouya .

.

The ``polluter pays principle'' is listed in the German regulation relating to the waste collection, and notably in the packaging decree. Indeed, as mentioned above, this decree has obliged the producers and distributors of packaging to belong to a system of collection . . . of packaging waste and the membership of this system, involving the payment of a fee. In German regulations, there are significant advantages for renewable resource-based materials. But, according to the department of environment, which is responsible for this domain, it is necessary to demonstrate that these materials are respectful of the environment. So, it is necessary to develop a recognised concept of eco-balances.

So, from an institutional point of view, the current regulatory framework relative to waste management offers favourable conditions to the diffusion of biodegradable materials. Considering the system as a whole The study of the German case concerning the evolution of its regulatory framework and its impact on biodegradable materials development leads us to emphasise two kinds of facts. First, as pointed out the beginning of this paper, we have adopted a systemic view concerning the context in which the innovator evolves. That is, when studying the impact of the regulatory framework on an emerging technology, it remains important to take into account the other elements of a national system of innovation. Indeed, if the national system of innovation presents a favourable institutional framework, it must also present: . a favourable demand; and . a favourable context to the development of the knowledge and competencies necessary to an emerging technology (Delaplace and Kabouya, 1999). On the first point, our studies about the German case concerning biodegradable materials have shown that there are pressures which are favourable to these materials both from the point of view of the consumers and the commercial chains. However, the decisions of the German packaging manufacturers about adoption of these

materials are strongly dependent on price considerations. On the second point, the development of these materials is supported by the public policy and by the existence inside the industrial structure of the skills and knowledge necessary to their development. Nevertheless, the country shows a certain number of weaknesses concerning the mastering of biotechnology. So when trying to illustrate the relevant elements of a national system of innovation in relation to an emerging technology, it should be considered that the presence of certain elements will not be sufficient in itself to assure the development of a given technology if other more important elements are absent. In other words, it is reasonable to assume that the advantage due to the presence of one element, in our case a positive regulation, can be partially (or totally) counterbalanced by the disadvantage related to the absence of other important elements. Therefore, the question is how to evaluate the degree of importance of the regulation as an element of the system, i.e. how to establish a weighting of the regulation compared to the other elements of the system. In other terms, is a positive regulation enough to foster a given emerging technology? Second, when analysing the effects of environmental regulation on the development of an emerging technology, it should be important to adopt a dynamic point of view. As shown, regulation has to evolve before it can have a positive impact on a new technology. And on this point, we can go back to the lessons from the concept of Freeman concerning national systems of innovation (Freeman, 1988). The performance of a national system of innovation is measured by the ability of its institutional configuration to adapt itself quickly to a new technology. Then the result should be a match between this institutional framework and the new technology. The empirical case studied in this paper reveals the same mechanism.

Conclusion It is now recognised at the management level that innovation, particularly in the field of emerging technologies, must be considered in a systemic view. As shown, the systemic view concerns the institutional and notably the

183

Interactions between regulation and technological innovation

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 179±185

Marie Delaplace and Hakim Kabouya

regulatory framework. Regulation will particularly affect those innovations which are developed as an answer to the rising awareness of environmental problems. Therefore, innovation management should take into account, as soon as possible, the current and possible future developments of the regulation. This seems to be the case regarding the development of so called ``sustainable'' new technologies. So a systematic ``regulation monitoring'' as part of the ``competitive intelligence'' at the level of those actors involved in the development of a new technology should be considered as a necessity. On the other side, new technologies developed as an alternative to the rising environmental problems often have to face a regulation which is not suited to their diffusion, as this regulation was developed in the framework of the existing ``traditional'' technologies. Therefore, the innovation process must be strongly linked with actions which aim to change regulation to obtain a ``match'' with the new technology. Therefore actors involved must organise systematically ``lobbying actions'' toward the legislator to accelerate the evolution of regulation. These actions are an important part of the innovation process, and are decisive for the success of the technologies concerned[7].

Notes 1 This programme is entitled ``The role of national contexts for the industrialisation of starch based biopolymers. Application on the sector of packaging: identification of emerging industrial structures in Germany and France and development scenario for France'' taken up by EuropoÃl'Agro and financed by the town council of Reims and the General council of the Marne Department. However, the points of view expressed here are strictly those of the authors. The programme is being conducted by the members of the ESSAI laboratory. 2 The high price, unsatisfactory performances compared to synthetic materials and the limited number of materials which can be used. 3 An Italian firm which develops biodegradable materials. 4 The German Senate, nine years earlier, took the same stand, Bunderat: Drucksache 499/89, 1989, the same for SchuÈtte (1998). 5 Distributors which do not join this system have to collect used packaging at the selling point. 6 Multiplying by three the costs (per kilo) of synthetic packaging. 7 It is now recognised that competitive intelligence as a new important part of innovation management

has to be used as a means of influencing the ``strategic environment'' of the firm. That includes so called lobbying actions towards the legislator to obtain regulation adapted to the technologies (see Jakobiack, 1998).

References and further reading Arbeitsgemeinschaft Verpackung und Umwelt (1989), Verpackungsvermeidung und Wiederverwertung ± wo steht der Endverbraucher eine empirische Untersuchung von H. Holland, A. Pfirrmann, P. Jacobs, AGVU Verpackung Aktuell, April. Bascourret, J.M. (1997), ``L'inteÂgration de la protection de l'environnement dans la gestion de l'entreprise: analyses et reÂpercussions strateÂgiques'', TheÁse pour le Doctorat de Sciences de gestion, Universite de Rennes I, Rennes. Bascourret, J.M., Delaplace, M. and Gaignette, A. (1999), ``EleÂments de reÂflexion relatifs aÁ l'interaction reÂglementation/structures industrielles'', Economie Rurale, No. 260, Novembre, DeÂcembre, pp. 66-78. Bascourret, J.M., Delaplace, M., Gaignette, A., Guillemet, R. Hermann-Lassabe, P., Kabouya, H. and Nieddu, M. (2000), Le roÃle des contextes nationaux dans l'industrialisation des biopolymeÁres aÁ base d'amidon: Application au secteur de l'emballage: Identification des structures industrielles eÂmergentes en Allemagne et en France et eÂlaboration de sceÂnario de deÂveloppement possible pour la France, Rapport final, EuropoÃl'Agro. Berndt, D. (1997), Verpackung: Entwicklung und tendenzen, www.verpackung.org/pub/ expertwiss/ Bub2_97.phtml. Bundesministerium fuÈr ErnaÈhrung, Landwirtschaft une Forsten (1995), Bericht des Bundes und der LaÈnder uÈber Nachwachsende Rohstoffe, Bundesministerium fuÈr ErnaÈhrung Landwirtschaft une Forsten, Bonn. Carlsson, B. (1989), Industrial Dynamics, Technological Organizational and Structural Changes in Industries and Firms, Kluwer Academic Publishers, New York, NY. CARMEN (1998), Biologisch abbaubare Werkstoffe Leitfaden und Produktkatalog. DahmeÁn, E. (1989), `` `Development blocks' in industrial economics'', in Carlsson, B. (Ed.), Industrial Dynamics, Technological Organizational and Structural Changes in Industries and Firms, Kluwer Academic Publishers, New York, NY, pp. 110-21. Delaplace, M. (1994), ``L'eÂmergence des activiteÂs de haute technologie dans l'espace eÂconomique mondial. Cadre theÂorique et application aÁ l'industrie de la construction informatique'', TheÁse de doctorat es Sciences Economiques, Reims. Delaplace, M. (1999), ``Pertinence et limites de l'approche en termes de systeÁme national d'innovation'', Veda, Technika, Spolecnost, (Science, Technology, Society), Vol. VIII (XXI), No. 3, pp. 63-80. Delaplace, M. and Kabouya, H. (1999), ``National system of innovation and emerging technology: the case of a sustainable technology , biodegradable materials in Germany'', European Meeting on Applied Evolutionary Economics, June, Grenoble.

184

Interactions between regulation and technological innovation

Marie Delaplace and Hakim Kabouya

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 179±185

Dosi, G., Freeman, C., Nelson, R., Silverberg, G. and Soete, L. (Eds) (1988), Technical Change and Economic Theory, Pinter Publishers, London. Ehlers, B., Grosskopf, W., Kappelmann, K.H. and Meuser, F. (1997), ``Marktchancen der MarkererbsenstaÈrke'', Schriftenreihe ``Nachwachsende Rohstoffe'', Band 9, MuÈnster. Emminger, H. (1997), ``Kunststoffverpackung ± ausblick fuÈr 1998'', Verpackungs-Berater, Heft, December. Fachagentur Nachwachsende Rohstoffe (1997), ``Jahresbericht 1996/97''. Freeman, C. (1988), ``Japan: a new national system of innovation?'', in Dosi, G., Freeman, C., Nelson, R., Silverberg, G. and Soete, L. (Eds), Technical Change and Economic Theory, Pinter Publishers, London, pp. 330-48. Freeman, C. (1994), ``The economics of technical change'', Cambridge Journal of Economics, No. 18, pp. 463-514. Jakobiack, F. (1998), L'intelligence EÂconomique, Paris. Janszen, F.H.A. and Degenaars, G.H. (1998), ``A dynamic analysis of the relation between the structure and the process of national systems of innovation using computer simulation; the case of the Dutch biotechnological sector'', Research Policy, No. 27. Kabouya, H. (1998), Contexte National et Technologie EÂmergente: Perspectives de Diffusion et de DeÂveloppement des MateÂriaux BiodeÂgradables en Allemagne, MeÂmoire de DEA, Reims. Landau, R. and Rosenberg, N. (Eds) (1986), The Positive Sum Strategy. Harnessing Technology for Economic Growth, National Academy Press. Linder, S.B. (1961), An Essay on Trade and Transformation, Wiley, New York, NY. Lundvall, B. (1988), ``Innovation as an interactive process from user producer interaction to the national system of innovation'', in Dosi, G., Freeman, C., Nelson, R., Silverberg, G. and Soete, L. (Eds), Technical Change and Economic Theory, Pinter Publishers, London, pp. 349-69. Lundvall, B. (1992), National Systems of Innovation. Towards a Theory of Innovation and Interactive Learning, Pinter Publishers, London.

Nelson, R. (1987), ``Understanding technical change as an evolutionary process'', Professor Dr F. De Vries Lectures in Economics, North-Holland, Amsterdam. Nelson, R. (1988), ``Institutions supporting technical change in the United States'', Dosi, G., Freeman, C., Nelson, R., Silverberg, G. and Soete, L. (Eds), Technical Change and Economic Theory, Pinter Publishers, London, pp. 312-29. Nelson, R. (Ed.) (1993), National Innovation Systems, A Comparative Analysis, Oxford University Press, Oxford. Nelson, R. and Rosenberg, N. (1993), ``Technical innovation and national systems'', in Nelson, R. (Ed.), National Innovation Systems, A Comparative Analysis, Oxford University Press, Oxford, pp. 3-21. Nelson, R. and Winter, S. (1982), An Evolutionary Theory of Economic Change The Belknap of Harvard University, Cambridge, MA. Pflaum, D. and Eisenmann, H. (1988), ``EinfuÈhrung in die Handelswerbung'', Stuttgart. Porter, M. (1990), The Competitive Advantage of Nations, MacMillan, New York, NY. SchuÈtte, A. (1998), ``Market perspectives for biodegradable materials'', The first ERMA Conference, Brussels. Soskice, D. (1996), ``German technology policy, innovation and national institutionnal frameworks'', Discussion Paper, Wissenschaftszentrum fuÈr Sozialforschung, Berlin. Umweltbundesamt (1997), ``Nachhaltiges Deutschland Wege zu einer dauerhaft umweltgerechten Entwicklung'', Berlin. Vernon, R. (1966), ``International investment and international trade in the product cycle'', Quarterly Journal of Economics, No. 80. Warwel, S. (1997), ``Technische Produkte durch Umwandlung von Stoffen der Natur mit Methoden der Natur'' in Fachagentur Nachwachsende Rohstoffe: ``Biokonversion nachwachsender Rohstoffe''. Witt, U., MuÈller, R. and Klein, J. (1997), Biologisch abbaubare Polymere ± Status und Perspektiven, Franz-Patat-Zentrum, Berlin.

185

The role of regulations in the diffusion of environment technologies: micro and macro issues Dilek Cetindamar

The author Dilek Cetindamar is Associate Professor at the Graduate School of Management, Sabanci University, Istanbul, Turkey. Keywords Technology transfer, Diffusion, Environment, Technology, Turkey Abstract Analyzes the impact of regulations on the process of the diffusion and development of environment technologies from the perspective of both firm and technology policies. Based on a case study in the Turkish fertilizer industry, observes that regulations and public pressures are the main determinants both in the transfer and in the diffusion of environment technologies, indicating the importance of the institutional infrastructure, namely the interplay among firms, government and nongovernmental organizations. Thus, attempts to integrate the findings of the study and concludes with some technology policy issues both at the micro and macro level. Electronic access The research register for this journal is available at http://www.mcbup.com/research_registers The current issue and full text archive of this journal is available at http://www.emerald-library.com/ft

This paper aims to analyze the role of regulations in the diffusion of environment technologies. Even though environment regulations and standards have been influential in the adoption of environment technologies in almost all advanced countries, there is still a debate about the role of regulations in the diffusion and development of environment technologies. According to one view, the main dynamic behind the development and diffusion of environment technologies is regulations and standards enforced by government, while another view considers that regulations cause distortions in the natural development and diffusion of technological innovations. The debate stimulates many empirical studies in understanding not only the role of regulations, but also the determinants that affect the effectiveness of regulations. This paper attempts to understand the role of regulations in the adoption of environment technologies in developing countries. By studying the Turkish fertilizer industry as a case, we exemplify how firms adopt environment technologies and how effective the regulations are. Then, we aim to understand under what conditions regulations can be effective in stimulating technological innovations. The report has four sections. The first section will introduce the theoretical discussion about the relationship between regulations and environment technologies. Then, the second section will briefly introduce the empirical study conducted to analyze the impact of regulations on environment technologies in the fertilizer industry. The third section will present the micro and macro level analysis of the Turkish fertilizer industry. By analyzing the case study firms, we will discuss the dynamics in the diffusion of environment technologies. The final section will summarize policy conclusions arising from our study that might increase both the efficiency of the environmental regulations and the diffusion and development of environment technologies in developing countries.

Regulations and environment technologies

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . pp. 186±193 # MCB University Press . ISSN 1460-1060

Technologies do not easily diffuse in industries. In general, the use of new technologies is expected to increase by time due to different reasons (Rogers, 1995). One 186

The role of regulations in the diffusion of environment technologies

Dilek Cetindamar

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 186±193

model of technology diffusion is the epidemic model, indicating that the lack of information available about the new technology can limit the diffusion of technology. Another model, the probit model, suggests that different firms adopt new technology at different times due to their differences in goals and abilities. An alternative model is related to density dependence that considers diffusion as the result of legitimation and competition. Besides these models, recent studies increasingly highlight the absorption differences arising from the institutional variables such as regulations and science policy (Hultberg et al., 1999; Burton and Hansen, 1993). Like any new technologies, the diffusion of environment technologies is also under the influence of many factors, ranging from firm-based reasons to institutional ones, particularly regulations (Porter and Linde, 1995). Among different dynamics behind its diffusion, environment regulations and standards enforced by governments have a special role. Why are regulations so important? It is widely known that without government intervention, firms and individuals may have no reason to take externalities, in other words external costs, into account, the costs that the polluting individual or firm imposes on other member, of society (OECD, 1997). In particular, the atmosphere and water systems may be treated as free methods for disposing of unwanted waste products, despite the fact that unrestricted pollution of the atmosphere, or of ground water, rivers and seas may impose costs on other firms or individuals. That is why public authorities intervene to restrict environmental pollution and its externalities by internalizing environment costs through regulations (Cropper and Oates, 1992). Regulations aim to affect the decisions about the level of production and consumption activities that give rise to pollution, about the choice of technology, the use of pollution abatement measures and the disposal of waste products. Even though the majority of advanced countries have comprehensive environment regulations, their role on the diffusion of environment technologies has been under scrutiny (Kemp, 1993; Geiser, 1991). The literature identifies two opposing views on regulations. The first view can be called as ``trade-off'' where society is expected to gain

while firms lose. This view expects declining competitiveness of firms due to extra costs incurred by regulations as well as productivity loss caused by distortion of firm resources into inefficient areas. Another argument is that environmental regulations restrict firms in their technological innovations by some stringent environment control criteria (Kemp, 1993; Jaffe and Palmer, 1996). The second view, ``win-win'' view, considers regulations as a source of technological innovations that bring advantages to companies as well as society (Porter and Linde, 1995; World Bank, 1992). The win-win view accepts that regulations have a cost but the innovations created by regulations offset the costs incurred by regulations. Empirical and theoretical studies cannot resolve the debate since studies find conflicting results. Neither the win-win proponents claim that all environmental regulation, whatever its form or strictness, leads to increased innovativeness and competitiveness, nor the trade-off view denies the possibility that in some cases it may be possible to obtain benefits in terms of both environment and innovativeness. Therefore, recent discussions have transformed into the understanding of the conditions under which environmental regulation increases or reduces innovativeness and hence leads to competitiveness (Jenkins, 1997; Geiser, 1991). These studies indicate that in the past the regulations have focused on pollutioncontrol/end-of-pipe technologies rather than pollution-preventive/cleaner technologies. The new practice increases innovative capacity in firms due to the shift of focus to environmental improvement of processes, products, housekeeping, and materials handling (Bartzokas and Yarime, 1997). This debate is important not only for advanced countries, but also for developing countries. Similar to the expectations in advanced countries, the diffusion of environment technologies can result in four main advantages for developing countries (UNCTAD, 1994; West and Senez, 1992; Jenkins, 1997; World Bank, 1992). First, the application of environment technologies requests re-examination and reconsideration of the products and the whole production process that can lead into process and product innovations. Second, environment technologies will reduce waste of all inputs including raw materials, skills, and energy.

187

The role of regulations in the diffusion of environment technologies

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 186±193

Dilek Cetindamar

This, in turn, can result in two important benefits: decrease in production costs and increase in productivity. As developing countries are short of many inputs, their efficient use is of great importance to these countries. Fourth, application of environment technologies can also contribute to quality improvements of products. Fifth, firms with environment technologies will manage to increase their competitiveness and increase their export potential. It is important to remember that international environment standards are increasingly enforcing developing countries to comply with global rules in order to assess global markets. If developing countries neglect environment issues and do not adopt the eco-labelling practices and the international environmental management standards such as ISO 14000, their competitiveness will decrease and they will fail in exports, consequently hindering their economic development.

The empirical study: the Turkish fertilizer industry In order to understand the role of environment regulations in the diffusion of environment technologies, we conducted an empirical study. The reason behind the selection of the fertilizer industry is the fact that it is one of the highly polluting subsectors of the chemical industry (IFA, 1996). This mature industry is a large-scale, energydependent, and capital-intensive industry. While the components of finished fertiliser products are relatively simple chemicals, the production technologies used are highly developed. There are three main types of fertilizers: (1) ammonia nitrogen; (2) phosphate; and (3) potassium fertilizers. In recent years, the fertilizer industry has been undergoing a restructuring and rationalisation process (Bartzokas and Yarime, 1997). Plants have been shut down and large investments have been made to improve efficiency and productivity in the use of energy as well as to increase quality of fertilisers. Environment technologies are two types: (1) end-of-pipe technologies; and (2) cleaner technologies.

In the fertilizer industry, the former one includes pollution control techniques such as gas scrubbers, incinerators, and dust collectors, while the latter one refers to techniques such as new production technologies in phosphoric acid production (Bartzokas and Yarime, 1997). An example for a clean technology is the application of the recovery of fluoride and the total recycling of all off-gas and scrubbing water in the production process of superphosphates that reduced the discharges of pollutants from superphosphate production to almost zero (Bartzokas and Yarime, 1997). The fertilizer industry supplies an important input to agriculture, the driving industry of the majority of developing countries. However, not many developing countries can have production due to high capital investment needed. As Turkey is one of the few developing countries that has established its fertilizer industry, the study is conducted in Turkey. Briefly, we can introduce the Turkish fertilizer industry as follows. The Turkish fertilizer industry has altogether six large-scale inorganic fertilizer firms. Production in fertilizers has been experiencing high growth since 1962: increasing by 23 per cent per year during 1962-1972, 18 per cent during 19731978, 16.7 per cent during 1979-1984, and 6.5 per cent during 1985-1989. In the 1990s, the fertilizer industry experienced ups and downs with an annual growth rate of 4.5 per cent in the period of 1996-2000 (SPO, 1996). Turkish fertilizer production corresponds to 1.3-1.4 per cent of the total world production (AFP, 1998), that is far below the main fertilizer producing developing countries' output such as China, whose share in world production is 21.7 per cent. Turkey also fails in using fertilizers in comparison to advanced countries. In terms of consumption, the use of fertilizer per hectare is 83.6kg and it is lower than the world average of 95.2kg (Paramatik, 1997). In this study, the impact of environmental regulation on production and technological change is investigated in depth by interviewing all Turkish inorganic fertilizer producer firms (see Table I). The Turkish fertilizer producers were established in the 1950s, 1960s, and 1970s as shown in Table I. Their production technologies have not been renewed since then. Only two firms have expanded their production and had new

188

The role of regulations in the diffusion of environment technologies

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 186±193

Dilek Cetindamar

Table I Establishment years, products, capacity, output, capacity utilization, and employment of the case study firms Firm F1 F2

Establishment years 1954, 1961, 1976, 1978, 1989 1973, 1980

F3

1962, 1968, 1970, 1971, 1973, 1980

F4 F5 F6

1978 1977, 1993 1972, 1981, 1986

Products TSP, compose, phosphoric and sulfuric acid AS, TSP, DAP, compose, phosphoric and sulfuric acid AN, NSP, DAP, ammonia, TSP, compose, phosphoric and nitric acid DAP, compose Urea, compose, ammonia DAP, compose, AN, sulfuric and nitric acid

Capacity, ton/year

Output (1997)

Capacity utilization

870,000

489,801

67.9

733

759,500

543,188

58.5

422

1,699,700

991,993

68.7

4,677

490,000 661,000 1,402,500

117,776 674,289 954,467

34.3 96.0 64.1

160 722 848

production technologies in the last decade, one in 1989 and another one in 1993. Out of six fertilizer firms, three firms (firms F1, F3 and F5) are public and the other three firms are private. State-owned plants constitute 60 per cent of all production and 82 per cent of all employment in the sector, and thus the government has a significant role in the industry. The product range of fertilizer firms are Ammonia, AN, AS, compose, DAP, NSP, TSP, Urea, and phosphoric and sulfuric acid. The capacity utilization in the industry is 65 per cent overall. The fertilizer producers do not have modern production technologies; what about environment technologies? It seems that although environment regulations could not affect how production is done, it has enforced firms to invest in waste treatment utilities. Firms have started to invest in water treatment and in air emissions' cleaning systems in parallel with the establishment of environment laws. The majority of firms (four out of six firms) have invested in wastewater treatment systems for industrial water use in 1994. Also all firms invested in waste cleaning systems both in 1988 and in 1994. The major investment of all six firms was in air emission cleaning systems in 1994.

The micro and macro level analysis of the empirical study When we asked our case study firms the reasons why they invested in environment technologies, we observed that all firms are motivated by regulations. Half of the firms incorporated environment technologies as embedded in their new expansion

Employment

investments. Because of regulations, they chose environment-friendly production technologies in their new units. Similarly, during the expansion investments, firms renewed or invested in some waste treatment systems too. In addition to regulations, public protests were effective in pushing half of the firms to consider investing in environment technologies. For example, when the colour of the sea around firm F2 has changed to a large extent and the products of farms in the region have burned, local environment groups have increased their voice. Firm F2 purchased many farms around its plant but still the protests continued. This led the firm to invest in waste disposal system that eliminated waste disposal to the sea. The management proudly asserts that only a few European firms have such a biological technology in their plants. In short, our case study results show that firms invested in the environment mainly due to regulations that are enforced by the local authorities, followed by public pressure. This result shows that environmentalist groups and public organizations can play an important role, particularly as an enforcement of the environment rules and regulations. None of the firms has a complete pollution prevention system at the firm level, rather partial systems at their different production units. Firms start to invest in cleaning and treatment technologies for their most polluting production units so that they can decrease their pollution to acceptable limits. As firms are not eager to invest in new equipment or change their production, almost all environment investments are end-of-pipe technologies rather than pollution-preventive/ cleaner technologies. We observed only three

189

The role of regulations in the diffusion of environment technologies

Dilek Cetindamar

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 186±193

firms adopting pollution-preventive technologies for some of their production units, but these firms had new enhancement investments. Additionally, four firms (firms F1, F3, F5, and F6) received financial support from the World Bank for their energy transformation from fuel oil to natural gas. These investments brought the complementary environment investments that are basically related to water consumption and air emissions. As the majority of investments serve pollution cleaning purpose, investments consist of emission cleaning systems and water saving technologies. However, none of the investments consists of solid waste treatment, since regulations concerning solid waste are not prepared yet for the fertilizer industry. All firms having solid waste stack them on open land at their production site. It was clear from interviews that none of the producer firms (including state-owned ones) are willing to invest in clean technologies unless they are forced to do so. In areas where the local authority is active and forces firms to comply with regulations, firms take action. This was clearly observed by the behaviour of firm F1 that stopped its phosphoric acid production in Izmit where local authorities are strong in implementing regulations, while it kept its production in another plant where local authorities are weak. How regulations were effective in determining firms' investment behaviour can be also observed by analyzing their attitude towards environment management. Regulations do not bring any requirement to set up environment management; none of the firms have environmental statement/report, environment management systems, environment standards (ISO 14000), and environment cost accounting. Except two firms, F2 and F3, firms do not have environment training either. Further, the majority of firms fail in auditing. Two firms (firms F2 and F5) mentioned that they had environment auditing for their production, but only one (firm F2) of them put the results of auditing into action when it invested in its wastewater treatment unit. At the firm level, only three firms (firms F4, F5, and F6) mentioned that management has a concern for environment. Among these three, only firm F4 talks about a broader environment concern that includes production activities. This firm is even

involved in a special environment program organized by the Chemical Producers' Association. Firm F5 has no environment policy, but it markets its product as environment-friendly, since the product by its nature pollutes land less than other fertilizers. Firm F6 is basically concerned with costs resulting from wastes and aims to decrease waste in order to reduce costs. The overall analysis of firms' management practices reveals that they do not have any formal environment policy at the firm level. But more importantly, many of them do not plan to have environment policies either. As Turkish fertilizer firms tend to respond only to regulations, the starting point for any policy should be to restructure regulations that will enforce managers to be innovative. In additon, management culture needs to be changed. This, however, necessitates not only training of firm management on environment issues, but also increasing customer pressure that will demand environment-clean products. In the case of fertilizers, farmers who have a low education level could be a problem. That is why government's agricultural policy might play a crucial role in forcing fertilizer firms from the demand side. Fertilizer firms' limited response to regulations and their neglect of environment policies could be explained mainly by the industry's being local. In other words, these firms produce for local markets and they do not face large competition at the local market. The EU producers are not competitors since they do not have cost advantage over Turkish producers because of their import dependence for inputs, similar to their Turkish counterparts. The majority of potential competitors are far enough away so that when transportation costs are added, they cannot compete fiercely with local firms. Half of the firms, F4, F5 and F6, indicated that they would like to export but none of the firms are successful in exports. One reason for this is the fact that the Turkish fertilizer firms have low competitiveness due to their old technologies. Another reason is the existence of a large local market. Many firms indicate that they cannot even supply local demand that has a large potential of growth in future due to a new dam project whose completion will increase fertilizer demand by 25 per cent. As a final remark, why firms fail in investing in environment technologies could be also explained to a lesser extent by the weak

190

The role of regulations in the diffusion of environment technologies

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 186±193

Dilek Cetindamar

supply market. We see that an industry for the environment technologies is in its development process in the 1990s. In terms of technology suppliers, Turkey has no environment technology producers yet. So, Turkish fertilizer producers import their technologies, particularly from Germany. The existing technology firms are mostly technical service providers such as construction and design firms. There are also some firms supplying machinery parts used in environment equipment. When this market matures with a supply of a range of options for fertilizer firms, there might be more investments due to increased awareness and availability of environment technologies.

Conclusions Based on two realities, namely high population that grows rapidly and a high ratio of employment (42 per cent of total employment) in agriculture, it is obvious that Turkey needs to have a fertilizer industry in order to supply fertilizers, one of the most important inputs for agriculture. However, it must also keep its environment sustainable. Then, the question is how to manage the diffusion of environment technologies in the fertilizer industry, one of the most polluting industries (SPO, 1996). The Turkish example shows that regulations were the main factor in the diffusion of environment technologies, but the resulting effect of the regulations was very limited in terms of innovativeness and competitiveness of the fertilizer firms. This is to a large extent due to the existing structure of regulations that direct firms to invest in end-of-pipe technologies that are focused in pollution cleaning rather than pollution prevention. If we attempt to generalize from this example, we can suggest that regulations need to be innovation oriented. Developing countries should not fall into the shortcomings and failures of 25 years of pollution control regulation that are focused only on pollution cleaning technologies (Geiser, 1991). Based on the suggestions of our case study firms and organizations, we raise some of the important actions that need to be taken to improve the diffusion of environment technologies so that innovations in the fertilizer industry will be stimulated to

reduce waste and increase both quality and exports. These policy suggestions can be grouped under three headings: firm strategies, technology policies and environment policies. Firm strategies If firms want to benefit from the advantages of environment technologies as suggested in the win-win view, they need to follow a number of proactive and long-term strategies. First of all, instead of focusing on short-term solutions and purchasing end-of-pipe technologies that can only be used to comply with pollution levels, firms can consider environment regulations as an opportunity to analyze their production processes and efficiencies. Product and process innovations might end up with better products and processes in terms of quality and profitability as well as environmental protection. Firms should integrate environment strategies with their investment decisions (Welford, 1995). During initial and enhancement investments, firms should pay attention to purchasing equipment and production processes that have environment control embedded into the system. Another point with firm strategies is related to the adoption of environmental management tools. Studies show that improving management and organization of production with environment concerns per se might result in substantial gains. For example, without any substantial investments in equipment, opportunities for energy conservation in the industrial sector in developing countries are estimated at 10-30 per cent (UNCTAD, 1994). These improvements are the result of environment management that includes development of environmental auditing and reports, employee training for environment practices, adaptation of environment standards (ISO 14000), and performing environment cost accounting. Technology policies The market for clean-technologies and cleaning technologies is in the formation process in Turkey. At the moment, there are few local technology producers. By the beginning of the 1990s, many technology supplier firms had been established and they, in most of the cases, transfer technologies, either buying licenses or becoming affiliations of foreign companies. After this initial process, as some examples show, it is possible

191

The role of regulations in the diffusion of environment technologies

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 186±193

Dilek Cetindamar

that Turkish firms could start to produce their own technologies. In this regard, technological policies should be formed specific to the creation, diffusion, and implementation of environment technologies. Some suggestions may be as follows. First, the technology policy should support small environment firms, not only to import, but also to develop environment technologies. While supporting technological developments, it is important to balance incentives for both end-of-pipe and pollutionpreventing technologies. Second, from the demand side, government should induce incentive programs and subsidies for firms that adopt cleaner technologies (OECD, 1995). Third, there should be certainly more support for environment research at universities and public institutions. Finally, the diffusion of technology necessitates not only investment in hardware but also practising new management practices. That is why government can act as an information broker that supplies information on technology applications. Through universities, public institutions, and the help of voluntary organizations, government can train a firm's management on issues regarding technology transfer and technology applications. The success of Germany in terms of diffusion of environment technologies can be attributed to the creation of institutions that spread innovation widely throughout economy, particularly to the appropriate technology users (Burton and Hansen, 1993). As a result, industry's efficiency is increased and the cost of accessing and utilizing information is reduced. Developing countries might follow a similar strategy. Environment policies Governments must take a leadership role in creating a policy framework to increase the demand for cleaner technologies and products (Porter and Linde, 1995; OECD, 1997). Examples from developing countries show that political, social and economic stability, together with the creation of the necessary infrastructure, are important preconditions for technological change for sustainable development (OECD, 1994). Environment agencies in developing countries may be successful in terms of preparing regulations and standards, but they need to pay attention to a few points:

.

.

.

.

.

.

192

First, political commitment at a high level is essential for success. Environment agencies should show their power and will for the application of its regulations. Unless long-term commitment is made, firms might not comply with regulations. Second, regulations do not work without control and punishment mechanisms. Problems related to institutional overlaps between and across different levels of government should be solved to have clear and consistent environmental goals and targets. Regulations should be applied equally to all firms to gain confidence among firms that control and punishment work for all violators. Third, some new methods could be developed to increase compliance with regulations and the adoption of cleaner technologies (OECD, 1995). For example, instead of punishment of the polluter, government can subsidize and give incentives to non-polluters for their technology investments. Similarly, education of customers and public is important to create a large public awareness for environment issues. Fourth, environment policies should be integrated by considering linkages. For example, the suppliers of inputs such as fuel or phosphate rock should be regulated as much as the fertilizer industry itself, since when these inputs have low environmental quality, then production will lead to pollution as observed in the case of our two case study firms. Another important linkage should be supplied in complementary industries such as agriculture and fertilizer industry. Without having a proper understanding of linkages among industries, it would be difficult to solve environment problems. Fifth, government agency should consider a mix of environment policies such as having fertilizer taxes that are highly recommended policy for developing countries. Finally, government should increase its cooperation with non-government institutions as well as international institutions. Non-government institutions raise the environment consciousness, so government should support the activities of these organizations and collaborate with them in preparing regulations and implementing them. By initiating

The role of regulations in the diffusion of environment technologies

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 186±193

Dilek Cetindamar

university-industry co-operation, it could be possible to address environmental technology issues through a series of seminars with groups from universities and environment agency staff. Similarly, international organizations are other sources where government can benefit a lot, especially getting informed about the recent developments in environment technologies and regulations. The best example is the contribution of the World Bank to fertilizer firms in the second half of the 1980s that helped to transform these firms' energy systems into natural gas, resulting in reduced air emissions in these firms. Moreover, UNIDO and UNEP have launched a program to support national cleaner production centers in some 20 countries for a fiveyear period (OECD, 1995). Developing countries might join to these centers and exchange their experiences. There are also national information centers that facilitate linkages between technology producers, traders and users.

References Association of Fertilizer Producers (AFP) (1998), GuÈbre IÈstatistikleri (Fertilizer Statistics), AFP, Ankara. Bartzokas, B. and Yarime, M. (1997), ``Technological trends in pollution-intensive industries'', Workshop on Environmental Regulation, Globalization of Production and Technological Change, UNU/ INTECH, Maastricht, March. Burton, D.F. and Hansen, K.M. (1993), ``German technology policy: incentive for industrial innovation'', Challenge, January-February, Vol. 36 No. 1, pp. 37-48. Cropper, M.L. and Oates, W.E. (1992), ``Environmental economics: a survey'', Journal of Economic Literature, Vol. 30, pp. 675-740. Geiser, K. (1991), ``The greening of industry'', Technology Review, August-September, Vol. 94 No. 6, pp. 64-73. Hultberg, P.T., Nadiri, M.I. and Sickles, R.C., (1999), ``An international comparison of technology adoption and efficiency: a dynamic panel model'', Annalesd'Economie-et-de-Statistique, No. 55-56, September-December, pp. 449-74. International Fertilizer Industry Association (IFA) (1996), Mineral Fertilizer Production and the Environment, IFA, Paris.

Jaffe, A.B. and Palmer, K. (1996), ``Environmental regulation and innovation: a panel data study'', National Bureau of Economic Research, Working Paper, No. 5545. Jenkins, R. (1997), ``Environmental regulation and international competitiveness'', Workshop on Environmental Regulation, Globalization of Production and Technological Change, UNU/ INTECH, Maastricht, March. Kemp, R. (1993), ``An economic analysis of cleaner technology: theory and evidence'', in Fischer, K. and Schot, J. (Eds), Environmental Strategies for Industry: International Perspectives on Research Needs and Policy Implications, Island Press, Washington, DC. OECD (1994), Applying Economic Instruments to Environmental Policies in OECD and Dynamic Non-member Countries, OECD, Paris. OECD (1995), Promoting Cleaner Production in Developing Countries, OECD, Paris. OECD (1997), Globalisation and Environment, OECD, Paris. Paramatik (1997), ``GuÈbreye GAP pompasi (the boom in fertilizer industry due to SAP)'', Paramatik, May, pp. 48-51. Porter, M. and Linde, C.V.D. (1995), ``Green and competitive: ending the stalemate'', Harvard Business Review, September-October, pp. 120-34. Rogers, E.M. (1995), Diffusion of Innovations, Free Press, New York, NY. State Planning Organization (SPO) (1996), Special Commission Report on Fertilizers, Seventh Five Year Development Plan (1996-2000), SPO, Ankara. UNCTAD (1994), Sustainable Development: Trade and Environment ± The Impact of Environment-related Policies on Export Competitiveness and Market Access, Geneva, UNCTAD, TD/B/41 Vol. 1 No. 4. West, P. and Senez, P. (1992), Environmental Assessment of the NAFTA: The Mexican Environmental Regulation Position, Report prepared for the Province of British Columbia, Ministry of Economic Development, Small Business and Trade. World Bank (1992), World Development Report, Oxford University Press, Oxford.

Further reading Welford, R. (1995), Environmental Strategy and Sustainable Development. The Corporate Challenge for the 21st Century, Routledge, London. Wu, J. and Babcock, B.A. (1999), ``Relative efficiency of voluntary versus mandatory environment regulations", Journal of Environment Economics and Management, Vol. 38, No. 2, pp. 158-75.

193

Positioning of this research

Innovation through creation of strategic communities in traditional big businesses: a case study of digital telecommunication services in Japan Mitsuru Kodama The author Mitsuru Kodama is Executive Director at Community Laboratory, Tokyo, Japan Keywords Innovation, Strategy, Information, Management, Core competences Abstract Presents a case study of how over the last six years a large, traditional corporation simultaneously created new service markets and established a dominant position in the competitive information and communication technology field in Japan. The corporation accepted a new organizational body that has an entrepreneurial spirit and consists of different types of personnel, then continuously promoted emergent strategies. At the same time, in an attempt to implement strategic innovation the company integrated the above strategies with deliberate strategies practised by the existing line organizational body. Through a case study, discusses the factors for success and the problems encountered in the course of achieving strategic innovation in the communications field, i.e. the creation of a new market through the creation of strategic communities based on cooperation between different organizations. Electronic access The research register for this journal is available at http://www.mcbup.com/research_registers The current issue and full text archive of this journal is available at http://www.emerald-library.com/ft

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . pp. 194±215 # MCB University Press . ISSN 1460-1060

Regarding innovation and organizational change in big business to date, study groups centered on Tushman (Tushman and O'Reilly, 1997), Nadler (Nadler and Tushman, 1989; Nadler et al., 1995) and Romanelli and Tushman (1994) proposed a punctual equilibrium model and mechanisms for innovation in many fields and business types. Organizational change is divided into incremental and discontinous change, depending on its content. It is shown how incremental change affects stable-oriented organizations and discontinuous change affects change-oriented organizations. For a big corporation to achieve discontinuous change, the most important issue is to convert strategy, structure, competencies and processes at the same time. For companies in businesses such as IT, multimedia, and the communications fields, which expect to face a complex and uncertain future, finding new directions in the twenty-first century is the most important issue to dominate the competition. To do so, it is necessary to oversee a radical transformation of the basic framework that was used in the past, including existing strategies, structure, culture, competencies and business processes. In order to engineer the large and radical discontinuous transformation discussed by Tushman or Nadler, the larger and more complex the organization, the more paradoxical the situation the organization faces during the innovation process. For large businesses that are facing reorientation (Nadler et al., 1995), with regard to the construction of future radical transformation models, the objective of this paper is to use examples of strategic innovation of traditional big businesses in the extremely competitive IT and communications fields to explain, based on past research results, the mechanism behind how differing strategic organizations cause various paradoxes within big businesses, form a strategic community (herein after referred to as the community) within the existing traditional organization and thus achieve radical transformations.

194

Strategic communities in traditional big businesses

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 194±215

Mitsuru Kodama

NTT's ISDN innovation (case study) Expansion of ISDN market in Japan Changing from a telephone company to a multimedia company On new year's day 1994, then president Kojima declared that NTT would change from a telephone company to a multimedia company. At the time, NTT was facing a significant transition period from an approximately 40-year long analog telephone business to a future of new business creation using multimedia [1]. Following privatization in 1985, NTT implemented incremental change by spinning off group companies (the data communications section in 1988 and the mobile communications section in 1992), entering new business fields, the introduction of voluntary retirement, and other in-house streamlining policies, and, as a result, by the beginning of 1994 the company had reduced its personnel numbers from around 300,000 to approximately 180,000. Regarding its business operations, income from analog telephone sales, the core of the company's business, was gradually decreasing due to the entrance into the market of new common carriers and reductions in telecommunication fees accompanying liberalization of the telecommunications market in 1985. On the other hand, the demand for nonvoice services such as data communications was gradually increasing, primarily from corporate users. At that time, however, frankly speaking it was an unknown field for telecommunications carriers in terms of what strategies should be used to create what kind of services for the Internet, which had begun spreading, primarily in the USA, by 1994. Construction of a new organization by top management The two persons who felt the greatest sense of crisis regarding NTT's future were thenpresident Mr Kojima, who made the ``multimedia declaration'' in 1994 and thenvice president and person responsible for technology Mr Miyazu (who took up the president's post in 1996). They were searching for the future structure of the business, through radically changing NTT's constitution (organization culture and business style, etc.) They reached the conclusion that they had to construct a new organization in the head office to introduce multimedia strategies for the future. The

person who was assigned this responsibility was then-board member and director Mr Ikeda (he became managing director in 1996). This organization was named the multimedia business department (MBD) and was started in June 1994 with about 50 staff members. Two years later, the department had increased to about 850 staff. Top management members Mr Kojima, Mr Miyazu and Mr Ikeda shared a sense of values and future vision and had a firm belief and will to dismantle NTT's traditional organization culture and create a new multimedia business market that drew from information and communication technologies. With respect to the multimedia organization to be created, Mr Miyazu instructed Mr Ikeda to create an organization where people could do new things based on new ideas. Through such conversations between top management members, the vision of changing from a telephone company to multimedia company and the sense of values were shared and Mr Ikeda began creating a new organization (MBD). Making good use of his experience as a former general manager of NTT's personnel division, Mr Ikeda gathered various staff from among the remaining 180,000 employees, picking up, for example, researchers and engineers who were each credited with more than 100 patents or utility model rights, young staff with entrepreneur experience during their school days, and number one system engineers in the Kansai area, etc. The project leaders who were to lead the new MBD organization were selected from upper-ranking branch manager class management who had a good sense of balance, and, at its peak, more than 850 staff, from veterans to capable young personnel, were formed into teams [2]. The overriding characteristics of the new organization were the degree of freedom, speed and tension all members experienced, which was embodied in the shared feeling that: Of the entire NTT organization, only our group (MBD) is not NTT.

MBD is in extreme contrast to NTT's traditional existing line organization (about 170,000 staff). The income from analog telephone services was obviously NTT's core business at that time and line employees who engaged in this business formed and retained the organization culture, including the

195

Strategic communities in traditional big businesses

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 194±215

Mitsuru Kodama

existing business processes and customs, etc., and planned and executed extremely detailed and planned divertive strategies related to telephone service (strategies were planned in each division by function, such as sales planning, facility planning, customer service, and maintenance). They continued providing reliable services to customers throughout the nation in the past some ten years. In the dayto-day activities, incremental reform and change was performed, and in this disciplined line organization body information and knowledge was handed down and shared in a top-down method, from the head office to branch offices, and from branch offices to sales offices (hereinafter, the existing line organization is referred to as the traditional organization). Naturally, when MBD was promoting unique businesses based on new ideas, severe conflict with the traditional organization was unavoidable. Regarding intense conflicts between MBD and the traditional organization, constructive and productive conflicts were induced between the organizations through top-down transmission of the vision of top management and the corporate-wide promotion of knowledge management between mutually conflicting organizations. By integrating the emergent strategy hammered out by MBD and deliberate strategies hammered out by the traditional organization, new services markets were generated. Emergent strategy hammered out by MBD The grand design of multimedia service hammered out by MBD for the large vision to change from a telephone company to a multimedia company was a hop-step-jump scenario, moving from analog telephones to ISDN [3] to an era of optical fiber (see Figure 1). Of them, the broadband network called fiber-to-the-home is a jump process that corresponds to the ultimate multimedia service in the twenty-first century (beyond the year 2001). In 1994, mass marketing of optical fiber was not considered to be realistic because there were high hurdles in terms of demand, technology and cost. Therefore, the basic policy of MBD was first to provide multimedia services to customers using currently available existing network technologies. MBD's vision was ``multimedia that can start today'' (now-ISDN) [2], that is, to use the digital ISDN communication

system as a platform to provide various application services to customers. Multimedia is a digital world and naturally has high affinity with digital networking. NTT had digitized networks over the previous 20 years with the current time in mind. Regrettably, NTT's deployment of ISDN in 1994 was in the red. At that time, the traditional organization in charge of ISDN sales saw it as routine work; however, a commonly-held belief inside NTT was that it was already hopeless. Most of the traditional organization's employees were negative about promoting ISDN and everybody believed it would become extinct Around 1994, many journalists said that information communication technologies would lead the Japanese economy in the twenty-first century. The industry, however, would not be energized if the Japanese communication infrastructure that provided support remained analog. Multimedia would be only a drawing of a piece of cake on a piece of paper if the general public failed to become aware of the importance of digital technology. Therefore, to maximize the advantages of the nearly 100 per cent digitization of the network, the ISDN promotion structure was reviewed and MBD took charge of reform [4]. Around the beginning of 1996, the number of ISDN subscriptions sharply increased, reaching a total of approximately 20 million channels by December 2000 through the explosive promotion of the dissemination of ISDN (see Figure 2). Japan quickly surpassed Germany (Deutsche Telecom) in ISDN dissemination, which until that time had been the world leader in ISDN promotion and deployment [5]. Currently, ISDN can be mutually connected between 41 countries worldwide and the number of users who connect to the Internet through ISDN are increasing worldwide. Also, ISDN is an important global digital network that provides a platform for interactive video communications such as TV phones or video conferencing system internationally. Problems upon reexamination There were two major factors contributing to ISDN's lack of profitability at the time when NTT's approach to multimedia promotion was reexamined: (1) The cost of equipment needed to connect to ISDN lines (digital subscriber unit and terminal adapter: DSU and TA). To

196

Strategic communities in traditional big businesses

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 194±215

Mitsuru Kodama

Figure 1 Scenario for digital network service

Figure 2 ISDN channels in use in Japan

switch from an existing analog line to an ISDN line, a customer had to spend approximately 200,000 yen, including installation fees, for connection equipment.

(2) A shortage of applications to impress upon users the advantages of using ISDN. The Internet, which has become the quintessential example of an ISDN application, continued to gradually

197

Strategic communities in traditional big businesses

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 194±215

Mitsuru Kodama

establish itself at the beginning of 1995, and a common topic of discussion was the question of how to address the desire of certain customers to increase their Internet Web page access speeds (the speed of a line as measured by its ability to transmit data and images). The two factors mentioned earlier, the lack of appealing applications and the need for highcost connection equipment, comprised a vicious cycle that hindered the promotion of ISDN. Characteristics of MBD business strategies and organizational structure Mr Ikeda was thinking about the need for measures designed so that customers really feel compelled to subscribe to ISDN services. The first measure was ISDN terminal strategies, including low-priced terminals, and the development of various new terminals. The second measure was network strategies to develop new and attractive network services that use ISDN. The third measure was content strategies to develop content that would be distributed to customer terminals (PCs, etc.) via the ISDN network. Those three business strategies were mutually related and could induce a significant synergy depending on the content of the strategies. In order to promote such business strategies, the key was to obtain specific results through joint development or joint venture via strategic tie-up with various partners outside NTT, and active promotion of incubation by joint experimentation with specific customers. In MBD, about 20 projects were established related to video, electronic commerce, joint ventures, etc. Each independent project formed many strategic business community groups through strategic tie-ups with outside companies or partnerships with specific customers based on the above three business strategies (see Figure 3), and each project leader comprehensively managed and promoted more than one strategic business community. Each project team consisted of about 30 to 40 employees. In virtual communities with outside partners or specific customers in each project, Internet and videoconferencing were actively used for project management in joint development or as a mean of sharing information/knowledge related to joint

incubation with customers. Project leaders actively configured an adhocracy organization that was intentionally networked (Nohria and Ghoshal, 1997). Those projects promoted businesses that were based on quick decision-making and quick action, as if they were small venture companies. The internal structure of each strategic business community and the ties between them were flexible and autonomous and the projects themselves had loosecoupling characteristics. On the other hand, project leaders implemented both the strategic thoughts of Mr Ikeda, the leader of MBD, and the concepts, strategies and tactics that were hammered out by innovative MBD leadership. At the same time, MBD leadership worked closely with other project leaders to materialize new strategies and tactics. The executive team in MBD, which consisted of 20 employees including Mr Ikeda and the project team leaders, shared a vision and sense of values for the big mission of promoting ISDN, which was being collectively referred to at the time as ``nowISDN''. Strategically, MBD had a strong emergent aspect on the whole; however, the deliberate, planned strategic factors identified by the executive team and the tight-coupling organization that was a result of close cooperation between the project leaders under Mr Ikeda, who was serving as a kind of conning tower, made it possible to lead the results of experimentation or incubation into the formation of actual businesses. The organizational structure of MBD necessary to develop such original and complicated strategies was a system for handling a complex environment characterized by both tight-coupling and loose-coupling organizational elements, i.e. strict control between executive team members while at the same time granting flexibility and autonomy to each project (see Figure 3). Emergent strategy, strategic community management Specific measures with respect to the three business strategies hammered out in MBD projects are shown in Table I in time series [6]. With the terminal business strategies, new products (including product upgrades) were put on the market continuously through joint development with various outside

198

Strategic communities in traditional big businesses

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 194±215

Mitsuru Kodama

Figure 3 Characteristics of MBD organizational structure

strategic tie-up partners, primarily US companies. With network business strategies, new network services were also worked out through joint ventures primarily with the USA. Furthermore, with the content business strategy, new services were developed one after another through experimentation or incubation jointly carried out with various content holders, specific customers (universities, hospitals, local governing bodies such as cities, towns, etc.) and government and municipal offices. One of the characteristics of the MBD strategies was that there was a strong tendency toward emergent processes through experiment or incubation (Mintzberg et al., 1998). However, the details and intention for each measure MBD worked out were emergent but the details of emergent processes were always monitored and controlled by the MBD executive team. As a whole, they were carefully planned and specifically developed to be a business through decision-making by the MBD executive team. This is similar to the entrepreneurial strategy presented by Minzburg (Mintzberg and Walters, 1985). The second characteristic was the formation of strategic business communities with outside partners, including customers. These strategic business communities themselves were flexible and autonomous. As

needed, IT or multimedia technologies were used to create networks so that the business vision, purpose and sense of values were shared by community members. Emergent strategies and tactics were hammered out to target new business creation through trial and error. Project leaders simultaneously managed more than one strategic business community and controlled projects so that the entire synergy of the projects a leader was in charge of could, through integration of these strategic business communities, certainly lead to the desired achievement [7]. However, it is hard to believe the explosive dissemination of ISDN shown in Figure 2 could be brought about solely by an MBD organization comprising 850 people. Behind this, MBD and the traditional organization formed in-house virtual communities and deliberate full-scale ISDN dissemination strategies were started by the traditional organization. Due to the integration of these two different strategies by the two different organizations, radical and discontinuous transformation was achieved by NTT as a whole. MBD's mission was to continuously hammer out measures that could serve as pump-priming for the dissemination of ISDN and also to develop applications and services that would make ISDN attractive to customers and lower the hurdles that

199

1994

Tie-up with Microsoft (CD-ROM) decryption key technology) Tie-up with Silicon Graphics (interactive multimedia technology)

Tie-up with General Magic Inc. (Magic Cap technology) Tie-up with Microsoft (fax network technology)

Tie-up with content holders of various types and in various fields

Strategy

Terminal strategy

Network strategy

Content strategy

1998 Started selling new version of ``Phoenix series'' equipment Started selling ``Debut mini (ISDN router)'' through tie-up with Whistle Communications Inc. in USA Started selling new version of MN128

GrG Home Net Inc. (started EC mail service) Phoenicom Inc. (started Multipoint videoconferencing service using highspeed ISDN) Started CTI service

Started area information promotion policy (multimedia village business, etc.) Started multimedia housing Started virtual sign language support and interpretation service

1997 Started selling ``Phoenix WIDE'' through tie-up with PictureTel Started selling very low priced ``Phoenix mini'' TV phone through tie-up with Mitsubishi Electric Started selling new version of MN128

Established Phoenicom Inc. joint venture with PictureTel Started creation of world's largest multipoint videoconferencing connectivity service Started video streaming service (tie-up with VDO net corp. in US)

Started EC mail service (G-square) Developed Goo search engine (tie-up with INKTOMI Corp. in US) Started VOD service via TV conferencing

Started selling ``Phoenix'' videoconferencing system created through tie-up with PictureTel Started selling new version of MN128 Stated selling WINE kit through tie-up with Microsoft (SOHO kit)

Established ``One number service Inc.'' joint venture with AT&T, Access line technology Started audio conferencing service Started ``avex network service'' music distribution service

Community creation through nationwide inter-school multimedia NW (started Konet Plan) Created new virtual services: virtual education, medical care, medical services Started virtual home language study experiment

Tie-up with PictureTel (joint development of videoconferencing) Started selling very low priced ISDN MN128 TA (a best selling product in Japan) Reduced ISDN-DSU price (reduced by 1/3) Started selling simple ISDN installation kit Established GrR Home Net Inc. (joint venture with Sony, etc.: started ISP business) Tie-up with Microsoft (began offering Microsoft Network Service) Started high-speed TV conference experiment with First Virtual Corp. in USA Established NTT Virtual Young Company Started ``World Nature Network (WNN)'' content service Started ``Hello Net Japan'' content service

Year 1996

1995

Table I Main activities in three main MBD business strategies Strategic communities in traditional big businesses

Mitsuru Kodama

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 194±215

200

Strategic communities in traditional big businesses

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 194±215

Mitsuru Kodama

inhibited ISDN subscription. People who were actually selling ISDN to customers were employees of other overhead sections in the head office or branch offices and sales offices nationwide, meaning an organization (the existing line organization) other than our organization (MBD). Therefore, it was important that they understand the many measures implemented by MBD and consequently expand ISDN using the combined power of the entire NTT organization. For that reason, we formed virtual communities with the line organization in an attempt to expand use of ISDN [8]. As explained above, MBD project leaders recognized that it was difficult to achieve innovative radical discontinuous transformation of ISDN simply through market pump-priming. The issue was instead how to destroy the old corporate culture held by NTT's traditional organization and how NTT could start activities in unison. Conflict between MBD and the traditional organization The biggest problem for MBD was how to control conflict with the traditional organization. In daily business processes, employees recognize that there are various conflicts. Many business strategies that MBD took refuted NTT's conventional business processes. For example, when MBD created new ISDN related products (terminal adapters, video conferencing systems, ISDN routers, etc.), the rejection by the traditional organization was severe. Conventionally, the traditional organization was in charge of development and sales of ISDN related equipment. If MBD sold competitive new products (high cost-performance products) on its own, it was competing with existing products and also the section who was in charge of existing products suffered tremendous sales damage. Also, MBD directly negotiated with manufacturers on the price of consumer-level DSUs (digital subscriber units), as to that point the high price had severely hindered adoption of the technology. The section in the traditional organization that was conventionally in charge of sales and installation of DSUs severely opposed this and was highly offended. Furthermore, regarding experiments and incubation promoted by MBD with regard to specific customers, employees of the traditional

organization felt that MBD was raiding their customer base. Upper-ranking managers in the overhead and finance sections in the traditional organization criticized and opposed the large investment in development, experimentation and incubation carried out by MBD in terms of return on investment and profit rate. Also, they resisted the MBD personnel affairs practice of single-hook fishing for excellent employees from branch offices nationwide. However, MBD's executive team believed that the large investment was an ``investment in NTT's future'' and personnel affairs practice was designed to raise ``human resources for the future of NTT''. In order to solve such problems, MBD project leaders tenaciously and actively promoted dialogue and collaboration with employees in the traditional organization. They made an effort to assume that conflict can be a catalyst for productive and constructive dialog and discussion [9]. Specifically, they promoted the following large scale, company-wide knowledge management measures. Development of Yarima SHOW multi strategy They rapidly changed the constitution of the frontline sales branch offices from an analog telephone type business framework (under the direction of the head office/routine work processes, etc.). In 1996, using the ``Yarima SHOW multi strategy'' management innovation project, which espouses the principle that once started it will never again be possible to go back to the way things were, an effort was begun to convert all 200 branch offices nationwide to multimedia branches. This change had two strategic aims. One was a change in business style wherein business at branch offices is changed from a telephone business to a multimedia business, while the other was a change in work style, in which the work methodology itself is changed through the use of multimedia tools (Intranet, videoconferencing, groupware etc.) (Figure 4). At the same time, this activity was for two reasons positioned as a revolutionary movement. One reason is that the existing telephone business and multimedia business are totally different worlds in terms of products and service characteristics and the sense of business values, that is, the use of the

201

Strategic communities in traditional big businesses

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 194±215

Mitsuru Kodama

Figure 4 Information and communication systems for knowledge management through Yarima SHOW multi strategy

word revolution means that the conventional sense of values was discarded to create a totally different new business field for NTT. The other reason was related to the quality of the competition NTT faced. At that time, many companies were about to enter into the market, including computer manufacturers, electric appliance manufacturers, communication companies, electric power companies, etc. For that reason, the multimedia market quickly became a competitive arena that was totally different from the environment that NTT had operated in to date and it was necessary to obtain the result of activities quickly, meaning that this revolution was one of speed that required that the gradual change method used in the conventional reform type approach had to be changed to the dramatic change method. As explained above, since the essence of the requested revolution is fundamentally different from before, a totally different approach from the conventional approach was necessary. Three restrictions destroyed by multimedia tools Time restrictions ± increased speed to reach execution stage The most important characteristic of multimedia tools is that they can be configured quickly and at low cost. In the case of the ``Yarima SHOW multi strategy'', the

first Web page was set up just a month after the project was started and information dispatch was started to all branches. This speed is beyond imagining in terms of the conventional system or network configuration. Using these tools, the revolution itself was accelerated. Conventionally, when NTT begins measures involving the entire company, notification is first sent from the head office to branch offices and adjustments are made between the head office and branch offices, and between branch offices. Then adjustments and announcements are made inside each branch office. With this approach it took a long time to actually execute measures. On the contrary, with the Yarima SHOW multi strategy, to the extent possible every effort was made to eliminate the conventional pyramid type information route, i.e. wherein information is passed from the head office to branch offices to sales offices, instead choosing to directly exchange information between the head office and branch offices or sales offices. Additionally, with emergent processes such as ``think onthe-fly'', the basic stance was that decisions made at the head office were dispatched in real-time via multimedia tools and reactions from branch and sales offices were expected, thus an execute immediately following a decision-type work revolution was realized using multimedia tools to decrease

202

Strategic communities in traditional big businesses

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 194±215

Mitsuru Kodama

dramatically the lead time required for decision making to execution process. Distance restrictions It was very difficult for only the 850 staff of MBD to move all branch offices and sales offices in an extremely large scale company such as NTT. When there was almost no reaction from branch offices at the beginning of the project, MBD analysis indicated that this was evidence that the revolution had not yet started, which was a natural outgrowth of MBD's belief that results cannot be obtained if the action is not recognized. There are always opposing opinions during a revolution. When the intranet Web page was launched and information dispatch became active, the number of inquiries and requests from branch offices and sales offices began to increase. Responses to excellent activities introduced on the Web page began to come in and some branch offices volunteered to dispatch information on their own initiative. This means that the intranet functioned as an engine of revolution to accelerate the speed of recognition of the from activity to dissemination, from dissemination to expansion action series, and thus became a trigger of the revolution. President Miyazu instructed the company that multimedia related information must be conveyed from the head office to the responsible person in each branch office equally in terms of the amount, quality and level, regardless of their position. Multimedia tools were used for this purpose as well. Form restrictions A flexible revolution beyond the existing framework. Because of their flexibility and expandability, multimedia tools really demonstrate their effectiveness when the speed of change is quick and it is difficult to foresee the future. In this case a flexible response is necessary for a revolution that is changing on a minute-by-minute basis. Multimedia tools were also suitable for promotion of a revolution free from the conventional framework. Past reform movements within NTT were led by the head office and the traditional organization. The success of the revolution was based on group responsibility guidelines. Also, there was a strong sense that it was necessary to first create an organization and establish a system, thus organizational reform took precedence. Decisions were therefore institutionalized and

sometimes changed to hindrances when it became necessary to correct the direction of the revolution. The means of communication was mostly paper based, such as notification documents and business manuals, and importance was placed on a physical meeting methodology wherein persons physically met, such as during nationwide caravans or meetings. The main thrust of the Yarima SHOW multi strategy was always branch offices and the self reform of branch offices through their own initiative. The greatest priority was placed on taking action, and for that purpose they did not mind overriding existing rules. The stance was that the framework of the organization was later changed based on achievement. For that reason, to encourage reform in the actions of responsible personnel in each branch, multimedia tools were utilized as much as possible as revolution tools that substituted for the conventional paper-based decision-making process or face-to-face meetings. Information was dispatched directly and in real time. For example, when one branch came up with a successful sales method, other branch offices were asked to do the same thing. Multimedia tools such as intranets and videoconferencing system were used as much as possible as a lever for a revolution in which importance is placed on speed and achievements, based on the idea that one should change actions right away and get results, which is unlike the conventional way of thinking, which espoused the idea that one should change consciousness first, then change one's actions. Also, employees could become familiar with multimedia tools through personal, hands-on exposure. Since all employees tackled now-ISDN in unison, the traditional organization began recognizing that they could obtain great advantages such as expansion of business areas, improved awareness among employees, and the raising up of talented personnel. In this way, dialogue and collaboration between both organizations were increasingly promoted. Through a series of activities promoted by MBD, namely the all-employee consciousness revolution movement, the consciousness of frontline employees throughout Japan in the traditional organization was greatly changed and they became actively engaged in multimedia, thus disseminating the principles of now-ISDN.

203

Strategic communities in traditional big businesses

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 194±215

Mitsuru Kodama

Cooperation with the head office in the traditional organization At the beginning, the head office in the traditional organization was greatly offended when the MBD began networking with the lowest units of their own organization without informing them. It was felt that it was an infringement of the work area. To counter this, MBD established the J Project (computer communication demand creation project), which was led by Mr Miyazu. The project aimed to have the entire head office related organization promote knowledge management with the overhead section of the traditional organization. J Project and Multi Net I I I Under a theme of promoting multimedia in combination with existing services including ISDN for actual needs, NTT was trying to tackle multimedia business in a unified way. In a J Project meeting in July 1996, it was agreed that they would push an NTT campaign theme known as ``Multi Net I I I'', (Nikkei Sangyo Shimbun, 1996) which promoted the move to multimedia. The J Project greatly contributed to the sharing of the vision and sense of values of the MBD and the top management team (about 20 board members) of the traditional organization under the president. I I I stands for the first letters of ISDN, the Internet and integration. The concept was that by integrating the advantages of ISDN and the Internet (computer networking), it was possible to implement a totally new multimedia communications world, dubbed Multi Net. Based on this concept, during the six month period from July 1996 to March 1997, NTT planned to: . expose 60 million customers to multimedia during the period; . increase the multimedia usage skill level of 100,000 employees, constituting half of the total employee base; and . develop various Multi Net III measures. 100,000-person meeting On the other hand, a 100,000-person meeting (Nikkei Sangyo Shimbun, 1996) of NTT organizations and employees was held using multimedia tools. This meeting was not just a kick-off ceremony but the real intention was to:

.

.

.

have employees themselves actually feel they are part of the multimedia movement and recognize that the organization is undergoing conversion from a telephone company to a multimedia company; recognize the real power of the NTT in-house network through simultaneous meetings of units of 10,000 employees; and confirm NTT's multimedia related technologies and accumulate know how.

As explained above, the 100,000-person meeting was a new era in terms of consciousness evolution (motivation or elevation of motivation) of all employees and the raising up of talented people through acquiring skills via actual hands-on experience with multimedia technologies. Conflict management A series of MBD measures to promote knowledge management in this in-house virtual community stimulated creativity and innovation among employees in the traditional organization and induced interest in multimedia. The means to deal with problems NTT faced at the time and to ease tension were provided through practising knowledge management and an environment was engendered in which employees evaluated themselves and improved. As a result, conflicts become constructive and productive and the danger that NTT would yield to existing traditional organizational culture groupthink was alleviated (Janis, 1982). In terms of conflict management in such a large and complex organization, solely issuing orders from the top (president) of the company could not in and of itself bring about a 180 degree change in the consciousness of some 180,000 employees. In this case, two conflict management models had to be considered. One was the internal conflict model wherein a large company is simply understood as one system and the top management team led by the president takes an important role in a high-order system. The other model is one between two systems with different organizational cultures, namely the MBD and the traditional organization (Tracy, 1989). For that reason, it was necessary to practice inter-system control by knowledge management using Yarima SHOW multi creation and internal conflict control by the

204

Strategic communities in traditional big businesses

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 194±215

Mitsuru Kodama

top management team through knowledge management via J Project and Multi Net I I I. The resulting controlled constructive and productive conflicts fully activated the deliberate strategy of the traditional organization with regard to now-ISDN. Promotion of ISDN by in-house community At the same time, while progress was being made within the entire company and the revolution in employee consciousness was underway, various measures hammered out by MBD bore fruit and, at the beginning of 1996, the number of ISDN subscribers began to increase. To handle this significant change in the ISDN market, the overhead section of the traditional organization urgently needed to create strategic plans for sales, facilities, customer service and maintenance service that were sufficiently robust to be able to handle a fully-fledged now-ISDN expansion. As explained below, these plans were rapidly implemented to smoothly provide ISDN to customers. Behind this, knowledge management-based activities by a community made up of MBD and the traditional organization greatly influenced the dissemination of ISDN. Innovation in community knowledge The biggest issue for the leadership (of MBD and the traditional organization) in the community was that: . MBD hammered out new plans (new products and services for ISDN) one after another. . All frontline sales and technology employees received training to acquire knowledge and skill with respect to ISDN service. . An efficient service order processing (procedure from application to installation and connection of the line) was created by introducing a new information system so that customers could begin using the service as soon as possible following the submission of an application for services. . Switching system software was developed so that customers could retain their original phone number after changing from an analog system to ISDN. . Investments in switching system facilities were implemented earlier than originally planned to handle the rapid increase in demand for ISDN.

.

The frontline service structure was enhanced to deal with the vast increase in customer enquiries.

In order to deal with some of those issues, knowledge of members (community members) in paradoxical organizations has to be shared and additional knowledge must be created. Now, one of the basic requirements for continued development of a created community consists in innovation of community knowledge in terms of information, knowledge, skills, know-how, experience, etc. which within the community will follow the steps of sharing, inspiration through contact, creation and accumulation (Kodama, 2000b) (see Figure 5). The community knowledge innovation process refers to the development of the ``sharing to inspiration to creation to accumulation'' process that spirals up as a result of the engagement of community members in dialog and collaboration [10] among each other concerning various information and knowledge within the community. The spiraling process of this community knowledge, in the language of ordinary corporate activities, corresponds to developing and selling products and services that customers need and repeatedly improving the quality of those products and services, which in turn enhance the quality of the community knowledge. This process may be described, if in somewhat simplified terms, as follows: (1) Sharing involves a step consisting of sufficient dialogue and resulting understanding between parties concerned regarding the vision and objective pursued by different organizations toward understanding and sharing of each other's knowledge. (2) Inspiration through contact involves a step of inspiring and multiplying within the circle of organizations various aspects of community knowledge in support of identifying problems, challenges and solutions thereto so that the vision and concept can be realized on the basis of the community knowledge shared by different organizations concerned. (3) Creation involves a step of creating new community knowledge on the basis of the community knowledge inspired and

205

Strategic communities in traditional big businesses

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 194±215

Mitsuru Kodama

Figure 5 Process of innovating community knowledge

multiplied within the circle of organizations concerned. (4) Accumulation involves a step of methodically, as an organizational effort, accumulating within the community, as a treasured know-how, the various aspects of the community knowledge harvested through the processes of sharing, inspiration and creation. The issue that the community had at its startup time was to wake up the sleeping ISDN market using strategies hammered out by MBD. For that reason, it was important for front line employees to acquire know-how and skills regarding ISDN and actively propose ISDN services to customers. Based on the change in consciousness, that is the company changes from a telephone company to a multimedia company, the current condition regarding ISDN and information and knowledge about various issues were shared in the community and mutual knowledge was exchanged between MBD and the traditional organization via constructive communications and direct discussions (nationwide conferences). What are the terminals, applications and content used to create new values to provide to customers via ISDN were in mind; new products, new services plans, nationwide promotion plans, training plans for all employees, sales and facility plans were reviewed and the front service system was studied. Community knowledge such as know-how regarding ISDN services and skill of front line

employees were created and accumulated inside the community through provision of ISDN to customers based on various plans. (see Figure 6: see start-up phase). During the phase following start-up, various applications were provided to customers based on primary strategies for terminals, networks and content to further expand ISDN use. In this phase, which includes start-up, it was important for all employees to understand and share information and knowledge inside the community by grasping and analyzing problems with regard to customer needs and products/services and through the Yarima SHOW multi strategy. Leveraging knowledge throughout the company, customer services were modified and improved and various applications such as new products and services were provided to customers as well. Further improvements on ISDN services were made through the process of having problems with ISDN services flagged by means of the opinion surveys and interviews of many customers that had been conducted regarding the content of such services for the purpose of reflecting the opinions and wishes of customers. To achieve this, we opened up in a forward-spiraling fashion the innovation process of sharing, inspiring, creating and accumulating community knowledge through repeated service offerings. This phase coincided with the community's growth period (Figure 6: growth phase). ISDN services was thus promoted and established

206

Strategic communities in traditional big businesses

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 194±215

Mitsuru Kodama

Figure 6 Process of innovating community knowledge (ISDN innovation)

on firm ground through organizational learning based on the spiral process of community knowledge. The development phase of community knowledge was also the development phase of ISDN via new ISDN services (Figure 6: development phase). The community was looking for services that provided an easier way to use the Internet, not only for mass users but also for corporate users. To that end, technologies and facilities that responded to customer need were studied for early implementation of a new service called

the Internet 24/7 connection service. With this service, not only could customers use regular telephone service but also use the Internet 24 hours a day at a fixed monthly fee. The community finished the monitoring experiments in major cities in about six months and began providing full service in November 1999. This new service helped spread ISDN even more widely throughout the nation. Thus, toward an innovative creation of new ISDN services, a sharing and inspiring of new and never before acquired knowledge

207

Strategic communities in traditional big businesses

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 194±215

Mitsuru Kodama

occurred while new know-how and skills were accumulated through the creation and practice of new services. The whole community itself strove through the stages described above for selfimprovement under the slogan of providing quality ISDN services to its customers, making the spiraling-up innovation of community knowledge. And it was this innovation that would abidingly create new values for the community's customers. In its role as one of two paradoxical organizations in the community, MBD formed various in-house/outside strategic business communities in its challenging organization culture, created new core competencies and continuously hammered out emergent and creative measures aimed at long-term innovation. On the contrary, the traditional organization executed planned measures aimed at short-term efficiencies, in which importance was placed on stability and control through traditional and reliable organizational culture that was cultivated by reform and improvement of core competencies acquired by a long process of accumulating achievements. NTT's top team intentionally held paradoxical organization, strategy, culture and competencies inside the company, and promoted knowledge management of the entire company through the community, activated and integrated these different systems at the same time and enhanced the output of the entire company. Community competency sophistication process In the sustenance of continuous innovation by a community, the heightening of core competence within the community (referred to as ``community competence'' in this paper) becomes an important factor (Kodama, 1999a). As shown in Figure 7, while innovation (start-up phase ! growth phase ! development phase) realized through the spiraling-up of community knowledge creates new values for the customers, the process of community competence sophistication (sharing ! creation ! renewal) also becomes indispensable for ongoing strategic community formation. Community competence consists of the various resources in the strategic community that make it up, including ``skill, experience,

expertise, conceptualization, and the ability to act,'' and the competencies possessed by individuals corresponds to the competencies possessed by the strategic community, i.e. its member groups and the overall organization. Specifically, community competence refers to the core competencies possessed by the overall community for the purpose of incorporating resources within and outside the organization including customers, in order to vigorously move forward with a variety of businesses as part of a creative new enterprise development effort with its roots in business reform by the middle- and lowerlevel employees who are the constituent members of the strategic community. An important point is that the competence of the individuals, groups, and the overall organization be shared, and then continually created and renewed. Although similar concepts such as new product development capabilities (Prahalad and Hammel, 1990), business process promotion capabilities (Stalk et al., 1992), and organization member capabilities (Grant, 1991) have already been reported in earlier studies, in this paper, community competence refers to the sharing and merging of competencies, which are the capabilities and competencies of many types of groups and organizations, and to the creation and renewal of new competencies that the strategic community aims for in achieving its mission and goals. The process of sharing of community competencies is a step toward mutually understanding and inspiring to fuse the core competencies of MBD and the traditional organization. For example, the two organizations share MBD's core competencies, i.e. product/service development and new application development, which is derived from MBD's new viewpoint and new ideas, and the traditional (front line) organization's core competencies, i.e. sales, maintenance knowhow, customer information know-how and understanding of customer need, and through inspiration and fusion of their core competencies generate community competencies such as new plans, new knowhow and employee skills to create a new ISDN market. The creation mode process is a step toward the production of new creations (products, services, applications, etc.) through the fusion

208

Strategic communities in traditional big businesses

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 194±215

Mitsuru Kodama

Figure 7 Advanced process of community competence

of shared core competencies. With the three strategies, in this step, the community generates core competencies that are used to create various new applications, bring them to market and create further enhanced quality services through improvement. The process in the renewal mode involves a step of adding a further dimension of sophistication to the community competence by elevating the sharing mode to the creation mode. The Internet 24/7 connection service represents the latest in innovation, which has completely overridden the services of the conventional type ± the fruit of community competence at its renovated best. Thus seen, in order to heighten the performance of an entire community, provide new values for its customers and attain the community's business objective, it becomes crucial to continually implement in a spiraling fashion the above-mentioned process of community knowledge innovation, as well as to promote within the community the sophistication of the community competence. The innovation process of this series of community knowledge and community competencies results in the creation of new value and achieves the business goals inside the strategic community.

Interactive linkage between community knowledge and community competence One more important point here is how crucial the two elements of community knowledge and community competence are to the business community as strategic management assets and how it is necessary to interactively link these two strategic management assets, if a continual innovation of the business community is to be achieved. In other words, we are looking at an interactive linkage in which quality community knowledge promotes community competence sophistication, which in turn comes back to feed into an even higher-quality community knowledge. The interactive linkage as referred to in the present case study may be explained as follows (Figure 8): at the time of start-up of community knowledge, it was a community knowledge in creation of new ISDN market that was first created and accumulated. And there was spawned a community competence (in the sharing mode) which would create new products and services through the sharing of community competence within the community (process A in Figure 8). And through the actual practice of ISDN services in the field by means of the shared community competence, a new community knowledge

209

Strategic communities in traditional big businesses

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 194±215

Mitsuru Kodama

Figure 8 Linkage between community knowledge and community competence

closely connected to the customers and the actual situation was created and accumulated (process B in Figure 8). At the growth stage of community knowledge, ISDN services were improved and ameliorated on the basis of customer wishes and opinions, and higher-quality community knowledge was thus created and accumulated. And as a result, ISDN services became widely accepted, and a higher level of community competence (in the creation mode) was formed (process C in Figure 8). In the meantime, advanced community competence in the community touched off stimuli for the creation of new community knowledge with a view to a further leap in innovation, namely toward the realization of new, heretofore unknown, ISDN services (process D in Figure 8). In the development stage of community knowledge, new ISDN services such as the Internet 24/7 connection service were realized. Through the actual practice of services, new discoveries and understandings unavailable through traditional ISDN services were touched off in the community and were submitted to creative processes and accumulation in the form of new community knowledge. New ISDN services were streamlined, enriching customer services even further and elevating the community

competence to an even higher degree of sophistication (in the renewal mode) (process E in Figure 8). This interactive linkage can be attained through the innovative leadership of the community leaders, the important point being that the community leaders must be conscious players in handling the interactive linkage mechanism. In more specific terms, it is of basic importance that the community leaders create and provide an arena where it can be assured that all the community members will continue to uphold in common the idea, thought and spirit that will inspire them to provide new value creations for their customers at all times and on a continual basis (that is, an arena serving as a value-harmonized platform). The community members, then, are to individually endeavor for self-improvement and self-innovation through constructive dialogues promoted within the community, involving clients as well, based on the valueharmonized platform, so as to make the acquisition of new knowledge, and hence competence, possible. It is important, with the acquired competence as the foundation to stand on, to further endeavor to acquire even newer knowledge and so sophisticate one's own competence, namely to promote one's

210

Strategic communities in traditional big businesses

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 194±215

Mitsuru Kodama

interactive linkage with knowledge and competence on a personal plane. Accordingly, the community leaders must have a leadership capacity to continue to provide empowerment and motivation on an ongoing basis for the members of their communities with an eye to attaining the community objective (business objective) rooted in harmonizing value outlooks. Required at the same time will be a leadership capacity to integrate on the collective and organized level the knowledge of the individual members of the community with the interactive linkage process of competence and so establish on firm ground such an interactive linkage process as a communitywide management system.

New, practical viewpoints through case studies Success factors and problems of discontinuous transformation in this case are organized in comparison with the past research results and the new practical viewpoint is discussed here. Creation of an organization of a different nature For one thing, the top management members created an organization within the company for discontinuous transformation that was different in nature. This organization consisting of different and capable members was placed inside the head office organization with the support of top management and granted significant power with regard to strategic corporate planning for the future. The requirements of the leaders of this organization were innovative leadership and the members of the organization were granted flexibility and autonomy. Strategic communities with outside partners including customers emergently created strategies for the future and promoted experimentation and incubation. Based on thinking and action designed to break with the past, creative thinking, and networking (Nutt and Backoff, 1997), they promoted emergent strategies, and strategic community management. When a large corporation faces discontinuous transformation, personnel revolutions such as the bold selection of staff, etc. is necessary to create an organization with a different nature.

The key is the leadership provided by the top management team. Radical change in organizational culture ± the wedge effect Second, the new organization culture held by an organization of a different nature drove wedges into the old organization culture, which was influenced by inertia in the large corporation, and destroyed the culture at a single bold stroke. Conventionally, in corporate strategic innovation, a new organization of motive power is established as a different organization within the company or a subsidiary and is separated from the existing organization both physically and through the means of communication used. The new organization promotes innovation at its own pace (Tushman and O'Reilly, 1997; Nonaka and Takeuchi, 1995) (see pattern 1 and 2 in Figure 9). This way of creating a new organization is very effective for new strategic innovation but is not free of problems. The problem of pursuing innovation is an issue related to fusion and harmony between the new and old organization culture (Markides, 1998). Even though the new organization changes the corporate culture and achieves innovation, for the company as a whole, the issue of innovation in the consciousness of employees who retain the old sense of values still remains. As shown in this case, one method that can be used to overcome this issue is to bring the new organization and the existing organization into contact with one another through intentionally creating paradoxes in the corporation(see pattern 3 in Figure 9). Conflicts are unavoidable, but it is possible to make conflict constructive and productive through the promotion of large scale knowledge management between both organizations and by providing a communications arena for all employees, including the top management team, via knowledge management. In this case, chaos and fluctuation were first caused in the corporation via the thinking and actions of an organization with a different nature, then a certain order in the entire company was created through innovation in the consciousness of all employees and strategic integration. This process is equivalent to the process of urging self-organization between components of a company (organizations of a different nature

211

Strategic communities in traditional big businesses

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 194±215

Mitsuru Kodama

Figure 9 Forms of strategic innovation in large companies

and traditional organizations) (Ulrich and Probst, 1984). On the other hand, if there is a continuing excess of chaos, a company could lose its balance and in such a case it could be difficult to obtain organizational achievements. Large companies that can establish the elements of strategy, organizational structure/culture and core competencies and can maintain congruence between each element become able to control two different paradoxical organizations and finally achieve strategic innovation, though this only viable if self-organization is achieved. Integration of strategies by the community What we have to do in parallel with a revolution in employee consciousness is to integrate the paradoxical strategies in the two organizations. The new organization with a different nature and entrepreneurial spirit pursues the feasibility of future business through creative and innovative-oriented experimentation and incubation based on new core competencies using inside/outside core skills and technologies. On the other hand, at the same time, based on accumulated core competencies, the traditional organization with an occupation ability-based tight-coupling structure executes the current business using deliberate strategies that are well planned in terms of efficiency and certainty. Community leaders including top management can integrate two different organizations and intentionally and actively promote the interactive linkage process between community knowledge and community competencies and,

further, the community can achieve innovation throughout the entire company. The importance of strategic community creation There are four points about strategic thinking and behavior that are of importance to the community leader: (1) The community leader, who belongs to an organization and of which he/she is a member, must have an ability to comprehend the exterior environment in which his/her organization is placed, technological speeds, market composition and customer needs quickly and through interactive communication. (2) The vision upheld must be complete with the leader's thoughts and beliefs integrated and the leader must be able to create networks of person-to-person contacts in terms of stated concepts, both within and outside their organization. It will be by dint of the leader's human networking ability that contacts and constructive dialogues become possible with other leaders who are core leaders, from within as well as outside the leader's organization. (3) The importance of creating, through constructive dialogues with core leaders both within and outside the leader's organization, an arena of sympathy and resonance for value outlooks respecting visions and concepts (Kodama, 1999a). This, in turn, will make it possible to create a platform for harmonizing the value outlooks of core leaders, creating room for the birth of a strategic partnership with core leaders. (4) To create an organizational strategic community. For these things to happen,

212

Strategic communities in traditional big businesses

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 194±215

Mitsuru Kodama

it becomes important to create a valueharmonized platform on the level of an organized body within a strategic community composed of a plurality of different entities, with the participation of many community members. With this firm resonance platform as a base, the quality of the community knowledge, which is the knowledge inside the community, is enhanced by the innovative leadership provided by the community leader, while at the same time, the community competencies, which are the core competencies inside the community, are also enhanced. The series of innovation processes of this community knowledge and these community competencies create new value as a result, and the business goals in the strategic communities are achieved. This means that the relationship between the elements of community knowledge and community competence inside a strategic community must possess a mutually interactive connection at the individual level and community level. In other words, the acquisition of new community knowledge enhances the quality of community competencies, and the enhanced community competencies induce and inspire the acquisition of additional new community knowledge. This is known as the interactive linkage of community knowledge and community

competencies. This sort of strategic community creation is referred to in this paper as strategic community management (see Figure 10).

Conclusion Using past research results, this paper discusses a new, practical viewpoint exhibited during the process of radical change within NTT. Future research themes include whether or not the practical aspect of discontinuous transformation of this case can be applied to other large corporations. It goes without saying that the actual discontinuous transformation method used by a specific large corporation depends on the environment, business type/form and the existing organizational culture, as well as the sense of the values exhibited by top management, and the leadership style, etc. In any event, the thing is whether a company undergoes a serious operation intended to accomplish radical change or chooses instead a step-by-step remedy. Serious operations have attendant high risk and considerable pain but the possibility for achievement is also larger. In this paper, the introduction of paradoxes is constructively understood to be the motive power behind organizational change and indicates one practical method for discontinuous transformation that uses

Figure 10 Strategic community management

213

Strategic communities in traditional big businesses

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 194±215

Mitsuru Kodama

paradoxes. Here, top management members intentionally introduced paradoxes within the corporation in terms of strategies, organization, culture and competencies, etc. and achieved strategic innovation by using knowledge management in a community consisting of paradoxical organizations.

Notes 1 This case study was created through interviews, discussion and correspondence with 20 senior managers in NTT and research using NTT's in-house references, newspaper and magazine articles. 2 ITU-T classifies ISDN into N-ISDN (narrowband ISDN) and B-ISDN (broadband ISDN). Of this, the catch phrase ``now-ISDN'' was named by Mr Ikeda, who substituted the ``n'' in narrow with the word ``now''. The now-ISDN concept was actively promoted primarily by MBD among not only NTT employees but also the general public. 3 A digital network service (integrated services digital network) established by the telecommunications standardization sector of the International Telecommunications Union (ITU-T). Additional information on ISDN is available at , and ITU-T recommendations are also available at . 4 As the twenty-first century begins to unfold, there is increasing interest worldwide in broadband networks. In 1994, however, the world including Japan was in the golden years of analog technology, with the exception of in Germany, where, supported by the German government, Deutsche Telecom was actively pushing ISDN technology as a means of promoting the construction of the industrial information infrastructure and revolutions in the medical and education fields. On the other hand, ISDN service did exist in the USA, though dissemination lagged a step behind due to the divided nature of the telecommunications markets, which were serviced by different carriers, and a corresponding paucity of connections between these service areas. However, at that time, in concert with the rise of the Internet in the USA, connection services such as copper landline-based ADSL and HDSL were about to be introduced for the first time anywhere, meaning that innovation in the development of an information communication infrastructure that was based on technology other than ISDN. In Japan, on the contrary, NTT had promoted nationwide digitization and in the process had laid the foundation for the dissemination of ISDN services. (Interviews with AT&T, Deutsche Telekom's and NTT's senior managers.) 5 Deutsche Telecom leads the ISDN diffusion rate among the various telecommunications operators spread across Europe. Deutsche Telecom is energetically strengthening its network base and pushing forward with advancement in foreign markets by taking advantage of the liberalization in

6

7

8 9 10

1998 of the European telecommunications market. In response to the growth of ISDN, Deutsche Telecom is proceeding with positive investment, such as an investment of 12 billion marks, with the aim of creating a digital network connecting 50 German cities. While Germany has adopted a national policy of promoting the expanded popularization of ISDN, primarily through Deutsche Telekom, in Japan, the private company NTT is taking the lead in a private-sector led effort to promote ISDN. (Interviews with Deutsche Telekom and NTT's senior managers on ISDN background.) Table I shows part of the measures hammered out by MBD as pump-priming for the ISDN market. In addition to this, various terminal products were developed, investments were made in multimediarelated companies, and tie-up business was created with many content holders. (Table I is created based on discussion with MBD manager and review of assorted press releases.) In terms of a specific case of this kind of strategic community management, to expand video networking services, the video business project leader formed several strategic business communities, first through the creation of a strategic business community dedicated to the development and sales of new TV phone or videoconferencing technology, second through the formation of a joint venture with a US company to expand video networking services, and third to promote new virtual services such as distance learning and telemedicine using TV phones. The promotion of these three measures at the same time was an attempt to jump start a video communication culture in Japan through the synergistic integration of these strategic business communities. Refer to Kodama (1999a, b) for a case study of this project. Regarding an overview of virtual services using TV phone technology in Japan, refer to Kodama (2000a). On the other hand, each project promoted the creation of new businesses through experimentation and incubation with customers. For a detailed case study of the distance learning business in Japan, refer to Kodama (2000b). Interview with a project manager of MBD who promoted an in-house virtual community. This matches the interaction-type opinion of conflicts in groups reported in the past (Robbins, 1974). Other research on organizations that has been studied thus far also points out that dialog and collaboration among individuals is an important element in the process of giving birth to new knowledge. See Nonaka and Takeuchi (1995), and Watkins and Marsick (1993).

References Grant, R.M. (1991), ``Resource-based theory of competitive advantage: implications for strategy formulation'', California Management Review, Spring, pp. 114-35.

214

Strategic communities in traditional big businesses

Mitsuru Kodama

European Journal of Innovation Management Volume 4 . Number 4 . 2001 . 194±215

Janis, I.L. (1982), Groupthink, 2nd ed. Houghton Mifflin, Boston, MA. Kodama, M. (1999a), ``Strategic innovation at large companies through strategic community management ± an NTT multimedia revolution case study'', European Journal of Innovation Management, Vol. 2 No. 3, pp. 95-108. Kodama, M. (1999b), ``Business innovation through joint ventures supported by major businesses: a case study of US-Japan joint venture businesses'', Journal of Management Development, Vol. 18 No. 7, pp. 614-27. Kodama, M. (2000a), ``New multimedia services in the education, medical and welfare sectors'', Technovation, Vol. 20 No. 6. pp. 321-31. Kodama, M. (2000b), ``Business innovation through customer-value creation ± a case study of a virtual education business in Japan'', Journal of Management Development, Vol. 19 No. 1, pp. 49-70. Markides, C. (1998), ``Strategic innovation in established companies'', Sloan Management Review, Vol. 39 No. 3, pp. 31-42. Mintzberg, H. and Walters, J. (1985), ``Of strategies deliberate and emergent'', Strategic Management Journal, Vol. 6, pp. 257-72. Mintzberg, H., Ahlstrand, B. and Lampel, J. (1998), Strategy Saffari, Free Press, New York, NY. Nadler, D.A. and Tushman, M.L. (1989), ``Organizational framebending: principles for managing reorientation'', Academy of Management Executives, Vol. 3, pp. 194-202. Nadler, D.A., Shaw, R.B. and Walton, A.E. (Eds) (1995), Discontinuous Change: Leading Organizational Transformation, Jossey-Bass, San Francisco, CA.

Nikkei Sangyo Shimbun (1996), ``100,000-person meeting and multiNet I I I'', April, p. 8. Nohria, N. and Ghoshal, S. (1997), The Differentiated Network: Organizing Multinational Corporations for Value Creation, Jossey-Bass, San Francisco, CA. Nonaka, I. and Takeuchi, H. (1995), The Knowledge Creating Company, Oxford University Press, Oxford. Nutt, P.C. and Backoff, R.W. (1997), ``Organizational Transformation'', Journal of Management Inquiry, Vol. 6, pp. 235-54. Prahalad, C.K. and Hammel, G. (1990), ``The core competence of the corporation'', Harvard Business Review, May-June, pp. 79-91. Robbins, S.P. (1974), Managing Organizational Conflict: A Nontraditional Approach, Prentice-Hall, Englewood Cliffs, NJ. Romanelli, E. and Tushman, M. L. (1994), ``Organizational transformation as punctuated equilibrium: an empirical test'', Academy of Management Journal, Vol. 3, pp. 1141-66. Stalk, G., Evans, P. and Schulman, L.E. (1992), ``Competing on capabilities: the new rules of corporate strategy'', Harvard Business Review, March-April, pp. 57-69. Tracy, L. (1989), The Living Organization: Systems of Behavior, Greenwood Publishing Group, NJ. Tushman, M.l. and O'Reilly, C.A. (1997), Winning Through Innovation, Harvard Business School Press, Cambridge, MA. Ulrich H. and Probst G.J.B. (1984), Self-Organization and Management Social Systems, SpringerVerlag, Berlin. Watkins, K. and Marsick, V. (1993), Sculpting the Learning Organization, Jossey-Bass, San Francisco, CA.

215